Rover expected to get pounds 200m state subsidy

INDUSTRY minister Stephen Byers is expected to announce a pounds 200m subsidy for a new generation of Rover cars within the fortnight. On Thursday, he will tell Parliament the Government remains committed to Rover and its Longbridge plant in Birmingham.

Mr Byers spoke to BMW's new chairman, Joachim Milberg, last Thursday to emphasise his eagerness to secure the future of Britain's largest manufacturing plant. Treasury support for the investment is known to depend on productivity improvements at Longbridge.

"Negotiations are continuing. It is a very detailed, formalistic process that has to meet Brussels criteria for allowable subsidies. We expect to conclude by the end of the month," said a source close to the talks.

Last week, Mr Milberg demanded swift and significant improvements in Rover's performance. He said: "This is no longer a matter for discussion. We must see some initial results before the end of spring".

A management team from Munich has established new plans to turn round BMW's loss-making British subsidiary. These have to be agreed by the full BMW board. The elimination of duplication and the full integration of Rover into BMW are key features of the plans.

Mr Milberg said decisive action was needed to raise efficiency, productivity and sales . He added that he expected to take fast decisions "to get to grips with the difficult situation in which we find ourselves on account of Rover Cars".

Mr Milberg insisted: "We will do everything to ensure that the new Rover 75 meets BMW quality standards. We will also force the pace of sales, particularly of the Rover 200 and 400. It is agreed by all involved that a rigorous course of action is right."

Up to pounds 200m of taxpayers' money could be needed to fund the pounds 1bn investment required to bring production of new front-wheel drive cars to Longbridge to replace the existing 200 and 400 range.

BMW has already invested pounds 2.2bn in Rover without receiving any public subsidy. BMW's plans foresee using one basic, front-wheel drive chassis for several cars, including small vans or off-road vehicles. Some would be Rover-badged, but at least one novelty - a new small, front-wheel drive BMW - is a serious option. This would see BMW creating a 2 Series, emulating Mercedes-Benz's move into the compact car market with the A-Class.

In January, UK sales of Rover dived by 50 per cent in a market that shrank by a quarter. Rover had to close the Longbridge production lines in December because of poor sales last year. Short-time working continues.

The losses incurred by Rover in 1998 have yet to be revealed, but speculation suggests they could be as high as pounds 500m. By contrast, the BMW brand had a record year, selling 700,000 cars and 60,000 motorcycles, increasing sales by 8 per cent to DM38bn (pounds 14bn). A recent magazine survey placed the 3 Series and the 5 Series at the top of their respective classes.