LONDON - Volkswagen AG Chairman Ferdinand Piech was growing desperate. Soon after VW bought Rolls-Royce Motor Cars Ltd. for $775 million on 5 June, the deal began to unravel.
Piech wanted a meeting with Ralph Robins, chairman of Rolls-Royce plc, the jet engine maker that by historical accident owned the brand name and the double-R trademark, despite having no financial interest in Rolls-Royce Motor Cars. But Robins was communicating only through his lawyers.
Getting the name rights seemed a mere formality after buying the car company. But the iron-willed head of Volkswagen met his match in Robins, a courtly 65-year-old Englishman who was knighted in 1988.
It was Robins who decided the fate of Rolls. Through a combination of nerve and guile, the suave, bushy-browed aeronautical engineer kept the brand rights for BMW, even though BMW was out-bid by almost $150 million.
Under an agreement worked out by the two German companies, BMW will get Rolls-Royce in 2003 and will build a new factory in England to produce Rolls cars. Volkswagen will keep the Bentley brand name and the factory in Crewe, UK, where Rolls and Bentley cars have been built since 1946.
VW will make the Rolls-Royce Silver Seraph in Crewe until 2003, when the company becomes Bentley Motor Car Co.
'Piech will have a hard time explaining this to his shareholders,' said Peter Schmidt, an analyst at Automotive Industry Data in the UK. 'He didn't see the trap that was laid for him by BMW and Rolls-Royce plc.'
Some observers say the VW chairman simply wasn't paying attention.
'Robins was very clear, but Piech didn't listen,' said Jacques Beherman, a Rolls-Royce dealer in Brussels.
Volkswagen executives even sounded confident about the name rights at VW's annual shareholder meeting in early June. One claimed that VW was close to a royalty agreement with Rolls-Royce plc.
Indeed, most expected Robins to eventually sell the rights to VW - for £100 million ($162 million) or more. Instead, he sold them to BMW for £40 million. Some who know Robins called it his last crusade before retiring as chairman later this year. And they say it was as much an emotional choice as a hard-headed business decision.
Robins denied that he had refused to negotiate with VW or sold the brand too cheaply. He called the three-way deal 'elegant' and 'an Anglo-German success.'
BMW never wavered. 'I always knew what my options were,' Pischetsrieder told a reporter. 'I knew them quite precisely.'
A BMW executive said that BMW and Rolls-Royce plc set their strategy before Vickers shareholders approved the sale to VW on 5 June. The deal included the promise of a board seat for the aero engines company at Rolls-Royce cars.
'Pischetsrieder always had good contacts with Rolls Royce plc,' he said. 'We were determined to not give the name rights to VW easily.'
Rolls-Royce plc kept the trademark after Rolls was bankrupted in 1971, splitting the jet engine business from the carmaker.
'We have told them right from the beginning that Rolls-Royce is our name and that we will take whatever steps necessary to protect it,' said Peter Barnes-Wallis, a spokesman for Rolls-Royce plc.
He said there was little contact with Volkswagen during the bidding and even that had largely taken place between the two companies' teams of lawyers.
This wasn't the first time that Robins, who drives a 1937 Bentley, had intervened in Rolls-Royce Motor affairs. When Rolls chose Daimler-Benz in 1994 to supply the Seraph/Arnage engines, Robins threatened to withhold the trademark. The contract went to BMW, leading Rolls-Royce Motor boss Peter Ward to resign in protest.
Still, industry analysts doubted that Robins could resist Volkswagen or would have the stomach for a long legal battle.
In the end, sources say he was partly motivated by a desire to groom Rolls-Royce plc's ties with BMW. Since 1990, the two have built jet engines together in a joint venture in Germany.
But Robins' resistance may have even deeper roots. He was a senior Rolls executive when the company collapsed in 1971. Those who know him say the scars remain and are a key reason why he has guarded the marque so zealously. Volkswagen, with its 'people's car' roots, was simply unsuitable.
Out of options
By the time Piech understood the depth of Robins' resolve it was too late. A few days after Vickers shareholders awarded VW the prize, Rolls-Royce plc formally notified VW that it would not sell the rights. On 9 July, BMW Chairman Bernd Pischetsrieder carried out his threat to cut off the supply of 12-cylinder and eight-cylinder engines for the Seraph and Arnage. Shipments would stop in July 1999.
Piech had dismissed the threat as 'sabre-rattling' and said he could do without the BMW engines. Last spring, he personally measured the engine bay of a Seraph while in Crewe to make sure it could accept Volkswagen's new W-12 engine. Then in June he agreed to buy the UK engine builder Cosworth from Vickers. VW said Cosworth would make engines for Rolls.
But refitting the cars with new engines could have meant closing the Crewe plant for a year or more. And dealers were worried about servicing BMW-powered models once they were replaced.
Meanwhile, Rolls and Bentley customers were holding back because of the uncertainty. Orders fell 30 percent in the six weeks after VW bought the company.
Piech had run out of options. Talks with BMW began the week of 13 July and an agreement was signed on the morning of 28 July at the Neuburg Golf Club, a remote spot near Ingolstadt on the Danube.
Pischetsrieder drove the 90km from Munich to Neuburg in a 750i to get to the 8 a.m. meeting. He was joined there by Eberhard von Kuenheim, chairman of BMW's supervisory board. Piech flew from Wolfsburg with his own supervisory board chairman, Klaus Liesen.
Also in the six-member party were Bavarian Prime Minister Edmund Stoiber and Gerhard Schroeder, prime minister of Lower Saxony and the Social Democratic Party's candidate for chancellor in next month's German elections.
'The politicians only played a minor role in the deal,' insisted a VW spokesman. Other sources say Schroeder and Stoiber were in Neuburg to enforce an agreement.
'They were happy that we didn't file a lawsuit,' said Piech.
After the memorandum of understanding was signed in the Neuburg clubhouse, Pischetsrieder and Piech boarded a VW jet standing by at a nearby US military base and flew to London. There they met a stunned Rolls-Royce Motor Cars Chairman Graham Morris, who had been kept in the dark about the deal.
A press conference was hastily arranged for the following day. After the announcement, both chairmen jetted off on vacation. An angry Morris resigned the next day.
'The potential relocation of Rolls-Royce from the Crewe site by BMW is something that was in direct conflict to the statements that I had made in all honesty to my people,' he wrote in a letter to dealers.
Both BMW and VW say the first job is to regain the trust of Rolls customers and employees. 'We are on our way,' said a BMW spokesman. 'But we have to let some grass grow over the current situation.'
Robins called the deal 1/8elegant' and 1/8an Anglo-German success'From left: Ralph Robins of Rolls-Royce plc, Bernd Pischetsrieder of BMW and Ferdinand Piech of VW.