Deal saves Rover plant

BBC
Business: The Company File
50,000 people at Rover and its suppliers breathe a sigh of relief

Prime Minister Tony Blair makes the announcement during Commons Questions. The future of Rover's Longbridge plant has been secured following a deal between the UK Government and Rover's German parent company BMW.

The UK Prime Minister Tony Blair said he was "delighted" that Rover's workers could look forward to BMW making Longbridge a "world class plant for the next century". The exact amount of government aid for Longbridge has not been made public, but is rumoured to amount to £200m.

A BMW spokesman told BBC News Online that the car maker and the UK government had made an agreement never to disclose the sums involved. A DTI spokesman said this was "usual practice". In return for the government aid, BMW will invest up to £1.7bn to modernise the plant and produce a new range of cars there.

The deal is subject to approval by both the BMW board and EU competition authorities. The BMW board is next scheduled to meet during the week of 12 April. The board's deputy chairman, Manfred Schoch, said he was confident that the supervisory board would accept the British government's offer.

Mr Schoch said: "I'm sure it is a very good offer because Mr Blair is a very reasonable and good man."

The BBC's Stephen Evans: "About 40,000 families breathe a sigh of relief"

Longbridge is one of Europe's least productive car factories, producing mainly Rover's 200 and 400 models. Other Rover plants at Cowley, Solihull and Swindon are largely in line with industry productivity standards. Tony Woodley of the Transport and General Workers Union said: "This tremendous news removes the uncertainty, insecurity and anxiety that has hung over our members for the past five months."

The BBC's Mark Foster reports from Longbridge: "A very quick resolution"

Professor Garel Rhys, of the Cardiff University Business School, said the deal would give Rover and BMW "what is, in effect, a new plant. Longbridge is going to be very much a streamlined facility. I just hope that we are not throwing good money after bad. The company must begin to show that it can survive on its own."

The level of government aid for the German carmaker had been agreed between the Trade and Industry Secretary,Stephen Byers, and the company's chairman, Professor Joachim Milberg.

More redundancies
Before the deal was announced, Rover chief and BMW director Werner Samann had said that further redundancies were necessary at Longbridge, but that the Solihull workforce was secure. The comment was at odds with the terms of a deal struck by unions and BMW late last year, which traded 2,500 jobs and radical overtime practices for an end to job cuts and an assured future for Longbridge. However, a boardroom shake-out at BMW since has put a question-mark over the agreement.

The Hungarian option
BMW had been mulling over a decision whether to build new Rover models at Longbridge or in Hungary. Chairman Milberg had warned that "the comparative alternative of Hungary would have advantages in comparison to Longbridge, but there are a number of factors playing a role which have to be taken into account in the whole scenario".

He said the future of Longbridge was threatened by the slow pace of negotiations over state subsidies.

Rover under control
Now that Longbridge is saved, BMW will assume more responsibility for decision-making at Rover, reducing the authority of the UK car maker's board. Rover has been making losses from the day it was bought by BMW in 1994. When the Bavarian maker of luxury cars announced its group results, the extent of Rover's problems was more than obvious.

The UK brand's new car deliveries had fallen by 38% in the first quarter of the current trading year, pulling BMW's overall sales down by 15,000 vehicles to 280,000. The slide in sales was mostly due to the phasing out of the 100, 600 and 800 series before the new Rover 75 model goes on sale in the middle of this year. On the positive side, BMW said Land Rover sales had jumped 31% to 40,000.

"We are working intensively to improve Rover's results for this year significantly and to reach break-even as soon as possible," Prof Milberg said. BMW had already announced that group profits had fallen from 1.2bn ($700m) Deutschmarks (DM) to 903m DM ($500m) last year, as the result of a huge 1.87bn DM loss at Rover.

A closure of Longbridge would have cost an additional 50,000 jobs across the West Midlands, or one tenth of the industrial workforce.