MG Rover has begun insolvency proceedings, calling in accountants PricewaterhouseCoopers, and has stopped production at its Longbridge plant.

Negotiations with Chinese carmaker Shanghai Automotive Industry Group have failed to result in a deal which would have given the ailing UK car company a multi-million pound lifeline.

The breakdown in talks led the Government to withdraw its offer of a £100m bridging loan. MG Rover employs 6,000 people at its Midlands’ plant and up to 30,000 more work for its suppliers. The Government has offered £40m in support to component suppliers.

The Government "has done everything possible" to avoid the company's collapse, Trade and Industry Secretary Patricia Hewitt said in a press conference yesterday. "This is a devastating blow to all those involved: the workers and their families, the company's suppliers and the wider community."

Hewitt had also announced that MG Rover had called in the receivers. But the company caused confusion by saying it had only asked PricewaterhouseCoopers to "accept engagement to advise the board of directors on the current position at the company".

SAIC has not made a formal comment, but talks with MG Rover are believed to have broken down because of its doubts about the UK firm’s financial viability. It had been hoped SAIC would invest in MG Rover, enabling it to develop a new model range, and benefit from technical expertise in return.