Two thousand jobs at MG Rover’s Birmingham factory in central England could be axed if plans for a Chinese bail-out of the struggling car maker go ahead, people close to the negotiations have told the Financial Times (FT).
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The paper said current plans under discussion between Rover and Shanghai Automotive Industry Corp (SAIC), China’s largest car maker, involve moving production of the small Rover 25 hatchback model [and, presumably, its sporty MG-R derivative model line] to China and importing it back into the UK.
The move, coupled with plans to shift production of at least some engines to China, could put as many as a third of Rover’s 6,100-strong workforce under threat, the sources told the Financial Times.
The paper noted that the job losses are likely to come ahead of the UK’s general election, expected on May 5, which would be bad news for the incumbent Labour government as many Rover workers live in marginal Midlands constituencies.
The FT added that, without a deal, the company is likely to slide into insolvency, with both unions and Rover management admitting that SAIC is the troubled company’s last hope of preserving the remaining jobs at its Longbridge factory.
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By GlobalDataThe Financial Times said public presentation of the deal could also be helped by SAIC’s insistence that none of its cash will go to the four owners of Rover, who have been embroiled in a ‘fat cat’ pay and pension fund row with unions and local politicians.
“SAIC is extremely concerned to ensure that its money is used to invest in the business rather than be distributed to the shareholders,” one person close to the Chinese company told the paper.
Even so, the so-called “Phoenix Four” – John Towers, Peter Beale, John Edwards and Nick Stephenson – have become rich men since buying Rover for £10 from BMW in May 2000, the FT said. They reportedly paid themselves an average £1.15 million each in 2003, the most recent set of figures available, after taking out £3 million each the previous year, and made hefty profits from a linked venture into outstanding Rover leases.
The Financial Times said it remains unclear how much SAIC will pay but suggestions that it could invest £1 billion were dismissed by sources on both sides of the negotiations as far too high.
People close to the talks told the paper MG Rover has already been given £67 million by SAIC in return for access to vehicle technology, and is using the cash to develop replacements for the 25 and the mid-size 45 hatchback.
Both models date back to the mid-1990s 200 and 400 model lines and are still based on platforms developed during Rover’s technology alliance with Honda, which ended in 2000 when BMW bought Rover.
The sources told the Financial Times that job losses would be necessary under the current plans because there would be a gap – thought to be two years – between production of the 25 moving to China and the arrival of the new small car at Longbridge.
Rover declined to comment to the newspaper on jobs or the exact amount it has been paid so far but insisted that the replacement small car would be built in Birmingham.
“The basis of the agreement is that the core new models will be built both in the UK and China,” it told the FT, which added that the details of the deal are still under negotiation and have yet to be approved by the authorities in Beijing, an often lengthy process.
According to the Financial Times, the deal’s basic structure would see Rover own about 30% of a joint venture in China, with the rest likely to be split 80/20 between SAIC and nearby Nanjing Automobile. In the UK most of the Longbridge production would be put into a joint venture in which Rover would have just less than 50%, with the Chinese having control.
The Financial Times noted that Gordon Brown, the UK chancellor, this week agreed to help Rover by allowing it to “benefit from flexibility in the tax system”, understood to involve deferring VAT payments. This is thought to be worth less than £50 million but could help Rover avoid a cash crunch before the general election, the paper added.
