Rover Group Ltd. History

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Wholly Owned Subsidiary of Bayerische Motoren Werke AG
Incorporated: 1888 as J. K. Starley and Company Ltd.
Employees: 39,400
Sales: DM15.2 billion (1996)
SICs: 3711 Motor Vehicles and Car Bodies

Company History:

The Rover Group Ltd. is Britain's leading car maker and exporter, producing more than 500,000 models annually, over half of them for sale overseas. The company grew to become the United Kingdom's largest automaker via a flurry of mergers in the 1960s, but a number of problems landed it in bankruptcy by the late 1970s. Under government ownership beginning in 1975, Rover was sold to British Aerospace in 1988. In 1994, British Aerospace divested its majority holding in Rover to Germany's Bayerische Motoren Werke AG, better known as BMW. The new parent worked to return Rover to the glory days when famous marques like MG, Mini, Austin, Triumph, and Riley engendered quality as well as desirability. Led by its Land Rover and Range Rover sport utility vehicles, the company was revitalized in the mid-1990s.

Mid-19th Century Origins

The foundation for Rover was established in 1861 when John Kemp Starley, an engineer by trade, and William Sutton established a firm in Coventry to make penny-farthing cycles and tricycles. In 1869 Starley broke with Sutton and took on another partner, Rowley Turner. They built and operated a factory in Coventry's Cheylesmere district to continue making pedal bikes, but that partnership lasted only one year. In 1870 Starley established the Coventry Machinists Company, taking on William Hillman on as a foreman. The two men's partnership lasted six profitable years before Hillman set out on his own.

In 1884 Starley's business first used its future name on a new bicycle model called The Rover. The name was intended to indicate how the cycle could wander, or rove, across great distances. Four years later, Starley changed the name of his company to J. K. Starley and Company Ltd. Also at this time, Starley began experimenting with a bicycle propelled by a battery. The company sold 11,000 bicycles in 1896 at an average price of £14.88. Sales for the company reached £160,000 that year, with profits pegged at £21,945.

The company had grown in size and sales to a point where a successful share offering on the London stock market could be made that year. The company would now be called The Rover Cycle Company Ltd., with a capital value after the offering of £150,000. Another £50,000 in five percent debentures were also placed on the company's books.

Expansion into Auto Manufacture, Early 20th Century

Despite his success with bicycles, Starley persisted in developing a two-wheeled vehicle that could power itself, finally developing a motorcycle at the turn of the century. By 1904 Starley had produced his first car, an eight-horsepower vehicle. In 1906 his company became the Rover Company Ltd.

During the early 1900s, new car makers often made a name for themselves and their models by entering road race meetings. The first such meetings were staged in France. Britain, however, kept to a strict 12 mph speed limit for new cars, which disallowed road racing. By 1903, though, Parliament relented and allowed time trials for new cars to be held on the Isle of Man. Rover entered the road race annually and won the International Tourist Trophy race with its 20 horsepower model in 1907. One of the firm's most famous races took place in 1930 when the Light Six car model entry raced the Blue Train, a continental locomotive, across France. The Light Six reached the finish line 20 minutes before the train.

Rover continued producing bicycles, motorcycles, and motorcars through World War I. In 1914, however, the company devoted itself to the war effort by making military vehicles, mortars, gas shells, and other hardware for the British Army. The company's domestic car production picked up after the end of the war in 1918 and, two years later, the Rover eight-horsepower model rolled off the production line. More than 17,000 of these models were made and sold until 1925. Rover was also gaining positive recognition with other products; the Royal Automobile Club awarded the company's 14/15 horsepower model of 1924 the Dewar Trophy.

By 1939 and the start of World War II, Rover was employing more than 21,000 people who built aero engines, tank engines, and aircraft wings for the British Army. The company was also instrumental in developing a jet engine for the British Air Force. Coventry experienced heavy bombing from German fighter planes during the war, and Rover's plant in that city was not spared. Because of the damage, the company moved its manufacturing facilities to Solihull, Birmingham, in 1945. Here work continued on developing a top-secret small gas turbine engine. The reward came on March 8, 1950, when Rover engineers rolled out the first gas turbine propelled car.

