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Tuesday, July 7, 1998 Published at 15:54 GMT 16:54 UK

Business: The Company File

Pound may drive Rover abroad

Rover could eventually switch car production abroad

The Rover group is seriously considering using cheaper foreign suppliers instead of British companies.

The group which makes Rover, Land Rover and MG cars says it is examining the move because the continuing strength of the pound is now hitting profits hard.

The move could have serious impact on as many as 200,000 jobs in the UK car parts industry.

[ image: Rover buys 85% of its parts from British companies]
Rover buys 85% of its parts from British companies
Rover, which is owned by the German company BMW, could also eventually transfer its production overseas if the pound continues to hit its business.

However it has stressed it has no immediate plans to switch car production abroad and there was no risk to the 40,000 employees at its British plants.

The clarification of the position was made by the company after a Rover senior executive was quoted in Auto Express magazine.

The executive - who was not named - said the currency situation was so serious that "we have to consider the possibility of building abroad".

He added that the company had "a crisis on its hands".

Ian Strachan, director of corporate communications for Rover, admitted that the strong pound was causing concern.

He said: "We have said for some time that the overvalued pound is making things difficult for us.

"I don't think it's quite a crisis but it is a serious issue for us and it is restricting our growth. Sales are going up. But the pound is hitting our margins. Also in our home markets, the overvalued pound is sucking in cheap imports."

[ image: There are fears of job losses at British firms which supply Rover]
There are fears of job losses at British firms which supply Rover
He said up until now Rover, one of Britain's main manufacturing exporters, had been able to weather the currency issue through hedging contracts fixed at DM2.40 to the pound. But that cover expired in June.

This means that Rover's margins are now taking the full hit from the pound's strength as it remains stubbornly around the three Deutschmark mark level.

But Mr Strachan added: "We may use more components from overseas. We are not talking about anything beyond that."

Rover spends between 3.5m and 4m a year on components for its vehicles, with 85% of parts coming from UK companies.

Growing concern

The company's comments have also been echoed by other British car industry chiefs, including Ford Motor's UK chairman, Ian McAllister.

The problem for exporters could become even worse if interest rates rise again this year as some economists are forecasting.

Base rates currently stand at 7.5% after a series of rises over the past 15 months.

The strong pound has already helped push British manufacturing into recession.

The Engineering Employers Federation (EEF) is expected to announce on Wednesday that its latest survey shows export orders down for the sixth consecutive quarter.

The EEF's economist, Alan Armitage, said: "We are now beginning to see the effect of those lost orders in terms of falling output and falling jobs."

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