Immediate future of Longbridge secured after sale of Rover to Phoenix consortium
In May 2000, the final piece in the jigsaw of BMW's sale of its loss-making UK subsidiary, formerly the Rover Group, fell into place with the announcement that the West Midlands-based Phoenix consortium had agreed terms to acquire the Longbridge plant. Unlike the proposed deal with Alchemy, direct job losses are likely to be restricted to 1,000 employees and the impact upon the wider supply base within the West Midlands region is likely to be less than previously predicted. This feature reviews the deal with Phoenix and the role of threatened litigation by trade unions and management in upsetting the planned sale to Alchemy.
On 9 May, the immediate future of the Longbridge car plant was secured when the Phoenix consortium bought Rover from the German-based BMW for GBP 10. The final 12 days leading up to the signing of the deal had been fraught with uncertainty after venture capitalists Alchemy Partners withdrew suddenly from negotiations with BMW on 28 April. During negotiations with BMW, the Phoenix consortium received the backing of trade unions, employees and dealers and implicit support from the government due to their intention of maintaining Rover as a mass producer of vehicles in the long term. A key element in Phoenix securing a deal with BMW was the potential impact of legal action threatened by Rover's trade unions and management in connection with the proposed sale to Alchemy. Under the terms of the deal it is likely that redundancies with be restricted to around 1,000 of the 9,000 employees, rather than the heavy losses predicted if the Alchemy deal had gone through and production had been scaled back to 50,000 cars per year (UK0004164F).
The interim report of the government-initiated Rover Task Force, issued on 25 April, confirmed the importance of Rover Group as a whole to the West Midlands economy. In total, it is estimated that vehicle manufacture at Rover and Land Rover supports up to 50,000 jobs, or 8% of all manufacturing jobs in the region. Of this figure, around 24,000 jobs are dependent upon the production of Rover and MG products at Longbridge.
Key points of the Phoenix deal
After the deal with Phoenix, BMW's UK operations are to be broken up as follows:
· production of the Rover 25 and 45, MGF sports car and current Mini (until phasing out) will continue at Longbridge;
· production of the Rover 75 saloon model and the yet to be launched estate model will be transferred from Cowley to Longbridge, whilst the new Mini will transfer from Longbridge to Cowley;
· Phoenix has options to buy the Rover pressing plant in Swindon which employs 2,500 workers as well as the power train facilities employing 2,300 at Longbridge (now known as Midland Powertrain);
· BMW will retain ownership of the Cowley production facilities, which employs 3,500 as well as the new Hams Hall engine factory which will employ 1,500 when open; and
· the sale of Land Rover and the Gaydon engineering facilities to the Ford Motor Company is likely to be concluded some time in June 2000.
The deal with Phoenix will also preserve many engineering jobs. Out of the 3,700 engineering staff, 2,400 will transfer to Ford in support of Land Rover at Gaydon, another 400 will be assigned to Cowley to support the Mini and about 150 will become part of Midland Powertrain. Under the terms of the deal with Alchemy, a significant engineering function would not have been maintained. Under the deal with Phoenix, between 500 and 600 engineers will be retained at Longbridge.
Phoenix, which paid a nominal sum of GBP 10 for Rover, has secured funding of GBP 200 million from a UK division of the First Union Bank of Carolina and BMW has given Phoenix GBP 500 million in repayable loans to cover the costs of redundancies and restructuring. Phoenix plans to produce around 200,000 cars per year, but John Towers, the former Rover chief executive who led the Phoenix bid, warned that up to 1,000 jobs would be lost. However, he pledged to return Rover to profit within two years and to remove the negative cashflow within 14 months. Shares will be distributed to workers at Rover through a new employee trust, which will receive more than a third of the equity.
Both Phoenix and Stephen Byers, the trade and industry secretary, said that while the rescue plan was viable in the short and medium term, Longbridge's long-term future would require Phoenix to link up with a worldwide producer for the purposes of product development and "platform-sharing". With the exchange of the Mini and the Rover 75 between Cowley and Longbridge, production at Cowley will be disrupted until the new Mini is launched in 2001. However, BMW has said that there will be no redundancies and that any slack in production will be absorbed through changes in shift patterns.
The trade unions at Rover warmly welcomed the successful conclusion of the BMW-Phoenix deal. The trade and industry secretary, Stephen Byers, and local MP Richard Burden were credited with behind-the-scenes activities in bringing Phoenix and BMW together at the negotiating table – moves which began as soon as news of BMW's planned divestment of Rover emerged. Upon the announcement of the Phoenix deal, Mr Byers confirmed that the GBP 129 million regional selective assistance grant formerly allocated to Rover (UK9906112N) will now be managed by the Rover Task Force and used to fund job-creation within the region and retrain those who do lose their jobs at Longbridge.
