CREWE, U.K. — It's the auto industry's version of the Hong Kong hand-over.

In mid-1997 the British government ceded control of Hong Kong to Mainland China, overnight transforming the island from a British colony to a part of one of the largest communist nations in the world.

It's a similar situation at U.K.-based Rolls-Royce and Bentley Motor Cars. Because of a complicated series of deals cut between the British and Germans — namely Volkswagen AG, BMW AG, former Rolls owner Vickers plc and independent engine builder Rolls-Royce plc, VW acquired ownership of the RR&B assembly plant here, but lost rights to the Rolls-Royce brand name to BMW beginning 2003.

VW now plays the role of the British in Hong Kong, a temporary caretaker of what is widely considered to be an industry crown jewel — the Rolls-Royce marque.

The impending loss has cast a pall over operations here. But in the British tradition, RR&B executives are sporting stiff upper lips and vowing to take good care of the brand in the interim — even promising new investment in Rolls over the next six to eight months. “It's the right thing to do,” explains Alasdair M. Stewart, president and chief executive of RR&B's U.S. arm.

It also may turn out to be good business. VW still is holding on to the notion it may be able to purchase the Rolls name from BMW. And if not, RR&B is offering to continue building the existing Rolls Silver Seraph for BMW after 2002. That ultimately may make sense for BMW, which is developing its own new Rolls model (see p.7) but may have trouble establishing that car's credentials and lineage without the Silver Seraph positioned alongside it in showrooms.

In the meantime, the focus at RR&B is very much on the Bentley brand, which VW wants to build into a global powerhouse in the high-luxury vehicle segment, a sector currently dominated by arch rival Mercedes-Benz.

About 70,000 high-luxury cars (above US$$95,000) are sold worldwide each year, RR&B says, with Mercedes accounting for nearly half and Rolls and Bentley only about 2%. But RR&B executives see a silver lining. Bentley sales are up 52% so far this year in the critical North American market. And the US$203,000 Arnage Green Label 4-door sedan launched last year is enjoying a 60% conquest rate in the U.S., with half of those buyers defecting from Mercedes.

“If we're going to grow, the U.S. is where it has to be,” Stewart says. “(And) we have to target Mercedes.”

Adding to the momentum, RR&B executives believe, is a new Arnage derivative, the Red Label, which resurrects the circa-1958 Bentley 6.75L 400-hp V-8 engine all-but phased out two years ago. The Red Label, which will hit the U.S. before year's end, is expected to be priced about US$10,000 above the BMW V-8 equipped Green Label model.

Launch of the Red Label, the first project under VW, also marks an effort to put a greater accent on the driver, positioning the Bentley brand a little closer to its roots. In addition to the revitalized engine, the 2,520-kgs. (5,556-lb.) Red Label features an automatic transmission with sport-shift mode, stiffer body and suspension, larger tires and brakes and class-leading 839 Nm (619 lb.-ft.) of torque for Porsche-like acceleration — 0-96 kmh (0-60 mph) in 5.9 seconds.

“We think we're setting the benchmark with the Red Label, and now we have to build on that,” Chief Executive Tony Gott says.

The battle plan includes a new marketing push — RR&B says it will spend US$3 million to US$4 million on Bentley advertising in the coming year, a program to spruce up its 37 U.S. dealer showrooms and launch of a new finance and leasing arm. To heighten awareness in the U.S., where RR&B is shooting for double-digit annual growth during the next several years, Stewart also is looking for publicity tie-ups with high-profile celebrities who fit the edgy image Bentley wants to cultivate.

“We need a vision for Bentley and we need to share that (with consumers),” Stewart says. “We have to get (the marque) ready for the medium term.”

The medium term is 2004-2005, when the Bentley rebuilding effort will culminate in a new family of sedans, dubbed “Baby Bentleys.” The cars will be even more driver-oriented, somewhat smaller, lighter weight and less expensive (around US$175,000) than the current Arnage and targeted to get worldwide Bentley sales to the 9,000-10,000 mark from less than 2,000 today. Those cars are part of a planned US$885 million new product program that will gear Bentley up for the competitive onslaught that will see up to 25 new or heavily revamped models bow within the next five years, including the Rolls from BMW and Maybach from Mercedes.

“There will be a lot of activity in this sector the next several years,” Stewart says. “This is a growth sector. This will be a profitable sector to be in.”

The strong investment plan and arm's length approach of VW has RR&B executives upbeat about the new ownership. They say the absorption into the VW Group already is paying dividends. Access to VW test facilities helped RR&B deliver the Red Label in less than 12 months. And being part of VW is giving RR&B more clout with suppliers.

“We were unsure how the new owner would treat us,” Gott says. “Would they dominate? Take over?” But so far there have been “no great orders from above. It's been quite the opposite.

“(VW Chairman Ferdinand) Piech has a great passion for Bentley. That's important to us.”

Still, there will be several hurdles for RR&B, particularly maintaining company morale as the handoff of Rolls to BMW nears.

“As we move closer to end of 2002, then internally it is going to become an emotional issue,” Gott admits. “As we get nearer to that date, there will be a lot of wistful looks around here.”