MG Rover strikes fresh alliance with Chinese partner to make cars

MG Rover, the Longbridge-based car maker, has secured a fresh alliance partner in China to help it develop and build a new generation of medium-sized cars.

MG Rover, the Longbridge-based car maker, has secured a fresh alliance partner in China to help it develop and build a new generation of medium-sized cars.

The company announced last night that it has entered into an exclusivity arrangement with Shanghai Automotive Industry Corporation with the aim of developing a "far reaching strategic relationship".

SAIC is China's biggest car producer, accounting for about a third of the vehicles sold in the country, and already builds models under licence for Volkswagen and General Motors. It had revenues last year of $11.7bn.

The arrangement with SAIC is subject to regulatory approval from the Chinese authorities, which MG Rover hopes to receive "in the coming months". If approved, the alliance with SAIC will take the place of an earlier one with China Brilliance which collapsed 18 months ago.

The agreement with SAIC was signed in Shanghai yesterday at the company's headquarters by Nick Stephenson, the vice-chairman of MG Rover's parent company, Phoenix Venture Holdings.

Kevin Howe, the chief executive of MG Rover, said the agreement with SAIC would help it fund the development of new models and increase production of existing ones although he declined to go into details. A spokeswoman said that while Rover cars would be built in China, production would continue at Longbridge. One of the models likely to be built in China is the top of the range Rover75.

MG Rover also has an alliance with Proton of Malaysia to develop small and medium-sized cars but the spokeswoman said this would not be affected by the SAIC deal.

MG Rover has pledged to introduce a new medium-sized car to replace the Rover 45 by the end of next year. But car industry experts say its more pressing need is to find a successor to the Rover 25 to enable the company to compete in the all-important and fast-growing "super-mini" market.

The company lost £111m in 2002 and although it reduced its deficit last year, Mr Howe said it did not expect to achieve profitability until 2006. When Phoenix bought MG Rover from BMW for £10 four years ago, the aim was to start making profits from 2002.

In addition to its continuing losses, the company has been mired in controversy over the rewards extracted from the business by the four founding directors of Phoenix. These include a £10m loan note which they have shared between themselves, dividend payments from the MG Rover's car finance leasing business, MGR Capital, worth at least £1m and a pension pot worth £13.7m. In March, the Phoenix directors were accused of "financial sleight of hand" by the Commons Trade and Industry Select Committee.