Thousands of Rover workers have been celebrating the Phoenix consortium’s purchase of the car maker from BMW for a nominal £10.
But as the party atmosphere subsides, some industry experts are beginning to question how Phoenix can pull the ailing car maker back from the brink of closure when others have tried and failed.
The company is said to lose £1,500 on every car it sells.
Phil Middleton, head of banking strategy at accountants KPMG, said investors would quickly seize control of Rover if the company showed any signs of further trouble.
Rover’s survival depended on introducing new models, but current development costs of £2bn for a new car would be well out of the reach for the Phoenix Consortium, he said.
Rover’s new boss, John Towers, hopes that collaboration with another major car maker will give his firm the ability to develop new cars.
According to the Times newspaper, Mr Towers is already in secret talks with Honda, but other reports mention a possible link-up with VW and Ford.
Industry analyst Graeme Maxton said: “To me it doesn’t make a lot of sense. It’s good for employment but I suspect this just prolongs the agony.”
Two years till profit
In the House of Commons, Trade and Industry Secretary Stephen Byers congratulated Phoenix.
But he warned against underestimating the struggle Rover now faces to survive.
As part of the deal, BMW is lending Phoenix about £500m ($765m) to help cover the cost of redundancies and restructuring.
Mr Towers hopes to make the business profitable within two years.
Sense of relief
Despite the warnings, nothing is yet able to replace the huge sense of relief at Longbridge and across the West Midlands after the sale.
Mr Towers received a hero’s welcome when he arrived at the Birmingham plant on Tuesday.
The deal announced earlier in the morning followed almost two months of frenetic negotiations involving Phoenix, BMW, the original bidders Alchemy Partners and the UK government.
“It’s a very satisfactory outcome for us. It’s an emotional day,” said Mr Towers.
“We have a huge amount of work to do to get the cash flow into a positive balance. We are determined to do that.”
Workers get a share
To add to staff celebrations, Mr Towers said he planned to give the workforce a share in the business.
He said the idea was to set up a trust into which he would put “more than a third” of the firm’s share value, giving staff a direct interest in its future success.
He also said he expected “less than a thousand” job losses, many fewer than would have gone had the original bidder, Alchemy Partners, been successful in taking control of Rover.
Officially, Phoenix took responsibility for the development, production and distribution of Rover cars from 0800 GMT on Tuesday.
Sir Ken Jackson, general secretary of the Amalgamated Engineering and Electrical Union, said: “This is tremendous news.
“It saves thousands of jobs and gives Longbridge a secure future. I am absolutely delighted for the whole workforce.”
Production of the Rover 75 will be shifted from Cowley, Oxford, to Longbridge in Birmingham as part of the deal.
Phoenix retains production of the full Rover range, MG and the current Mini, and plans to develop an estate version of the award-winning 75 model.
BMW keeps the new Mini, to be produced at Cowley, and retains rights to the Triumph and Riley marque names. BMW had already agreed to sell Land Rover to Ford.
The news came the morning after one of America’s largest banks, First Union, offered £200m ($306m) to finance the Phoenix bid for the loss-making UK carmaker.
Mr Byers warned that there was a lot still to be decided.
He told the BBC: “There are still difficult decisions. The proposals will involve a number of jobs being lost”.
But he said that the government stood ready to help facilitate any future negotiations between Phoenix and other car companies, and would still make about £120m available for the regeneration of the West Midlands.