AM Online

China deal in £67m crisis hangs in balance

The future of MG Rover was hanging in the balance earlier this week as news emerged of its planned joint venture with Shanghai Automotive Industry Corporation (SAIC) stalling.

Months of negotiations could be jeopardised after SAIC leaders learned of a £67m deficit in MG Rover’s pension funds, leading them to believe its already precarious financial position is worse than originally thought.

A report by accountant Ernst and Young has reportedly suggested it is running out of money, and SAIC fears if the carmaker collapsed post-deal it could be left with its pension liabilities.

Daniel Ward, MG Rover director of communications, told AM as we went to press on Tuesday he hoped an announcement would follow by the end of this week.

“All parties want a resolution, but it’s a very difficult call,” he says. “We’ve never underestimated the importance of our talks with SAIC. We have to wait to see what the outcome of those will be.”

At the beginning of the week, officials from the Department of Trade and Industry met SAIC leaders in China to try to broker a rescue deal for the West Midlands carmaker. Trade and Industry Secretary Patricia Hewitt has also offered MG Rover a £100m bridging loan while the SAIC deal is hammered out.

MG Rover denies reports that it would have to call in receivers this Friday should it not receive the UK Goverment loan.

A DTI spokesman says: “We’ve got nothing to add at this moment. Negotiations are continuing in China and of course it is the outcome of those that will inform the decision.”

The SAIC deal is seen as vital to secure the future of the carmaker and around 6,000 workers at its Longbridge plant. With an elderly model range and rapidly declining new car sales, it needs SAIC’s investment to develop new cars, in return for sharing its techno-logy at SAIC’s Chinese plants.

Richard Cort, chairman of the MG Rover dealer council, remains “cautiously optimistic”. He says franchised dealers have already signed a novation agreement, a legal document relating to the transfer to the MG Rover and SAIC joint venture company.

“So it certainly looks promising,” he adds.

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