Axle of Evil

What happens if an Iranian company buys a famous British automaker?

Illustration by Mark Stamaty
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The West can’t stop Iran’s nuclear program because we can’t halt the global spread of industrial technology, even to our enemies. And what goes for nukes also goes for cars. Britain may soon sell one of its most celebrated automakers to a charter member of the Axis of Evil. That little MG you’ve been coveting may soon be made in Iran, because it looks as if Iran will end up with the remnants of MG Rover, the last independent British auto manufacturer.

As Thomas Friedman argues in his new book, the world is getting flatter in part because some nations are building up industrial infrastructures while others dismantle theirs. Thanks to the high price of oil and the need for cheap imports, we’re seeing a huge transfer of capital from the increasingly post-industrial West to the industrializing Asia and oil-producing Middle East. Iran is, geographically and economically, a hybrid: It’s a huge oil producer with a significant middle class and some industry of its own.

Trade is circular. We send dollars (and the Brits send pounds) overseas for oil, gas, and manufactured products. The currency returns to the United States and the U.K. as people in the Middle East, India, and China purchase the goods and services we produce. From the U.S., those purchases most frequently take the form of securities—government bonds, corporate bonds, and stocks. Sometimes, foreigners buy our services: education, health care, and tourism. But they also end up purchasing more tangible assets: real estate and even entire companies. American manufacturing operations that have difficulty attracting domestic investment may seem very appealing to rich foreigners from less-industrialized nations. Indian steel magnate Lakshmi Mittal recently bought U.S. steelmaker ISG for $4.5 billion. Chinese PC-maker Lenovo recently bought IBM’s PC division.

This is where the Iran-MG Rover deal comes in. Some background: MG Rover is based in Birmingham, where the Austin auto company was founded in 1905. In 1968, it merged with several other brands to form the British Leyland Motor Corporation, which was nationalized in 1975. Later redubbed the Rover Group, it was privatized and sold to BMW. In 2000, a boom year for SUVs, BMW sold the Land Rover business to Ford. Then it gave away the rest of the company—the MG division (sporty coupes) and Rover division (classy sedans)—to a group of British investors for essentially nothing. Which is precisely what they proceeded to make it worth.

MG Rover went into “administration“—a kind of bankruptcy—on April 8. A week later, with efforts to find an immediate buyer or government funding having failed, the company announced it would start laying off its 5,000 workers. This loss of jobs—plus another 15,000 lost at suppliers—came at a remarkably inopportune time for Tony Blair’s Labor party.

MG Rover is still looking for buyers, and it claims to have received some 200 inquiries. But firm offers from respectable investors have been slow to materialize. In fact, the only serious noises are coming from Iran. Iran is the biggest auto producer in the Middle East. In the 1970s, it acquired the manufacturing rights to Britain’s Hillman Hunter and has been producing its Paykan cars in volume. According to an article in the Guardian, “Two million of the five million cars on Iran’s roads are Paykans and sales were still 150,000 a year.” Ironically, the Paykans are being phased out because “a model once regarded by Iranians as the epitome of British cool and manufacturing quality has been rendered obsolete by tougher environmental standards and the demands of Iran’s younger generation for greater comfort and sophistication.”

History is repeating itself. On April 26, the Financial Times reported that “Iran is considering a rescue of MG Rover” and might be willing to continue production in Birmingham. Sounding more like Lee Iacocca than Ayatollah Khamanei, Iran’s Minister of Industries and Mines Eshaq Jahangiri told Reuters, “We reckon our auto industry is capable of reforming a troubled European carmaker and churning out a car to world markets under the same brand.”

On Monday, the FT reported that Dastaan Industrial Development, an Iranian automaker, wanted to buy a few thousand unsold MG Rovers and was interested in buying more finished cars and kits that it could assemble domestically. And if that deal failed, it would be happy to buy the company’s currently mothballed assembly lines and relocate them to Iran.

The British have a relatively unbothered attitude toward foreign purchase of precious national treasures. Soccer team Chelsea FC, the newly crowned champion of England’s Premier League, is owned by Russian oligarch Roman Abramovich, who has generally been hailed for injecting loads of cash into the club. Will similar tolerance be extended to Iranians?

If an Iranian buyer agrees to purchase the MG Rover plant and reopen it, it will certainly make life easier for Britain’s politicians in the short term. The long term will be more complicated. The fact that the future of an iconic British manufacturing operation, and 20,000 associated jobs, may hinge on the good favor of the Iranian government certainly makes it a little more difficult for the Brits to play hardball with Tehran over nukes. Still, the attitude toward a potential sale so far seems to be remarkably blasé. In the U.S., sales of broken-down companies to foreign buyers frequently arouse national security types to fury. Frank Gaffney and others freaked out when a failed fiber-optic-cable company was sold to a buyer in India, a country with which we have friendly relations. Just imagine if an Iranian company indicated interest in an American textile plant.

But the fact is that the MG Rover sale—and the recent sales of steel, telecom, and even personal computer companies—are more likely to impact national pride than national security. Any technology transferred to Iran will be outdated and uncompetitive in the marketplace. Sure, in a perfect world, a buyer from Britain, or Europe, or the U.S. would emerge to resuscitate MG Rover. And in a perfect world, the U.S. would prefer that China’s central bank not hold such a huge chunk of our government debt. But MG Rover and the U.S. Treasury have come to learn the same lesson: Those begging for capital can’t afford to be choosy.

If it goes through, the MG Rover sale could emerge as a great case study for Friedman’s next book. Just imagine Iranian executives working with British autoworkers to produce a car that finds markets all over the world. Meanwhile, newly forged relations could help open the vast Iranian market for other hardy British exports, like Burberry plaid head-coverings, or a phalanx of British editors dashing off to Tehran to run Iranian Vogue. Friedman could call the book The Axle of Evil.