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Last Updated: Monday, 4 April, 2005, 17:23 GMT 18:23 UK
Analysis: Who decides Rover's fate?

Analysis
By Rory Cellan-Jones
BBC News business correspondent

Longbridge
MG Rover's future is at a knife edge
Not for the first time, the shadow of closure hangs over the Rover plant at Longbridge.

But this time its fate is being decided 6,000 miles away in Shanghai.

British government officials, Rover executives and their counterparts from the Shanghai Automotive Industrial Corporation (SAIC) are haggling over the terms for saving the Midlands carmaker - and if they can't agree then Rover looks doomed.

Rover and Shanghai Automotive have been discussing a joint venture since last Summer - and Rover spokesmen have repeatedly promised that the deal is about to be done.

SAIC has even invested 67m in the company, and Chinese engineers have been at Longbridge, measuring up equipment and assessing which parts of the plant can be taken to China.

The snag

The proposed deal has been painted as giving the Chinese access to Rover's brand and its design skills, while providing the British firm with the cash it needs to develop new models.

But last week the marriage plans hit a major snag.

The disastrous slide in Rover's sales over recent months has had a serious impact on its cash flow - put simply, the company is about to run out of money.

A source close to Shanghai Automotive says it only realised last week how serious things were, when a study compiled by the firm's advisors revealed that Phoenix Venture Holdings, Rover's holding company, was on the verge of becoming insolvent.

Will 100m save Rover?

Aerial view of Longbridge
About 6,000 are employed at Rover in Longbridge, Birmingham

MG Rover insists that full details of its finances were handed to its Chinese partners weeks ago, and it is still confident that the deal will go ahead.

But so worried was the government by the prospect of a major employer going bust in the run-up to an election, that it despatched two senior civil servants to Shanghai.

Their brief was to offer a 100m bridging loan to enable Rover to keep going long enough for the marriage to go through.

But the government says the money will only be released once it is sure that the Chinese are committed to going ahead.

They are also insisting that the money would have to be repaid - under EU rules, a direct subsidy is ruled out.

Playing hardball

The talks have now been going on for four days, but the mood music from the Chinese side was not very upbeat - and now the talks are said to have "stalled very badly".

Shanghai Automotive has every reason to play hardball in the hope of winning better terms. The Chinese firm's concern is that it could be left facing a big bill for redundancies and might have to fill any hole in Rover's pension fund.

The firm will also be unhappy about the prospect of having to repay the government loan if Rover's cashflow continues to disappoint after the joint venture has gone ahead.

Rover's last stretch?

Trade and industry secretary Patricia Hewitt
Patricia Hewitt says the Chinese deal is Rover's "only hope"
For the government, the stakes are equally high.

Ministers know that if the loan is handed over, they'll be accused of propping up what will in essence be a Chinese firm.

But if Rover goes under, 6,000 jobs at Longbridge and another 12,000 at its suppliers could be lost, in an area where Labour will be fighting to retain several marginal constituencies at the beginning of May.

Five years ago Longbridge appeared doomed when BMW pulled out, having lost billions trying to turn Rover into a competitive carmaker.

The Phoenix consortium, which came to the rescue, has kept the company going for longer than many anticipated.

Now Rover's survival is out of its own hands.

It depends on the government's willingness to risk taxpayers' money and the continued appetite of Shanghai Automotive for what could be a costly entry into the European market.




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