PracticeConsultingRover trouble was avoidable

Rover trouble was avoidable

Sacked BMW chairman has German accounting policy to blame, writes Chris Quick

Sacked BMW chairman Bernd Pischetsrieder might have retained his job had he persuaded colleagues not to impose BMW’s harsh German accounting policies on Rover when the company bought the British car maker in 1994, analysis by Accountancy Age has shown.

Pischetsrieder masterminded the German car giant’s #800m purchase of Rover in 1994. Though the British company is now widely blamed as jeopardising BMW’s future as an independent business, Rover’s results compiled under British accounting standards, quietly filed at Companies House, paint a picture quite different from the enduring story of huge losses that ultimately led to Pischetsrieder’s downfall.

As shown by the table, they reveal that Rover made a profit of #147m between 1994 and 1997. Headline figures from consolidated accounts published by BMW, which took the company over in March 1994, however, show Rover making a loss of #363m in the same period. It is these figures that the press, analysts and indeed BMW’s board have pounced on as proof of the British car maker’s inefficiency.

German accounting policies are notoriously harsh. Investments are depreciated faster, there are more possibilities for making provisions and different rules for the valuation of stocks. All these have the effect of depressing profits.

Reading University’s Professor Chris Nobes, a member of the International Accounting Standards Committee, says the problem is not unique to Rover.

‘Normal German (accounting) practice is more conservative than Britain’s,’ he says.

Chemical juggernaughts like Bayer and Hoechst have moved away from German standards as well Deutsche Bank. But these changelings are still in the minority. Only around a dozen German companies have abandoned domestic accounting practice and, by the time their last published accounts appeared, neither national flag carrier Lufthansa nor another giant car maker, Volkswagen, had made the switch.

BMW says it hopes to move to international accounting standards this year, but had delayed the switch waiting for IOSCO, the world stock markets body, to approve them.

According to Nobes, when a German company does make the change, as well as adopting a more generous depreciation policy, ‘you discover all sorts of hidden reserves’. But it’s not all one-way traffic. ‘British pension expenses are nearly always larger than German accounting expenses,’ he adds.

Normally, the driving force behind the change is when a German company wants to raise money internationally. It was the US listing of Daimler five years ago that forced it to abandon domestic practice.

 ROVER: HOW GERMAN RULES COST LEADING BRITISH CAR MAKER MORE THAN #230m
 
         Behind the scenes:             In the spotlight:
         Rover results using          Rover results using   Loss to Rover
         British rules (#m)              German rules (#m)           (#m)
 1994                   279                   unpublished
 1995                  (51)                         (163)           (112)
 1996                 (100)                         (109)            (9 )
 1997                    19                          (91)           (110)
 Total                  147                         (363)           (231)

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