BMW boss warns Rover that losses must be halved by 2000

THE GUARDIAN
Nicholas Bannister, Chief Business Correspondent

BMW chief executive Joachim Milberg yesterday set tough performance targets for its struggling Rover subsidiary. He said that Rover, which lost £647m last year, would see the same level of loss this year. But the group would have to halve its losses next year and half them again in 2001, he said.

Professor Milberg's comments came less than 24 hours after he confirmed that BMW would invest £3bn in Rover over the next six years. However the European competition commissioner, Karel Van Miert, yesterday warned BMW not to assume the government's £152m state aid for Rover would be approved.

Mr Van Miert, who has already told BMW he has doubts about the subsidy's legality, said: "State aid cannot be handed out without the authorisation of the commission. "There is still lots to be sorted out, and nothing can be taken for granted."

His spokesman said that under European Union rules, a subsidy could only be approved if it was used solely for new investment. It could not be used to boost production or keep Rover's Longbridge plant in Birmingham afloat, he said. BMW has made clear that its huge investment plan - aimed at returning Rover to profit by 2002 - was dependent upon financial support from the British government.

The German car group will have to persuade European Commission officials that it seriously considered an alternative investment in a new car plant in Hungary, and that it will incur extra costs by investing in Longbridge. The EC spokesman said that Mr Van Miert had still to be convinced that BMW could have invested anywhere other than Longbridge.

The EC's review of the subsidy will not start until the trade and industry secretary, Stephen Byers, files a formal notification of the aid package. The final details of the aid package had to be agreed with BMW before Mr Byers could complete the notification. Now that hurdle is over, the approval process can begin. A meeting is due to take place between DTI and EC officials on July 7.

Prof Milberg said yesterday that sales of Rover cars had fallen 34% to 102,281 in the first five months of the year, mainly as a result of older models being phased out. However sales of Land Rovers had risen 29% to 70,604. But Rover's poor performance had more than offset improved BMW sales, leaving the group's overall sales 1% lower at 486,728. The BMW chief executive said he wanted to increase the group's share of the global car market from 3% to 3.6% by 2005, and returns on sales to rise from 3.3% to more than 4% in the same period.

Prof Milberg confirmed that BMW would start making Rolls-Royce cars from 2003, when its deal to manufacture Rolls-Royces and Bentleys at the now Volkswagen-owned factory at Crewe runs out.