MG ROVER was once celebrated for its zippy, cutting-edge sports cars. Now the company has been yoked together with one of China’s most ponderous producers. So sluggish is Nanjing Automobile Corporation that last week it ordered all office staff home because it was too hot to work.

The outcome of last month’s auction of MG Rover came as a surprise both to the winner and the loser. Nanjing is a minnow, which had been third in line for the prize when MG Rover first went on the block. Shanghai Automotive Industry Corp (SAIC) is a giant that had looked likely to win.

Nanjing’s winning bid of about £53 million makes it the first Chinese carmaker to gain a foothold in Europe. SAIC, China’s biggest carmaker, has its base in Shangai, which epitomises the spirit of change, entrepreneurship and industrial energy of this budding superpower.

Nanjing, the country’s oldest carmaker founded in 1947, takes its name from the ancient city some 100 miles up the Yangtze river that was China’s capital before the Communist takeover, but which has declined.

SAIC is nurtured by the powerful leaders of China’s business capital. Nanjing commands the backing of the authorities in Jiangsu province. Their influence cannot compare with the clout of Shanghai, whose mayor is one of the 22 most powerful men in the country with a seat on the Communist Party’s Politburo.

SAIC sold about 600,000 cars last year, while Nanjing sold barely 100,000 — and that was half its capacity. SAIC employs four times as many people and has successful joint ventures with Volkswagen and General Motors. Nanjing is struggling to keep afloat its joint venture with Fiat.

“SAIC and Nanjing are now direct rivals. The purchase of Rover could change the whole shape of the car industry in the Yangtze Delta,” one Chinese magazine quoted an SAIC insider as saying.

However, the two companies have similarities. Both are state-owned and both saw profits hit in the past few months by sluggish sales, falling vehicle prices and increasing costs. SAIC’s profits dropped 76 per cent in the first four months of this year to £161 million, while sales fell 16 per cent to just over 300,000 cars. Nanjing became one of five big Chinese carmakers to slide into loss over the same period.

It is also clear that both realised that China’s entry into the World Trade Organisation, which opened the door to foreign carmakers, meant they would have to battle to survive by creating their own designs and engineering capabilities — or risk being consigned to the role of assemblers. MG Rover offered one of the few routes available to secure research and development capabilities.

“The window was closing,” Michael Dunne, of Automotive Resources Asia, says. “For SAIC this is disappointing, but it is not going to stop them.”

By acquiring MG Rover, Nanjing has gained access to the Powertrain unit’s engineering and transmission prowess as well as tooling equipment. But SAIC had bought up the blueprints for Rover’s 25 and 75 models for £67 million. SAIC officials have made it clear that any infringement of copyright will lead to legal action.

“They are both closer to the Holy Grail,” says Dunne, referring to the R&D advantages. The success of their acquisitions will now lie in how they use what they have gained.

Last week, Nanjing teamed up with a former MG Rover executive to revive the MG-TF sports car and a range of MG saloons at Longbridge, possibly saving some jobs. Other plant and equipment will be shipped to China to boost domestic capability in the world’s third-biggest car market.

The prospects for significant job creation in Britain remain limited, says Dunne. He points to Nanjing’s other foreign ventures, including its alliance with Fiat, which sold a mere 20,000 cars last year, or 1.6 per cent of China’s total, along with the inflexibility of its negotiators during talks with Ford and Nissan in the 1990s that came to nothing.

Although the MG Rover acquisition has little apparent strategic logic, analysts believe Nanjing’s move may have political undertones. Jiangsu’s provincial authorities have appointed a new chief executive in an attempt to revitalise the company and have made no secret of their aspirations to transform the city into an automotive hub that could cluster component makers, suppliers and manufacturers. “Nanjing has little experience of cars but they want to leap ahead,” Michael Chen, CLSA bank analyst in Shanghai, says.

Regional rivalries could lead to a shake-out of car manufacturers, but Nanjing may not be well placed to take on Shanghai and SAIC. “SAIC is one of the top three, while Nanjing Automobile is at the low end, possibly third tier,” Chen says.

The Chinese media has speculated that Nanjing may be positioning itself as a takeover target. “Nanjing is like a not very good looking girl who suddenly comes into possession of a big dowry,” the 21st Century Business Herald quoted an industry insider as saying.

Few expect such an outcome. The battle now will be to see which company becomes China’s first carmaker to set itself apart with its own brand.

“SAIC is the one to watch in China,” says Dunne. “They are a class to themselves, they have money, ambition and a good management team. Their winning move will be to have their own vehicle.”

THE WHALE AND THE MINNOW

SAIC

NANJING AUTOMOBILE

Reported a loss last year but is not listed and no figures are available

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