UK/CHINA: SAIC hopes to have Rover tie-up in place by May election
Shanghai Automotive Industry Corporation reportedly raised questions about the financial health of British car maker MG Rover yesterday but insisted to the Daily Telegraph that it hoped to clinch a joint venture deal before the general election likely to be held in May.
The paper said the comments added to fears that unless the Chinese company agreed the joint venture, valued by some analysts at £1 billion, thousands of jobs could be lost in the West Midlands.
Shanghai Automotive reportedly said it was "confident that the deal will be completed in time to protect the MG Rover Group'' and added: "The Chinese government has given these negotiations its full support."
However, sources close to Shanghai Automotive told the Daily Telegraph it was aware of the need for a speedy deal given MG Rover's financial situation - the company made a loss of £77 million in 2003 and warned that losses would not get any better in 2004.
"People realise that MG Rover is in a fairly precarious situation,'' one source told the paper, adding: "They [Shanghai Automotive] will get this done before Rover is no longer able to."
The newspaper said any deal is now due to be completed by the end of April, just before the expected date of the next general election on May 5. The source reportedly continued: "It will be late spring. They are keen to get this thing tied up by the general election."
According to the Daily Telegraph, MG Rover conceded that its finances were under pressure because global sales of MG and Rover cars fell to 115,000 last year, against 144,000 in 2003 - the company got off to a mixed start in 2005, with sales of new Rovers down 34% to 2,587 cars, and sales of MG sports cars up 25% to 2,577 vehicles last month.
Spokesman Daniel Ward told the newspaper: "I won't comment on the cash position. Sales are being impacted by confidence and I think their statement today will lift confidence. [Shanghai Automotive] are saying that they are quite clear they can get agreement. The pressure is on selling cars because that protects our cash position and we are quite clear that we need to sell more cars."
Ward admitted to the Daily Telegraph that signing off an agreement would result in a "significant boost" for dealers and customers. He said: "There is a need to conclude sooner rather than later. The critical thing is the level of sales."
Garel Rhys, director of automotive research at Cardiff Business School, told the paper the Chinese were attracted by MG Rover's well regarded research and development business.
However, he told the Daily Telegraph: "The financial future of Rover and the joint venture are one of a piece. Rover was always going to struggle to survive on its own unless it had very deep joint ventures. The JV is absolutely crucial to the return to profitability. Get the JV in place and the finances of the company are revolutionised."
Prof Rhys reportedly forecasts MG Rover will make a profit for the full year in 2006, a year later than he previously thought.
"The JV will allow Longbridge to prosper," he told the Daily Telegraph, adding that it would spread the overhead costs across both companies without the need for big job losses in the West Midlands.