Talks to save MG Rover deal stall

Rover is pinning its hopes on a deal with Shanghai Automotive

Crunch talks aimed at sealing a rescue deal for UK car maker MG Rover - and saving 6,000 jobs - have stalled.

Officials from the Department of Trade and Industry and Shanghai Automotive Industry Corporation (SAIC) have been in talks about a rescue deal in China.

But a UK government official said MG Rover's finances were worse than either it or the Chinese company had realised.

The government has now called on MG Rover directors to produce new proposals to satisfy SAIC's concerns.

Money worries

SAIC had been considering a deal to guarantee MG Rover's future, but has expressed concerns that the UK company could run out of money.

Rover is like a spotty-faced kid. It is too big to be small and too small to be big Professor Peter Cook, Nottingham Business School What are Rover's future prospects?

Sources told the BBC that the talks were "very badly stalled".

If SAIC walk away from a deal there is a high risk that MG Rover could be forced into administration.

MG Rover has denied a report it would need to call in the receivers by Friday unless it gets an emergency £100m bridging loan from the UK government.

The firm employs 6,000 staff at its Longbridge plant in the West Midlands.

'Only hope'

Over the weekend, the UK government had said it was ready to offer MG Rover a bridging loan to keep it afloat long enough to clinch investment from SAIC.

UK Trade Secretary Patricia Hewitt has said that talks between MG Rover and China's biggest car maker were the "only hope" for the firm.

However, SAIC executives are reported to be concerned about MG Rover's viability.

The Independent said the last British-owned volume car maker was on the brink of insolvency.

ROVER TIMELINE May 2000: BMW sells Rover to Phoenix Venture Holdings for a symbolic £10, saving thousands of jobs November 2001: Rover says it will spend £300m on building a new medium-sized car November 2003: Rover stops production for three days to clear a backlog of stock October 2004: Rover reports a £77m loss for 2003, down from a £95m loss in 2002 November 2004: Rover says it is in talks with China's Shanghai Automotive Industry Corporation about a £1bn joint venture February 2005: Gordon Brown discusses Rover with Chinese leaders as concerns grow the deal may be at risk April 2005: The government offers a £100m bridging loan to Rover amid fears that the Chinese deal may collapse

The Financial Times reported that the company would run out of money within the next month.

'Pension hole'

Meanwhile, MG Rover has denied a report in Sunday's Observer newspaper that it has a £400m hole in its pension fund which is jeopardising the deal. A spokesman for the company said the figure was "completely misleading".

The firm had acknowledged a pensions shortfall of £67m in its 2003 accounts published last October, he said.

The Observer reported that an outline deal with SAIC had been ready for weeks but had not been signed because the Chinese firm feared Rover could soon go bust, leaving it to shoulder pensions liabilities.

The paper quoted an adviser to SAIC as saying a new loan "may give everyone more time to negotiate the deal" but "if, as seems likely, Rover is close to insolvency, it does not mean the deal will be done."

Rover has struggled to make an impact in a competitive market

SAIC representatives in London declined to comment.

Industry experts said a deal was still a possibility but warned that time was fast running out.

"Clearly there is a cash flow problem here," Garel Rhys, director of the Centre for Automotive Research at Cardiff Business School, told the BBC.

"[MG Rover] has not got a great deal of funds over the next six months and I think that is the issue for the Chinese. They want to make sure the company does have funds for the immediate future."

Election pressures

Dozens of West Midlands engineering firms also depend, at least partly, on supplying MG Rover, Britain's last surviving mass car maker.

Birmingham could be an important battleground in the forthcoming general election as it has several marginal seats.

Under the proposed deal, the Chinese firm would inject cash into MG Rover to help it develop new models; in return it would secure rights to the firm's more advanced technology.