Whatever happened to the DTI / BERR MG Rover Inquiry?

It's true that fewer workers in the supply chain ultimately lost their jobs than we had initially feared (in part because of AWM's work in helping suppliers diversify before the collapse and because of the work of the Rover Task Force after the event - both of which suggest that this RDA at least has done some good work). Nevertheless, it's no understatement to say that MG Rover's collapse has sent shock waves through the West Midlands economy.

At the risk of repeating the obvious, let's not forget that the firm went bust owing hundreds of millions to suppliers, and creditors ended up seeing only a penny or two in the pound for what they were owed. The pension fund deficit also ran into hundreds of millions.

Over its five years, parent Phoenix ate its way through BMW's substantial dowry and pile of unsold cars left over from BMW and sold off assets such as land, the profitable parts business and the intellectual property rights to key models to SAIC. It was losing £25 million a month went it went under.

Let's not also forget that management repeatedly said that they were "20 minutes" away from a lifesaving deal with SAIC back in April 2005, despite both the British Government and SAIC having looked at the books and concluding that the company was running out of cash at an alarming rate.

SAIC sat back and was then pipped at the post by Nanjing who bought the remaining assets, before finally taking Nanjing over. When it was clear that the proposed wide-ranging model collaboration between MG Rover and SAIC was not going to happen, SAIC had a Plan B and indeed a Plan C. Phoenix did not; it was Shanghai or bust.

This brief resume of the sad affair reminds us that serious questions remain about how this meltdown occurred. But three years on we're still not sure what the investigators are actually looking at, nor how long it will take.

Originally, the DTI said that the investigators had been asked to consider 'issues' raised by the Financial Reporting and Review Panel in their smaller scale investigation into the published accounts of MG Rover. Yet that report remains confidential.

Back in 2005, the then DTI Secretary Alan Johnson argued that 'the public interest requires that issues raised by the Review Panel and developments after 2003 when the last accounts were published be investigated by independent inspectors... I have asked them to report to me as quickly as possible and in a form which will enable the report to be made public. The Review Panel has not published its report and given my decision to appoint independent inspectors I will not be releasing it.

Three years and some £11 million later, I do wonder how much longer this should go on for. The investigation should indeed be independent, but a clear statement of what questions it is addressing, and a clear timescale, would be helpful at least.

Ages ago in the Birmingham Post I suggested ten key questions the inquiry should look at (see link here):

These included:
1. Did the accounts add up and are they 'true and fair'?
2. Why did the business strategy go so badly wrong? On taking over at Rover, Phoenix aimed to produce 200,000 cars a year, bring a new model to market, return to profit and find a partner to develop new cars. None of these objectives were achieved.
3. Why did management take so long to get to Shanghai? Why was critical time wasted with China Brilliance and Proton beforehand?
4. Did the company have the resources to get a new model to market? If it did, why did the company fail to do this?
5. Why was the group structure so complicated when in car industry terms this was such a small firm?
6. How was the money moved around? For example, why was MG Rover paying interest when the original loan from BMW was interest free?
7. In the final few months, did management realise that MG Rover was going to go insolvent?
8. How much money did the Phoenix Four pay themselves over the five years, and was this payment commensurate with the performance of the firm?
9. Why did the pension fund deficit arise?
10. What was the role of the Government?

On the latter, there were questions over the Government's backing of Phoenix back in 2000 against the rival Alchemy bid, whether alarm bells went off at the DTI in 2002/3 when it was becoming clear to commentators that the firm was running out of time, and whether the proposed £100 million 'bridging loan' touted in April 2005 in a last-ditch attempt to shore up a SAIC deal was an appropriate use of taxpayers' money

Today I'd add a question 11, on 'chapter 11' issues (this is a chapter of the US Bankruptcy Code). In other words, do insolvency and administration arrangements work well enough in the UK? This isn't a criticism of the administrators PwC who did an excellent job within the current legal framework they were given to operate in. They did their job in getting the best deal for creditors, by selling to the highest bidder, Nanjing.

Yet it was obvious to industry analysts that Nanjing was a small firm with limited experience other than 'lifting and shifting' and in economic development terms it was also apparent that the SAIC bid would have given better public benefits for the local economy. Of course Nanjing ended up in SAIC hands eventually, but the delays (and maybe the StadCo pullout) could perhaps have been avoided by an initial deal with SAIC.

So I wonder whether we need to reconsider how we deal with company 'deaths' or 'near deaths'. Would a chapter 11 type arrangement have given more scope to arrange a deal with SAIC without the firm ceasing operation? Or, if that was not possible, could and should a 'public interest' clause be brought in to the administration process to make sure that the wider economic and public interest be taken into account when dealing with such cases?

Meanwhile we are still guessing how long this inquiry will take. The DTI Maxwell Pensions investigation took around 9 years... let's hope it doesn't drag on for that long.

Even Richard Burden, who has taken a very balanced view of this inquiry, seems to think that the investigators have had long enough (see link here). He's right.

David Bailey is Director of the Birmingham Business School