Thursday, April 7, 2005

MG Rover suspends production as rescue hopes fade

By Michael Smith / Reuters

Copyright © 2004 Reuters Ltd. Click for Restrictions.

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LONDON - MG Rover was forced to stop production on Thursday as suppliers suspended deliveries, amid growing concern about a government delay to a loan that will be essential to saving Britain's last major carmaker.

The 100-year-old firm warned time was running out to save it from collapse. It needs a 100 million pound ($188 million) loan to secure an alliance with China's largest automaker and keep its UK plant open.

"The implications are devastating. We can not survive this," Peter Beale, vice chairman of MG Rover's holding company Phoenix Venture Holdings, told BBC Television.

"If the bridging loan is not offered to us by the government we are facing now the tragic closure of Longbridge."

MG Rover's collapse would directly affect 6,000 staff at its Longbridge plant in central England and thousands more supply jobs, creating a political headache for the British government in the run-up to a general election on May 5.

Sources close to the talks and unions said it now appeared unlikely the government would approve the loan, ending the chances of SAIC stepping in and taking control of MG Rover.

"(Without SAIC) they can't be saved. It is really their last salvation," said Ferdinand Dudenhoeffer, a professor at Gelsenkirchen University's Centre of automotive research in Germany.

MG Rover and SAIC have been waiting for days for the UK government to decide on the 100 million pound loan which SAIC says it needs consider advancing talks on a tie-up.

Some suppliers, worried about the company's financial health, said they were suspending the delivery of auto components, citing fears that MG Rover might not be able to meet its payment obligations.

MG Rover has denied newspaper reports it would run out of money by the end of the week.

A source familiar with the situation told Reuters Thursday MG Rover had hired accountants PwC to be on standby as administrators. MG Rover and PwC denied the accountants had been hired.

Unions representing MG Rover workers urged suppliers not to panic and said they remained hopeful a deal would be done. However, privately they were not confident about the company's future. "It looks grim," one union source said.

An MG Rover spokesman said none of the workers at its Longbridge plant had been sent home and it hoped to have production back up as soon as possible.

Automotive engineering group Wagon Plc said in a statement it was suspending supplies to MG Rover, adding that it was owed 900,000 pounds by the company.

Sources close to the talks said earlier on Thursday there was increasing frustration among Rover's management and workers and at SAIC over the lack of a government decision on the loan.

"I think it's pretty clear the government isn't going to put any money in," one source close to the process said.

SAIC is seeking guarantees that MG Rover's holding company, Phoenix Venture Holdings, can keep the company solvent for the next two years. Phoenix directors pledged 10 million pounds of their own money on Thursday.

Trade and Industry Secretary Patricia Hewitt said everything was being done to secure a deal, reiterating comments by Prime Minister Tony Blair on Wednesday.

The collapse of MG Rover would deliver a severe blow to Britain's carmaking industry. Ford, which owns the luxury brand Jaguar, cut jobs and scaled back production in England last year.

MG Rover, a former British icon dating back to 1905, was sold to Germany's BMW AG in the 1990s before returning to British hands when it was sold to Phoenix four years ago. (Additional reporting by Gerard Wynn, Mike Peacock and Siobhan Kennedy in London and Michael Shields in Frankfurt)