The British government apparently loaned £6.5 million of taxpayers’ money to keep MG Rover open for an extra unnecessary week.
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According to the Daily Telegraph, officials trying to save MG Rover were warned three times in writing that there was little chance of a deal to save the stricken company yet ministers still sanctioned the £6.5 million loan.
The paper said that, before the loan was released, the department of trade and industry unsuccessfully tried to revive the deal, but according to a City [London financial district] source, an official from the Shanghai Automotive Industry Corporation replied “what part of ‘no’ do you not understand?”.
The Chinese position was set out in a series of letters to the DTI, seen by The Telegraph. The paper added that opposition political parties called on Sunday night for a wider investigation of ministers’ conduct before the collapse of the Birmingham car maker, which laid off 5,000 workers last Friday.
The letters are said to show that the DTI was made aware almost two weeks before sanctioning the loan that any deal to rescue MG Rover was remote – the loan was approved to let Price Waterhouse Coopers, MG Rover’s administrator, pay the wages for a week.
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By GlobalDataAccording to the Daily Telegraph, on March 29, Hu Mao Yuan, SAIC’s chairman, wrote to Mark Russell, the director of the DTI industrial development unit, to say there were serious worries about the solvency of MG Rover.
He reportedly said: “We have come to the conclusion that we do not have a sufficient level of comfort of [MG Rover] remaining solvent for a sustained period following completion of the transactions and it would therefore be imprudent of us to proceed on a presumption of an ongoing solvency.”
In a further letter to Russell on April 4, cited by the Daily Telegraph, Chen Hong, SAIC’s president, warned that MG Rover would be “solely reliant” on selling parts of the business and a proposed £110 million DTI “bridging loan” to stay in business after the deal was done. He reportedly said it was clear that MG Rover “will be in difficult financial state post completion and that it will be solely reliant on bridge finance and asset sales. . . in order to remain solvent throughout the remainder of 2005 and much of 2006. As a result we are not confident in the ongoing solvency of [MG Rover] post completion.”
According to the newspaper, Hong said the joint venture it had planned with MG Rover, in which SAIC would own a 75% stake, was in serious doubt. “SAIC will not form a joint venture when it perceives a strong risk that [the joint venture] may not survive as a result of [MG Rover’s] insolvency.” A third letter on April 5 from Hong reportedly also expressed concerns.
The Daily Telegraph noted that MG Rover collapsed on April 8 and, two days later, the UK government announced it was making a £6.5 million loan to cover a week’s wages and “give the administrator a breathing space to carry on looking for purchasers”.
The paper added that a final letter from Hong, this time to Patricia Hewitt, the Trade and Industry Secretary, last Friday sealed MG Rover’s fate by stressing that “we are not willing to acquire either the whole or parts of MG Rover or Powertrain businesses on a going concern basis out of administration” – about 5,000 of the 6,100 workforce lost their jobs that day.
The Daily Telegraph said the Conservative party called for an inquiry into why the £6.5 million was released by the government despite the dire warnings from the Chinese.
Stephen O’Brien, the industry spokesman, told the paper: “The inquiry into MG Rover’s accounts must be widened to include the government role.
Liberal Democrats spokesman Malcolm Bruce reportedly said: “It gave the workforce a cushion but it also gave them false hope. We want an inquiry into this.”
A spokesman for Hewitt told the Daily Telegraph: “The proper place for an inquiry is with the MPs on the trade and industry select committee. If they chose to do so, we would fully co-operate with it.”
