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Rover plant on brink as BMW spurns aid deal

19 March 1999

By David Gow, Industrial Editor

Longbridge, the Rover plant, yesterday suffered two grievous blows to its future as BMW, the UK car group's German owners, rejected a £118 million grant aid package from the Government as pitifully inadequate and unveiled record £647 million losses at Rover.

The Government's offer to support BMW's planned £1.7 billion investment in Longbridge, widely expected to be up to £200 million, sent shockwaves through the BMW board in Munich, where a sizeable group of executives is already hostile to building a new medium-sized car in the UK.

It caused consternation among Rover's workforce where one long-standing employee said: 'This is about as low as it gets and we've been through many lows over the years."

The BMW board had demanded £240 million in aid, which it saw as its legal entitlement. Insiders had counted until early this week on the Government's desire to save 11,500 jobs at the plant near Birmingham and 50,000 related jobs in the surrounding West Midlands as a guarantee it would deliver.

'This is going to send Longbridge to Hungary if the offer is not improved,' sources said, pointing out that the BMW board would pursue the option of building a replacement for the Rover 200/400 series in the former communist country much more seriously. 'Even without state aid Hungary is a much cheaper option: labour costs are 30 per cent lower, capital costs 10 per cent lower,' the sources said.

Stephen Byers, the Trade and Industry Secretary, and his officials, refused to give details of the government offer, but it is understood to comprise £100 million in state aid without, as widely expected, any European component, and £18 million in local funds, including £12 million from Birmingham city council, which is waiving Rover's annual £4 million rates bill for three years.

Mr Byers said the offer was complex and broke new ground by being linked to improved skills and productivity among the Longbridge workforce. It is understood that it would be spread over six years, with sums triggered as Britain's biggest car plant achieved benchmark levels of quality.

Late last year Rover's 38,000-strong workforce agreed to at least 2,500 job cuts and radical patterns of flexible working sought by BMW to close a 30 per cent productivity gap with its German plants and save £150 million a year.

Union leaders had hoped this would persuade the Government to make a generous offer of aid towards the renewal of a plant that is 100 years old and new hi-tech lines for the 500,000 medium-sized cars Rover planned to produce every year from around 2003. These would be on top of the 150,000 Minis set to roll off the Longbridge production lines annually from late 2000.

But insiders said the paucity of the offer indicated to BMW's executive and supervisory boards that the Government's caring for UK industrial jobs was limited. 'There's a view that if this is the extent of the British government's caring about UK jobs, then BMW is no longer under the social and political pressure it thought it was.

'The board had felt a responsibility to maintaining jobs in a British company it bought just five years ago.'

Officially, BMW simply said that, 'given the current stage of discussions with the British government', no decision on the investment site for the new car had been taken. But this was seen as indicating a willingness to enter prolonged negotiations with Whitehall in the hope of upping the offer, with pressure on the Bavarians to scale down their demands and on Mr Byers to be more generous.

But the scale of Rover's problems was underlined when BMW disclosed it had lost DM1.871 billion (£647 million at yesterday's spot price) in 1998, the worst result since the group was formed in 1986. The losses are said to be even worse than the £1 million a day the company was losing in the dark days of the 1970s when it was known as British Leyland.

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