It's no understatement to say that MG Rover's collapse has sent shock waves through the West Midlands economy.
Up to 18,000 workers in total could lose their jobs across the sector.
The firm went bust owing £1.4 billion to creditors who are likely to see only five pence in the pound at best for what they are owed, and the pension fund deficit is reported to run into hundreds of millions.
Over five years, parent Phoenix ate its way through the substantial dowry and pile of unsold cars from BMW and sold off assets such as land, the profitable parts business and the intellectual property rights to key models. It is little wonder that no one has turned up to take on the business as a going concern given that it was losing £25 million a month went it went under.
Management has repeatedly said that they were "20 minutes" away from a lifesaving deal with Shanghai Auto back in April, despite both the British Government and Shanghai having looked at the books and concluded that the company was running out of cash at an alarming rate. Shanghai sat back and now looks to pick up what it wants on the cheap. When it became clear that the proposed wide-ranging model collaboration was not going to happen, they had a Plan B. Phoenix did not; it was Shanghai or bust.
All of this raises some serious questions about how this meltdown occurred. It is entirely right, then, that the Department of Trade and Industry is launching a full inquiry into what went wrong. The DTI says that the investigators have 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.
But it is important to stress at the outset that there are a whole range of 'issues' that the inspectors need to cover and to which thousands of workers deserve some answers.
Ten key questions include:
1. Do 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?
There are 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 in a last-ditch attempt to shore up a Shanghai deal was an appropriate use of taxpayers' money.
Dr David Bailey works at the Birmingham Business School