Postwar Mergers Transform U.K. Auto Industry

After 1945, a large-scale reorganization of the British car industry took place. The companies that would eventually join Rover--Austin and Morris--were rivals to Rover in the family car market.

Austin, led by Herbert Austin, had produced its first car, a three-wheel model, in 1896. While working for the Wolseley company, Austin built a four-wheeler which won its class in the Automobile Club of Great Britain 1,000 mile trial in 1899. In 1905 Austin established the Austin Motor Company at Longbridge, Birmingham. A year later, the first "Austin" was unveiled. The 30-horsepower motorcar built with a four-speed gear box and chain drive rear axle was aimed at the affordable end of the car market. By 1910 just under 1,000 workers were making a range of Austin car models with engine sizes from 6.8 horsepower to 60 horsepower.

After World War I and the concentration on military production, Austin put its efforts in one model, a 20 horsepower car modeled on American tastes. Though this almost ruined the car company, it redeemed itself in 1922 with the introduction of the Austin Seven model. Small and lightweight, the Austin Seven could seat four people and appealed to families, becoming one of the most popular vehicles in its class. Again, the Austin company turned strongly to military hardware production during World War II, but resumed domestic car production at the war's conclusion. Its first postwar model was the Austin Sixteen. In 1951 Austin opened a new assembly building at its Longbridge plant and overhauled its production line. Austin also announced a pending merger with the Morris car company, a rival for decades and maker of the Morris and MG car models.

Morris Motors had been established in 1910 by William Richard Morris who designed his first car model, the Morris Oxford, that year. The first completed model was driven off the assembly line in Cowley on March 28, 1913. Morris's company suffered from the industry slump after World War I, and he slashed prices on his car models in the early 1920s to save the company. Morris teamed up with U.S. steel manufacturer Edward G. Budd in 1926 to form the Pressed Steel Company. Morris's aim was to build the first British all-steel car body and, in 1928, the finished product was the Morris Isis Six, a medium sized salon car model. The popular eight-horsepower Morris Minor was also introduced in August of 1928.

During this time, Morris was taking ownership of his suppliers. The Hotchkiss factory, builders of the Cowley engines, came on board in 1922 and SU Carburetors was swallowed up in 1923. In addition, Wolseley Motors was acquired for £140,000 in 1937. Morris Motors continued launching new products after World War II; the Minor was a popular four-seater designed by Alec Issigonis, and both the Morris Six and Isis, the last six cylinder Morris models, were also introduced at this time.

The rivalry between Morris and Austin ended with their merger into the British Motor Corporation in 1952. The other side of Rover Group's expansion took part with commercial vehicle production. In 1961 the Leyland Group acquired Standard Triumph, makers of motorcycles and motorcars. A year later, Leyland merged with Associated Commercial Vehicles and the Leyland Motor Corporation was established. Then, in 1966, luxury car maker Jaguar and the British Motor Corporation joined their businesses to form British Motor Holdings. The Leyland Motor Corporation expanded its car business by acquiring the Rover Company in 1967. A further shakeup of the British car industry took place in 1968 when the Leyland Motor Corporation and British Motor Holdings merged to form the giant British Leyland Motor Corporation, makers of family and commercial vehicles.

Nationalization in 1970s

Despite the turmoil of takeovers and mergers, Rover steadily continued to develop its trademark vehicles. A major postwar development for Rover was the Land Rover car model, unveiled at the 1948 Amsterdam Motor Show. Modeled after the four-wheel drive British War Department Jeeps, the Land Rover's production was a direct result of the postwar steel shortages; extensive use was made of easily obtainable aluminum alloy. Mechanical parts, on the other hand, were kept simple, yet sturdy. Land Rover production topped 500,000 models in 1960. That year new models included diesel engines, optional wheelbases, and a selection of body styles. Exports of the Land Rover--an area quickly becoming the backbone of the company--were made to all points of the world, where the vehicle became a familiar sight traversing deserts and jungles alike.

