BMW to put £3bn into Rover car plants

THE GUARDIAN
Unions and industry experts hail 'act of faith' by Germans in the face of huge losses by British subsidiary

BMW is planning to invest more than £3bn in its Rover car plants over the next six years although its loss-making UK subsidiary will not break even until 2002, two years later than planned. This emerged yesterday as the German group confirmed investment of up to £1.7bn in its Longbridge plant near Birmingham, pledging to turn the antiquated site into a world class facility.

The plant, Britain's biggest car factory, will produce up to 175,000 new-generation minis each year from 2001 and up to 400,000 units of a family of medium-sized cars to rival the Golf and Megane. Union leaders and industry experts hailed the planned investment as an astonishing act of faith by the Bavarian car firm in its British business which, if it failed, could bring the entire company down.

Prof Joachim Milberg, BMW chief executive, said a third of the DM30bn investment the group planned between now and 2005 would be in the UK, with a new Rolls-Royce luxury car assembly plant on top of that. BMW paid £800m for Rover in 1994 and has since invested DM6.5bn in the embattled company, including £700m for the recently-launched executive R75 saloon at Oxford and £500m in a new engine plant at Hams Hall, near Warwick.

Rover, known as "the English Patient" in Germany, lost £647m last year and its UK market share is now languishing at 5%. Prof Werner Samann, Rover's new chairman and chief executive, said he hoped to contain this year's losses to "a little below that" but some analysts expect them to be as high as £850m.

Tony Woodley, chief union negotiator at Rover, said: "I can't think of any multi-national car company which would suffer losses on this scale, well over £1bn by the end of this year, and yet plough in another £3bn."

Prof Kumar Bhattacharyya, head of Warwick university's manufacturing group, said the Longbridge investment was the best news for Rover in 30 years. "If they can't make Longbridge work they will have huge problems on their Munich doorstep ... There's no compromise on this [medium-sized] car."

BMW's forecast of a Rover break-even by 2002 assumes that the pound will remain at around DM2.90 but Milberg and Sämann hope that the UK will have joined the euro by then, at a lower rate: every pfennig rise in sterling's value knocks up to £7m off earnings. "We plan to break even irrespective of the euro," a senior BMW official said.

Stephen Byers, trade and industry secretary, said BMW's Longbridge investment was the biggest by a car manufacturer in the UK. It is backed by £152m in state aid. This will be paid in six instalments. Mr Byers, claiming the package heralded a new approach to government aid to industry, said it was tied to productivity targets. If these were not reached, money would be paid back.

Prof Samann said overall productivity had to improve by 10% to match BMW's German plants, implying a 15-20% rise at Longbridge within the next three years.