SHANGHAI -- The SAIC-MG Rover deal could be in trouble.
The Chinese government may kill it by not approving Shanghai Automotive Industry Corp.'s aim to take control of MG Rover.
And SAIC is irritated about extensive UK press reports citing MG Rover sources saying SAIC is investing £1 billion (currently E1.4 billion) and has already paid £40 million to buy MG Rover technology.
SAIC insists the agreement has not been finalized and that no money has changed hands yet.
"There is no agreement with regard to the form, the stakes, the shareholding structure or the timing of the signing," said SAIC spokesman Xue Hao. He said SAIC had only signed a memorandum of understanding in June that MG Rover will be an exclusive partner in China.
"Anything else that is mentioned by MG Rover is not finalized," the SAIC spokesman said.
A source close to the negotiations agreed discussions are continuing. "The parties have some preliminary understanding, but so many things can change," he said.
MG Rover has a poor record on links with foreign partners. Previous technology agreements with Chinese automaker China Brilliance and Malaysian-based Proton fizzled. MG Rover and Indian automaker Tata are arguing over poor European sales of the CityRover. Analysts say the relationship may not survive.
The pending China agreement would give SAIC effective control of the troubled British automaker by creating a Shanghai-based joint venture 70 percent owned by SAIC. SAIC would contribute cash and management. MG Rover would apparently contribute its Longbridge, UK, assembly plant; 1,250-dealer distribution network; existing three-platform car lineup; and technology including work on successor models.
SAIC would produce cars in China for the local market. MG Rover would build the new models at Longbridge for Europe. MG Rover spokesman Daniel Ward said development of a Rover 45 successor is well underway and could be produced by 2006.
The key is approval by China.
SAIC can't give MG Rover money for anything without the government's approval. SAIC is owned by the Shanghai government and is therefore a state-owned asset. But the National Development and Reform Commission in Beijing must approve such a large investment.
Ward said details will not be released until January, when MG Rover expects the deal will be approved by China.
But Chinese approval may be long in coming because Beijing is uneasy about the deal, sources say. The commission is concerned about UK labor laws and is worried that MG Rover's technology is outdated.
Despite problems, both carmakers have a lot to gain from an alliance.
MG Rover has lost money every year since BMW sold it. The product lineup is rapidly aging and it has repeatedly delayed replacement-model programs for lack of cash. Production has fallen from 147,000 in 2002 to 133,000 last year to 97,000 in the first 10 months this year. MG Rover desperately needs a partner with cash and critical mass.
SAIC has ambitions to become a top 5 global automaker by 2010. It is the largest automaker in China with 848,120 sales last year. But all its manufacturing is producing cars designed by joint-venture partners Volkswagen and General Motors.
SAIC's global aims
SAIC wants to produce 50,000 SAIC-badged cars in China by 2007, but has no internal design and development capabilities. It needs access to product development skills and foreign markets.
What SAIC wants is almost unobtainable without buying Rover, said Peter Cooke, KPMG automotive professor at Britain's Nottingham Trent University.
To start from China and develop a major global presence "is like starting from a minus-one basis," he said.
The deal would give SAIC the Rover brand, an EU manufacturing base, European dealer network, a global "latent network" of dealers that have had British brands -- and MG Rover's experienced people.
Cooke says: "You aren't going to buy that as a working block any other way."
– Dan Thisdell contributed