MG in new cars link with Chinese maker

Financial Times
By John Griffiths, Motoring Editor

MG Rover and Shanghai Automotive Industry Corp, China's largest carmaker, intend to form a joint venture company to collaborate on developing and manufacturing cars. Under the plans, set out in an unpublished memorandum of understanding signed several months ago, SAIC will inject cash into the company for its equity in the form of stage payments. These would finance development of a family of cars based on the medium-sized car that MG Rover has almost finished developing to replace its Rover 45/MG ZS mid-sized models late next year.

Cash-strapped MG Rover would earn its equity through its engineering and technology input to the venture, supplemented by a payment into the new company on each car it makes and sells under the venture.

Peter Beale, MG Rover vice-chairman, confirmed to the FT that the memorandum made no provision for SAIC to take equity in MG Rover itself, nor was SAIC seeking to obtain a stake in the carmaker. The companies stressed that while the deal would lead to a significant transfer of automotive industry technology to SAIC, MG Rover would not be required to sign away its intellectual property rights to the vehicles.

The deal is dependent on formal approval from the Chinese government, which recently has begun reining in the number of joint ventures between Chinese and western carmakers amid fears of creating over-capacity. However, most of these ventures are, in effect, manufacturing under licence. There is little of the technology transfer the government is anxious to encourage as part of its goal to create an integrated Chinese car industry with export potential. The proposed MG Rover-SAIC collaboration is an obvious exception and both sides are optimistic about receiving approval before the end of this year.

Initially, SAIC would build a saloon version of the new car in China, with MG Rover building a hatchback version at its Longbridge base near Birmingham, where it has a staff of 600 design and development engineers.

The memorandum is understood to provide for joint distribution in both Chinese and European markets, with the partners planning to share markets in other countries. MG Rover's need to conclude a collaboration deal is becoming urgent in the face of dwindling sales and the cash requirement to continue model development.