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Honda threatens to withdraw licenses

9 March 1994

Honda threat to axe Rover licences: Michael Harrison at the Geneva Motor Show on a Japanese warning that could devastate UK car plants

HONDA yesterday cast fresh doubt on the future of Rover, warning that it may scrap the licensing agreements and components deals that underpin the bulk of Rover's existing car production in the wake of its pounds 800m sale to BMW of Germany. The Japanese company has already unravelled its equity links with Rover in protest at the sale by British Aerospace to a German competitor. It is now considering whether to maintain the agreements that will enable Rover to launch a replacement for the 200/400 series scheduled to appear at the end of this year.

Honda is also examining whether to build its own pressings plant at its Swindon car factory in order to end its reliance on Rover for body panels. Speaking on the opening day of the Geneva Motor Show, Shojiro Miyake, president of Honda Europe, said: 'The 15 years of collaboration between us have been very important for Rover and we would like to know how much BMW now needs Honda's support. In the long term it is hard to find any benefit to Honda of collaborating with BMW. We will discuss the future of Rover with BMW, but we can't base our European strategy on BMW.'

The Rover link is worth an estimated pounds 400m a year to Honda in licensing royalties and component sales. Honda supplies 70,000 engines a year to the British car maker while the Rover 200, 400 and 600 series all depend on Honda designs and manufacturing technology.

Mr Miyake said these licences would not be transferred to BMW automatically as they were conditional on Rover remaining an independent British-owned company. Talks are expected to begin around Easter to renegotiate the licences, with Honda certain to demand a significant increase in fees and component prices in return for agreeing to continue the collaboration.

A licence agreement allowing Rover to build the 200/400 replacement, codenamed the Theta by Rover and the HH by Honda, has not yet been signed. Should Honda withdraw, it would have a devastating impact on Rover's Longbridge and Cowley car plants and its 33,000-strong workforce.

But even if BMW agrees to an increase in royalties, Honda may still pull away. 'Money is very important, but it is not the decisive factor,' said Mr Miyake. 'We need to protect our customers, our dealers, our employees and our technology - that is a higher priority.'

BMW believes that Honda's hard-line stance is merely a negotiating ploy and that it would not sacrifice the estimated pounds 100m in profits yielded by the Rover links at a time when it is losing money in both Japan and the US. Bernd Pischetsrieder, BMW's chairman, also speaking in Geneva, said there was a strong business logic in continuing to collaborate for both BMW and Honda.

'We are all businessmen and we have the interests of our shareholders at heart,' he said, adding that BMW would look favourably at further collaboration in the future. Richard Gaul, head of public relations at BMW, said: 'If Honda chooses to run in the red in Europe as well as in the US and Japan, then the manager who decides that will be out of a job the next day.'

Rover is also confident that Honda will not adopt a scorched earth policy and sever all ties. John Towers, its managing director, said: 'You have to separate emotions from strategic business values. The sound business reasons for the collaboration that existed before the BMW deal still apply.'

The benefits Honda gets from shared investment, shared engineering costs and economies of scale were also of immense value, he added. BMW's commitment to collaborating with Honda remained 'profound', while every possible safeguard had been volunteered to protect Honda's technology.

Although publicly confident that Honda will not scrap its ties with Rover, privately BMW is examining ways of protecting Rover's production should the licensing negotiations fail. One option would be to alter the designs of the Rover model range sufficiently so that it would no longer be bound by the licensing agreements.

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