By 1970 Rover had introduced an upscale version of the Land Rover called the Range Rover. Incorporating a host of new design features, the Range Rover won the Don Safety Trophy for its new model that year. Other awards followed for the Range Rover, including the 1982 Design Council Award for the four-door version. Also during the 1970s, the Range Rover was exhibited at Paris's Louvre Museum. This showing served as a testament to the vehicle's timeless styling.

But while the company's family of what would become known as sport utility vehicles (SUVs) grew ever-stronger and more profitable, its carmaking operations crumbled. The 1968 merger of British Motor Holdings and Leyland Motor Corporation had in fact proved disastrous. The new British Leyland inherited ineffective management, overcapacity, and a stable of barely profitable cars at best and money-losing models at worst. Reflecting on the history of the firm for Marketing magazine in 1994, Tom Rodwell called the company's offerings during this period a "cavalcade of crap that made British Leyland a laughing stock." At the same time, British Leyland was buffeted by rising imports, which increased from ten percent of domestic sales in 1969 to over one-half by 1978. Furthermore, badly needed reduction of the work force, resulting in layoffs, provoked strikes in the early 1970s. As a result of this turmoil, the company was unprofitable until 1973 and was nationalized by Britain's Labour government two years later, when it changed its name to British Leyland Ltd. In 1977, the government hired Michael Edwardes, a noted turnaround artist from South Africa, to work his magic on the deeply troubled carmaker. His first cut was applied to the company's name which was shortened to BL Ltd. in 1978.

In 1979 BL began a long-term relationship with Honda of Japan, a rival car maker then making inroads into the European car market. At the time Rover was looking for a partner with whom to develop a new car model, and Honda wanted to give its new cars an European flair. The two companies eventually entered into a cross-shareholding agreement wherein Honda took a 20 percent stake in BL, while BL took a 20 percent stake in Honda's U.K. subsidiary. The deal proved mutually beneficial; Honda used its British operations as a launchpad into Europe, and BL availed itself of the Japanese company's vastly superior technology, engineering, and management skills. The two partners soon unveiled the Honda Ballade, built in Cowley and sold in Britain as the Triumph Acclaim. At the same time, Rover produced several new car models to head off increased competition from Japanese car makers in Europe. In 1984 the Rover 200 series, consisting of affordable, mid-size cars, was introduced. The series continued through the late 1980s.

Long known for mass car production at the bottom end of the market, Rover began to branch out into the luxury-car market. In 1986 Rover brought forth the Rover 800 series, executive cars with advanced styling and technology. Three years later, the company launched the luxury Rover 200/400 range of mid-sized executive cars. Rover already had a tradition in Britain and the rest of Europe of supplying company cars. With its new line of luxury cars, Rover could now cater to top executives.

Red-ink continued to flow, however. With sales approaching $6 billion in 1987, Rover chalked up consecutive losses totaling more than $2 billion in 1985, 1986, and 1987.

Re-Privatization in the 1980s

The advent of the Thatcher administration in the mid-1980s heralded the breakup of BL and re-privatization of its parts. In July 1988, the British government announced that it would sell the Rover Group Plc, then led by chairman Graham Day, to British Aerospace, Britain's largest manufacturing and engineering group. The sale, with a price tag of $255 million, did not pass without controversy. In 1989 the National Audit Office in Britain found the government had sold Rover for less than its true value and had paid more than $75 million to British Aerospace in hidden subsidies. The British government argued that in recent years it had paid more than $6 billion in taxpayer funds to support Rover. That was a cost it could no longer meet but, at the same time, it did not want to see the company broken up by a foreign buyer.

