BMW's Productivity Deal with Rover Group: Saving Jobs but Threatening Profitability

Strategic Insights -

BMW unveiled a groundbreaking productivity deal with unions at the Rover Group, which will save Rover's giant Longbridge factory in Birmingham but lead to more than 2,500 job cuts. The deal, which brings cost savings of $150 million by 2000, will enable Rover to move workers from a 37-hour, five-day week to a 35-hour, four-day week with Saturday working if needed, plus other flexible working arrangements. However, the deal is contingent on BMW receiving Government grant aid, with the company seeking at least $200 million to fund a mid-sized replacement for the Rover 200 and 400 at Longbridge.

Key Takeaways:

  • BMW's executive chairman, Bernd Pischetsrieder, made clear that the company may make the successor to Rover's 200 and 400 series abroad if Government aid were refused.
  • The deal will bring cost savings of $150 million by 2000 and enable Rover to move workers to a 35-hour, four-day week with Saturday working if needed.
  • The agreement includes a commitment from BMW to invest more than $2 billion at Rover, most of it at Longbridge, where the company is now to make the new Mini.
  • Longbridge had been under threat of closure if no agreement were reached with unions.
  • The deal will safeguard the 14,000 workforce at Longbridge and an estimated 50,000 jobs among component supplier firms to Rover.
  • BMW's executive chairman, Bernd Pischetsrieder, refused to quantify the sum required for Government grant aid but stated that BMW wants at least $200 million.
  • The deal will have to be approved by the approximately 34,000 out of Rover's 37,000 workforce governed by union negotiations in a ballot to be finalized by 11 December.

Statistics:

  • The deal commits BMW to invest more than $2 billion at Rover.
  • The 200 and 400 replacement project is expected to cost at least $200 million.
  • The cost savings of the deal are expected to be $150 million by 2000.
  • Rover's Longbridge factory has 14,000 workers.
  • BMW's Longbridge factory will produce the new Mini.
  • Over 3,000 inquiries about voluntary redundancy have been made since the news of 2,500 job cuts.

Sources:

  • Bloomberg, "BMW's Hasselkus Exits Rover Amid Profit Woes" - unavailable online
  • "BMW Denies Plans to Axe Rover Jobs" - Financial Times (11/27/1996) - not online.