Managers had said the business was not making money
A union leader said MG Rover misjudged the mood of workers at its Longbridge factory in Birmingham after they voted to call off a planned strike.
Just over half of the 3,000 car workers have agreed to a new two-year deal which restores sick pay to its full amount and includes another half a per cent on top of the original offer of a rise of 2.2%.
The rise next year will be pegged to the rate of inflation.
Workers had voted for industrial action after the company refused to improve its basic offer and raise sick pay from 75% to 100%.
'Substantial number of members'
Dave Osborne, the Transport & General Workers Union's national secretary for the car industry, said:
"Whilst the company had reiterated that their original offer was final, the new
improved offer clearly establishes it was not.
"The company should take note of the ballot result, with a substantial number
of members voting against.
"They obviously misjudged the mood of our members."
Mr Osbourne added: "It is a pity that the T&G had to threaten industrial action to secure a
reasonable settlement which only goes part way to recognising the magnificent
contribution made by our members since the formation of the new company."
MG Rover says it will give full sick pay as long as absenteeism does not rise above 2.75% at the plant.
If the strike had gone ahead, it would have been the first major industrial action at the Midlands car maker in 10 years.