BMW's British bruises

The Economist
BMW's British bruises

IN 1984 it took BMW's German workers six weeks of a bitter strike to win a 35-hour working week. On December 2nd their colleagues in the company's Rover subsidiary in Britain achieved it at the stroke of a pen. This revolutionary (for Britain) flexible working deal, based on a 35-hour week, is part of BMW's latest attempt to turn round its loss-making British business. The other part involves dumping Rover's boss, Walter Hasselkus, who the same day announced that he was retiring early. An engineer from BMW's headquarters in Munich, Werner Stamman, will replace him.

Since BMW bought Rover nearly five years ago, it has poured in £2 billion ($3.3 billion) of investment, with little to show for it apart from three new models: two Land Rovers and the Rover 75 saloon. Germans have been shocked by the weak technical standards in Britain. Meanwhile, sales in Britain have been collapsing. Now BMW wants big changes before it pours in another £2 billion to modernise factories and develop new models.

If Rover's workers accept this new productivity deal, they will deliver some of what BMW wants. The deal requires workers to forgo overtime pay and some bonuses, and to work extra hours when there is a big order-book, in return for paid time off when things are slack. Their basic pay is guaranteed at all times. Previously promised pay rises will be cut to under 1%, in return for shorter hours. BMW's board approved the deal on December 1st, and British workers are expected to follow the advice of their leaders and vote for it in the next few weeks.

If they accept, BMW will agree to invest £400m immediately to build a successor to the Mini at Rover's Longbridge factory in Birmingham. Some 2,400 jobs will go, through voluntary redundancies and early retirement. This will go some way to closing the 30% productivity gap between Birmingham and Munich, which has been aggravated by the strength of sterling.

But job cuts and flexible working will not be enough to safeguard the future of Longbridge, which employs 14,000 and makes a selection of ageing models. It needs the new Rover medium-sized model to remain viable. BMW wants some cash from the British government before committing itself to building that model in Birmingham. Ford, GM and Nissan have got similar bribes in the past, and Longbridge is a hot political potato, so another dollop seems certain. Insiders expect around £240m to be handed over , less than half the extra money needed to modernise the Longbridge plant in readiness for the new car.

BMW's share price has been sliding as reports of its British troubles echoed back across the Channel. Rover is expected to report a loss of at least DM500m ($300m) this year; some observers think the figure could be twice as high. But Bernd Pischetsrieder, BMW's chairman, still denies that buying Rover was a mistake. True, BMW needs Rover's front-wheel-drive cars and Land Rovers if it is to compete with a full range of cars, rather than remain a niche maker of sporty saloons. And Rover's sales have been expanding fast in continental Europe, admittedly from a low base. But with Britain outside the euro and the pound not far from three D-marks, Mr Pischetsrieder admits that the chances of getting into the black in 2000, as originally planned, are slim.

Overall, BMW is profitable, but it is a minnow with sales of just over a million cars. If it fails with Rover, it may still have to merge with a big group, such as Volkswagen or Fiat. Both have been watching this week's events with interest.