MG Rover's troubles are intensifying and the next few months will be critical to the British carmaker's future, Automotive News Europe reported.

Western European sales of MG Rover cars dropped 13.6% the first two months of this year — after falling 10.4% in 2002 to 143,745 units.

Officials admit MG Rover will lose money again this year but they argue the company should be profitable once replacements for its aging model lineup arrive.

The replacement programmes have been troubled, particularly the launch of a new version of the lower-medium Rover 45. Following the sale by BMW to Phoenix Venture Holdings three years ago, MG Rover has searched in vain for a partner to help it revamp its lineup. Major players were not interested, so MG Rover courted the likes of Brilliance China and India's Tata.

But MG Rover has suffered several recent setbacks:

-- TWR, MG Rover's engineering partner on the new Rover 45, filed for bankruptcy. The resulting search for a new partner may delay the new model until after the Birmingham, England, motor show in autumn 2004.

-- MG Rover's joint venture with Brilliance China appears to be dead. Although MG Rover officials say they still have a deal, Chinese sources say no. Auto analyst Garel Rhys, who has given advice to MG Rover, said the end of the Brilliance China venture won't prevent the 45 from being launched but could reduce the number of variants. Under the joint venture, MG Rover was to have launched the new 45 in 2004 and Brilliance China would have introduced the 45 in China in 2005. Rhys said losing the partnership could have a bigger impact on the replacement for the Rover 25 small hatchback that Brilliance China was to have helped develop.

-- MG Rover's hoped-for takeover of the Daewoo FSO plant in Poland remains unresolved. Company spokesman Stewart McKee told Automotive News Europe that discussions are continuing with Daewoo creditors. MG Rover had planned to ship the old Rover 45 tooling to Poland to make cars for eastern Europe and other selected markets.

-- MG Rover told about 100 members of its engineering staff they could be laid off.

-- Labour unions are taking a strike vote on MG Rover's offer of a 2.2% pay increase. Tony Woodley, deputy general secretary of the Transport and General Workers Union, said employees are angry company directors gave themselves big raises. Workers rejected the pay offer by an 81-19% margin. Strike ballots are due to be counted on April 10.

Against all this, MG Rover has a few bright spots, Automotive News Europe said.

The best is MG Rover's growing partnership with Indian carmaker Tata. A Rover version of the Tata Indica is due later this summer. The new supermini is likely to be called the Rover 15 and be positioned below the 25.

Phoenix Venture Holdings, MG Rover's owner, has formed a company called Phoenix Distribution to import two other Tata vehicles into the UK: the Loadbeta pickup and Safari sport-utility.

MG Rover has also boosted production of its popular MG TF sports car to keep up with demand, Automotive News Europe noted.