LONDON - BMW faces a long and potentially very expensive legal fight with dealers if it fails to secure a buyer for Rover.
Rover dealers in the UK and continental Europe have hired lawyers in the event that the proposed sale of Rover to the Phoenix consortium falls through. BMW is expected to keep its promise to shut Rover down if no buyer is found. The Phoenix bid is being led by ex-Rover chief, John Towers.
UK and continental dealers have separately raised legal fighting funds to take BMW to court over breach of contract. They started preparations when BMW was negotiating to sell Rover to UK venture capital firm Alchemy Partners. Dealers opposed the sale to Alchemy because the firm would have pulled Rover out of volume car manufacturing. Those talks collapsed suddenly in late April.
'BMW through Rover has been pushing dealers to make investments on the promise of the new Mini and the R30 (the new Rover small car due to have been launched in 2002),' said Alan Pulham, director of the UK's National Franchised Dealer Association. 'Some dealers have made those investments. They are now unlikely to get either of those cars even if Rover survives in some form. They have been misled into spending lots and lots of money.'
Based on BMW's perceived commitment to Rover, dealers invested heavily in upgrading their premises in accordance with BMW's vision for the brand. For example, German dealers invested DM 500 million (A255 million) while UK dealers invested 250 million (A429 million).
German dealers have already lost one round in court. They filed a petition for a temporary injunction against BMW claiming that a clause in their dealer contract allowed them to veto sale of Rover to a non-affiliated company, in this case Alchemy Partners. That petition was rejected.
Dealers are hopeful Phoenix will win its bid for Rover and preserve volume manufacturing at Rover's primary factory in Longbridge, England. Should it succeed, Phoenix will offer dealers a chance to take an equity stake in the newly reformed Rover.
'I believe if Phoenix is successful in its bid, it will continue with volume car manufacturing, which could possibly negate any possible compensation clause,' said Richard Ames, a Rover dealer in Bury St. Edmunds, England.
Sales of Rover cars have soared in the UK since the announcement of BMW's intention to sell. Dealer sources say Rover was poised to claim nearly 12 percent of the UK market in April, its highest tally in nearly three years. But those sales were spurred by an aggressive incentive campaign, sales to employees and patriotic fervor. However, sales of Rovers on the European continent have slumped since the furor began, said Antje Woltermann, executive director of the European Rover Dealers Association in Bonn, Germany.
UK dealers were hopeful some compromises could be reached with BMW, which has kept new Mini and R30.
One UK dealer source said Phoenix was trying to persuade BMW to compromise its position and let Rover dealers sell new Mini in the UK. But BMW spokesman Jurg Dinner quashed such speculation. He said new Mini will be sold through BMW dealers. BMW will begin assembling new Mini at its Oxford, England plant in early summer 2001, he said.