These fears were well founded because Rover had withstood a 1986 offer from General Motors in Detroit. Before making a deal, Rover also had to consider its partnership with Honda. In 1987 Honda agreed to fund a $2.5 billion investment program jointly with Rover. The British government hoped that selling Rover to British Aerospace would ensure that Honda would hold to its investment plans--something Honda might not do if the car company was sold to a rival.

In 1989 Rover launched yet another four-wheel leisure car line, the Land Rover Discovery. This followed a £100 million investment program. The effort propelled Rover's four-wheel drive stable of cars to the top position in their class of cars in terms of market share. A year later, the Land Rover was relaunched under the name Defender. This followed Land Rover having attained 1.5 million in sales over the history of the four-wheeler, with one million models still on the road at the time.

Rover Acquired by BMW in 1994

The global recession of the early 1990s took its toll on the car maker. In 1991, Rover announced it was to suspend sales of its upscale sedans in the U.S. car market. Sales had been less than projected, and the cost of marketing cars overseas outweighed prospects for profits. The Rover Group remained Britain's largest car maker, with sales revenue of almost $8 billion in 1991. Though it continued to record net losses in the early 1990s, these shrank until finally, in fiscal 1992-1993, the company chalked up a £56 million profit.

In the fall of 1993 British Aerospace's contractual obligation to retain majority ownership of Rover expired, and the parent company CEO George Simpson began to seek a buyer for the company. By this time, Rover's auto division was heavily dependent on its partnership with Honda; virtually all its cars were derived from Honda plans, used Honda engines, and Honda exacted a royalty on each one sold. Many analysts credited the Japanese company with Rover's revitalization. In fact, Automotive Industries' Stephan Marquardt asserted that "Only through Honda's help was Rover able to get back into the black again." Thus, it only seemed to make sense for Honda to purchase Rover. According to published accounts, Simpson approached Honda with an offer to sell Rover, the U.K.'s last domestically-owned mass automaker, to the Japanese company. The gradual transfer of ownership called for British Aerospace and Honda to each own a 47.5 percent stake in Rover until 1998, when Honda would buyout British Aerospace's share. (The remaining five percent was held by employees.) But when Honda balked, BMW quickly stepped in with an unconditional, £800 million (US$1.2 billion) cash offer for British Aerospace's 80 percent stake, which the latter accepted. Though Honda and Rover relinquished each others' equity in 1994, the two companies continued to manufacture components for one another.

The union of BMW and Rover seemed a sound one, combining the only German automaker to make a profit in 1993 with Europe's only car company to increase unit sales that year. If nothing else, the deal was, as John Loghurst of UBS Securities (London) told Financial World's Nick Gilbert, "an absolute gem. Think of English design, Japanese quality and German money." Automotive Industries' Ken Gross hailed it as "marriage made in heaven." Richard Feast of Ward's Auto World called the acquisition "the deal of the decade" with the potential to transform BMW into "an upscale General Motors Corp." The addition of Rover nearly doubled BMW's production to nearly one million cars per year and upped the German company's European market share to 6.4 percent. The purchase was also viewed as an inexpensive way for BMW to add new automotive categories--specifically the sport utility and small-to-midsized segments&mdashø its roster without incurring high research and development expenses. Furthermore, Rover's family of highly-respected marques offered BMW the opportunity to expand from its luxury car base without cheapening its core brand's exclusive cachet.

BMW pledged to operate Rover "more as a partner than a subsidiary," and did not seem eager to pull manufacturing out of Britain. In fact, the new parent announced the launch of a US$3 billion plan to increase production capacity by nearly 50 percent, to 750,000 at the renamed Rover Group Ltd. in 1995. According to BMW's 1996 annual report, Rover delivered over 507,000 autos, surpassing a record established in 1988. The company continued to operate at a loss, however, on sales of DM15.2 billion.

Principal Subsidiaries: MG; Land Rover.

Rover Group Ltd. History

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