Rover and out? Globalisation, the West Midlands auto cluster, and the end of MG Rover

Abstract

This paper sets the scene for this Policy Studies special issue on plant closures by outlining the form of the auto cluster in the West Midlands, the nature of structural changes unfolding in the industry, and the decline and eventual collapse of MG Rover (MGR). Structural changes highlighted include: greater pressure on firms to recover costs when technological change has been intensifying, driving up the costs of new model development; increased international sourcing of modular components; and a shift of final assembly operations towards lower cost locations. All of these make maintaining mature clusters such as the West Midlands more challenging for firms and policy makers. The paper then looks at ‘what went wrong’ at MGR. Given long-run problems at the firm and its inability to recover costs, BMW's sale of the firm in 2000 left MGR virtually dead on its feet, and by 2002/2003 it was clear to many that the firm was running out of time. Whilst recognising that the firm's demise was ultimately a long-term failure of management, the paper also looks at other contributing factors, including government policy mistakes over the years, such as the misguided ‘national champions’ approach in the 1950s and 1960s, a failure to integrate activities under nationalisation in the 1970s, a mistaken privatisation to British Aerospace in the 1980s, and a downside of competition policy in ‘allowing’ the sale to a largely inappropriate owner in BMW in the 1990s. The considerable volatility of sterling in recent years hastened the firm's eventual demise.

Keywords:

• automotive industry
• globalisation
• West Midlands
• MG Rover
• industrial policy

Notes

1. Coffey (2006) is critical of what he terms the ‘myth of Japanese efficiency’.

2. See Clark (2006) who draws on Abernathy's work highlighting the unexpected and significant increase in the level of innovation at Ford in the 1960s.

3. A key issue for the future is what effect the anticipated shift to more specialised ‘short-run’ production, including electric/hybrid powered autos, will have on development costs, minimum efficient scales and the players involved.

4. Taking a broad definition of the filiere to include auto-related industries gave a figure of around 120,000 people in 2001, higher than the 100,000 figure given in RTF (2000). More recently, Donnelly et al. (2005) put the numbers of workers in the broadly defined auto industry in the region as low as 65,000. If correct, this would signify as many as 35,000 job losses over 2000–2005.

5. Although in 2007 GM announced that the new model would be assembled there, safeguarding 2200 direct jobs and more in the supply chain.

6. Bergner (2000) notes that between 1988 and 1998 the global number of direct component suppliers to OEMs and the aftermarket shrank from 30,000 to 8000. This number is expected to fall considerably in the future. For example, McIvor et al. (1998) argue that 50% of European suppliers will cease to exist in their current form owing to pressure from OEMs to reduce costs and innovate.

7. Jaguar was separated and privatised in the 1980s, acquired by Ford in 1989 and sold again to Ford's US parent in 1991, later being sold to the Indian conglomerate Tata in 2008.

8. For example, in the 1920s BMW had manufactured versions of the Austin 7 under licence.

9. Although BMW was able to access Land Rover's four-wheel-drive (4WD) technology and was later able to produce its own 4WD models.