MG Rover Frees Suppliers from Invoicing in Euros

Sterling finally acceptable

September 17, 2000 -- MG Rover is freeing 500 UK parts and services suppliers from a requirement to conduct their business in euros.

John Towers, MG Rover's chairman, said the requirement imposed by BMW as a counter-measure to the strength of sterling no longer applied and all suppliers were free to invoice MG Rover in sterling.

Mr Towers, who earlier this year led the Phoenix consortium's takeover of Rover from BMW for a token £10 ($14), also made clear that MG Rover was seeking to slow, and if possible halt, the old BMW policy of switching Rover component purchases from British to continental European and other overseas suppliers.

MG Rover, which Mr Towers said would be making profits by 2002, was also to outsource the company's worldwide parts distribution business. All warehousing and logistics operations were to be put out to contract.

However, he gave no indication that this could lead to extended ties with Unipart the motor parts and logistics group formerly owned by Rover which handles the business but which BMW last year served with notice of termination in 2002.

At the time of Rover's sale, BMW had been seeking to switch more than £1bn ($1.4bn) of Rover annual component purchases about a third of the then total out of Britain.

The German carmaker said the switch was necessary to cut Rover losses claimed to have reached £2m a day.

"We are not going to turn our backs on the need for suppliers to be world-class competitive," said Mr Towers.

"But equally, we are well aware that the relationship between carmaker and supplier is not only about price. In any case, some of the new overseas contracts are turning out not to be beneficial to Rover because these suppliers often were more competitive only because they were supplying all of of BMW's production as well," he added.

However, MG Rover planned to restructure its supplier network by dealing directly only with a smaller number of large suppliers. Smaller suppliers' relationships would then be with the big components groups.

MG Rover denied it had asked BMW for up to an extra £150m to secure its future. The company said it was negotiating with BMW over the final details of the Rover sale, due to be completed in the next six weeks, but was "cash-rich".

Source: Financial Times