The breakdown of the Alchemy bid
BMW and Alchemy issued brief statements referring to "conditions of contract" as the reason for the 11th-hour breakdown in negotiations on 28 April. However, the costs of redundancy and the threat of legal action, not only by the Rover trade unions but also from legal representation engaged by Rover management, over possible breaches in employment legislation by BMW are seen as the main contributory factors in Alchemy's withdrawal.
Letters were issued to all 29,000 Rover Group employees on 10 April informing them that a deadline of 16.00 on 14 April had been set for managers to tell them which of a new set of business units they were to be allocated to prior to the sale. Unions at Rover threatened a High Court injunction to prevent the breach of an existing agreement with BMW guaranteeing no compulsory redundancies (UK9812168N), arguing that if BMW transferred thousands of workers to Alchemy, knowing they would be made compulsorily redundant, BMW could be regarded as in "anticipatory breach of contract". More generally, the Rover unions argued that BMW was not adhering to the statutory requirement to consult employee representatives over the impending redundancies and transfer of the business – a failure which the unions pointed out could result in compensation of three months' pay per employee being awarded against the company.
Rover management staff also engaged legal representation to contest the legality of the staff reallocation process under the Transfer of Undertakings (Protection of Employment) Regulations. This move was on behalf of engineering and other central function staff, the majority of which are based at Rover's engineering facility at Gaydon. Those staff not allocated to one of the seven business units created by BMW for the purpose of the break-up of the group at the time of the sale, such as surplus engineers and headquarters personnel, would have been allocated to Alchemy as they were still Rover Group personnel.
As a result of the threat of legal action, BMW announced that the proposed transfers would not take effect on 14 April as planned, although the letters were not withdrawn. According to lawyers, Alchemy was facing potential liabilities estimated at GBP 20 million and GBP 90 million for failure to consult managers and employees respectively. This would have been in addition to the cost of funding enhanced redundancy terms.
It is believed that BMW was prepared to fund the costs of redundancy only to the level of the statutory minimum rates and this would have led to a short-fall of several hundred million pounds to be funded by Alchemy, as existing redundancy arrangements agreed between BMW and the Rover unions were three to four times higher than the statutory minimum. These costs would have been compounded further by Alchemy picking up the responsibility for non-manufacturing staff.
To enable the sale with Phoenix to go through, both the unions and management had to waive their legal claims. The management action was dropped on the conditions that full disclosure of the terms of redundancy were revealed and that a new open process of consultation was put in place to determine into which business unit employees were to be assigned. These conditions were complied with on 8 May. Phoenix, BMW and Rover have effectively agreed to match for 12 months the terms paid by BMW in 1999 to those taking voluntary redundancy.
Commentary
Recent events in the UK automotive industry have focused attention on the efficacy of current UK legislation on employee consultation, especially when dealing with multinational companies. In the same week that the Longbridge plant was saved, Ford announced that car assembly at Dagenham would cease by 2002 at the expense of 1,900 jobs, on top of the 1,350 job cuts announced earlier this year. Production of the Fiesta model will in future be undertaken at Ford's plants in Cologne in Germany and Valencia in Spain. Unions in the UK argue that Ford has opted to cease car production at Dagenham because it is easier and cheaper to implement redundancies under UK legislation than elsewhere in Europe.
It also appears that the existence of the BMW European Works Council (EWC) failed to guarantee that the interests of Rover workers were represented effectively. Under the terms of the agreement establishing the EWC in April 1995, it was management's responsibility to ensure that EWC members were informed in advance of any decisions taken over matters such as plant closures, movement of production and redundancy, but no meeting of the EWC was convened to discuss BMW's decision to break up its UK operations. Moreover, employee representation on BMW's supervisory board does not extend to employees outside Germany, despite the precedent of a US union official taking one seat allocated to IG Metall on the supervisory board of DaimlerChrysler (DE9805264N) cited by Tony Woodley of the Transport and General Workers' Union in evidence to the House of Commons Select Committee on Trade and Industry. Roger Lyons, general secretary of the Manufacturing Science Finance union, observed that: "the abiding image that will stick with most people about this whole affair is of the supervisory board meeting in Munich containing German trade unions, discussing the future of a British plant, while British trade unionists are outside the door."
The Select Committee's investigation into the Rover sale has recommended that the findings of their report should form the basis for a detailed analysis to be undertaken to identify what lessons can be learnt from the Rover affair in respect of "government policy on national and EU law on protection and consultation of employees, in particular those of overseas companies". This is partly in reference to the UK government's continued rejection (UK9811162N) of the proposed EU Directive regulating national rules on informing and consulting employees (EU9812135F). (Joy Batchelor, Operations Management Group, Warwick Business School)