MG Rover is in the final stages of signing a joint venture deal with the Chinese vehicle manufacturer Shanghai Automotive Industries Corporation (SAIC).

Whilst awaiting final Chinese Government approval, SAIC will be taking a 70% partnership in the company in a deal worth over 1 billion pounds. This money will in turn be utilised by MG Rover to invest in new car platforms, namely the long awaited mid sized platform (RXD60), new large car (Rover 75 replacement) small car (Rover 25/ZR replacement) as well as a new sports car platform. It is forecast that the first vehicle developed under the joint venture will be available in less than 14 months.

The partnership will involve a sharing of technologies, platforms, engineering and design. Vehicles will be produced in both China and England, thereby securing plant operations and jobs at the Longbridge factory in the UK.

MG Rover chairman John Towers as quoted from the BBC News; “This is a significant partnership that allows us to open up the Chinese market as well as other markets within Asia. A partner who is powerful and robust with an ambition to produce 3 and half million cars per year in a few years time. Nothing could be better for MG Rover.”

“We predict close to one million cars could be associated directly with the joint venture. You can imagine the economies of scale and the much lower cost base that will come from that.”

John Towers also indicated that the deal should ensure that production at Longbridge could easily grow from the current 110,000 cars to 200,000 by as early as 2007.

SAIC is already the main joint venture partner for General Motors and Volkswagen building models for both these companies under license. In July SAIC bought out a major shareholding of South Korea’s Ssangyong Motor Company. It is their plan to become one of the word’s top six manufacturers by 2010. The company has plans to list its stock overseas to raise further funds for its planned expansion. In 2003, SAIC profit grew by almost 42% to $181 million.

Whilst the financial investment opportunities and production economies of scale for MG Rover are clearly apparent, the agreement also greatly benefits SAIC.

The partnership allows SAIC immediate access to joint platform development in addition to western technologies, research, design and engineering prowess. As a result, SAIC will obtain far more control and flexibility in developing their own products as opposed to simply producing other vehicles under license.

Of fundamental benefit is however the access and model distribution to European markets, and in the longer term, possibly the US. As such this agreement could provide SAIC and MG Rover access to the world’s three biggest markets at a potentially unprecedented scale.

Negotiations commenced in June of this year with both partners working very hard on the final details of the agreement. Whilst final approval from the Chinese authorities is not expected until the New Year; the funding, provision of people and engineering development has already begun. It is understood the first delegation of 125 MG Rover engineers are already in China.

Despite sometimes unsubstantiated criticism levelled at MG Rover UK, particularly by the UK tabloid press, it is understood the financial management of the company over the last 4 years has placed the company in a position that enabled negotiations to proceed to their current level.

In an increasingly challenging environment for the automotive industry, MG Rover has been able to substantially reduce its losses utilising existing platforms for the fourth consecutive year to a level that is now less than 10 per cent of that in 1999; the last full year before the business was acquired from BMW. The successful incremental volume development of the very popular MG sedan and hatch range such as the MG ZT, ZS & ZR has been a primary variable in their successful model strategy.

It is predicted this line will be further expanded with the strong possibility of both the MG GT coupe V6 and Rover 75 coupe making their way to production.

An official press release from MG Rover UK outlining further details of the agreement and the long term security of the MG Rover brands and UK manufacturing operations is expected over the next few weeks.