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BMW raises Rover hopes

10 March 1999

By David Gow, Industrial Editor
New car to replace 200 and 400 series but Longbridge future still not secure

BMW's new chairman, Joachim Milberg, last night announced that the German car group is to build a new medium-sized model to replace Rover's 200 and 400 series, raising hopes that it will invest more than £1 billion in the Longbridge plant near Birmingham and retain thousands of West Midlands employees.

But Professor Milberg made plain at the Geneva Motor Show that Longbridge, employing some 12,000, is still in a knife-edge struggle with a green-field site in Hungary to build around 500,000 units a year of a model that will compete directly with VW's Golf series and the level of state aid will be a key criterion in deciding the eventual winner.

BMW late last week formally submitted an application to the Government for between £150 million and £200 million in aid towards an overall £1.7 billion investment at Longbridge which is guaranteed to produce from next year 150,000 units of the new Mini. About £1 billion would be spent on rebuilding Britain's largest car plant, much of it 100 years old. The Munich-based group has also asked the Hungarians for a similar amount of aid and, already, rival car chiefs like Wendelin Wiedeking, Porsche's chief executive, are threatening to try to block any aid to Rover via the European Commission's competition authorities. He said the government aid would give BMW a competitive edge in the sports utility market where Porsche had spent $1 billion of its own money - and which BMW plans to enter via its new small car.

The Government is expected to give its reply to BMW's request within the next two or three weeks, clearing the way for the BMW executive and supervisory boards to make a final decision before Easter - including on the badge-name. But Rover sources disclosed that the relative strength of sterling and productivity and quality levels would be other key issues determining the BMW choice.

Stephen Byers, the Trade and Industry secretary, said yesterday: 'There is no question of the Government just bailing out any failing or ailing industry. What we are prepared to do is to look at financial support which meets three key criteria: to raise the skills level of people working; to improve productivity; and to secure a substantial investment from BMW . If all those apply to this application, we will look to see what financial support we can give."

Bernard Carey, Rover's director of corporate affairs, said: 'We remain confident we can persuade the board and government we are worthy of investment from both . . . It's looking better for Longbridge than it did but it's not signed, sealed or delivered."

He added: 'We want to build a world-class production facility and that means achieving levels of productivity and quality we are not delivering at the moment. We have to prove we can do it and better than the Hungarians and the success of the new Rover 75 [the upmarket model range] gives us confidence we are capable of that."

Last year Rover employees agreed to a new pattern of flexible working that is designed to close a 30 per cent productivity gap with BMW's German plants and save its UK subsidiary £150 million a year in running costs. But union leaders accept that several thousand more jobs will go if Longbridge wins the new investment.

THE INDEPENDENT
BMW tells Longbridge to fight Hungary for car
Michael Harrison Business Editor

THE LONGBRIDGE car plant in Birmingham is vying with a rival location in Hungary for a pounds 1bn investment to build a new generation of family cars, BMW, the parent company of Rover, said last night. Joachim Milberg, the new chairman of BMW, confirmed that aid applications had been made to both the British and Hungarian governments for the new model to replace the Rover 200/400 series.

However, BMW denied that its final decision on where to locate the new plant would be based on a subsidy auction. A decision on the state aid is expected in the next two to three weeks. BMW submitted an application for around pounds 200m in aid to Stephen Byers, the Secretary of State for Trade and Industry, last week. The investment is vital to the long-term survival of Longbridge. If it is chosen for the new model, it would secure 15,000 jobs direct and could provide the springboard for a doubling of Rover's UK production from 450,000 cars to around one million by 2004-05. BMW has plans to build a range of cars from family saloons to utility vehicles based on a single platform.

Speaking last night at the Geneva Motor Show, Mr Milberg confirmed there would be a replacement for the 200/400 series, saying BMW had decided that it would remain in every sector of the car market where it currently has models. But he said no decision had been taken on the location of the investment.

A Rover spokesman added: "In the end, the BMW investment is a lot of money and they must decide which country offers the best value for shareholders." Apart from the subsidies available, BMW will also take into account productivity targets, flexibility and desired quality levels, he added.

Mr Byers insisted yesterday that there was "no question of the Government just bailing out any failing or ailing industry". But he added: "What we are prepared to do is to look at financial support which meets three key criteria: one, to raise the skills level of people working; two, to improve productivity; and three, to secure a substantial investment from BMW itself."

The chairman of Porsche, Wendelin Wiedeking, said he would complain to Brussels about the aid to Rover this week. He is writing to the European Competition Commissioner, Karel Van Miert, demanding that any plans by the UK to subsidise Rover should be stopped. Mr Wiedeking said to offer "such a gift" amounted to unfair competition. "I cannot just stand by and ignore that a subsidy will be given - this practice should stop."

Rover has already announced 2,500 job losses as part of a plan to boost productivity and achieve savings of pounds 150m a year. But the new BMW chairman will want to extract further efficiency gains if the balance is to swing in favour of Longbridge, rather than Hungary.

A Rover spokesman said: "We are aware of the conditions they want us to meet for the investment, which includes the higher productivity, and we have been making great steps towards that. "Obviously the fact that we have put in for a grant from the Government shows that we now have a project and we want to go ahead with it a Longbridge."

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