BMW to invest pounds 3.3bn in Rover over six years

BMW YESTERDAY pledged to invest a further pounds 3.3bn in Rover over the next five years with the aim of virtually doubling production to 800,000 cars a year.

But the German car maker coupled its pledge with a renewed call for Britain to enter the single European currency, warning that if the pound was not in the euro then Rover could miss even its revised target of break-even in 2002.

BMW also disclosed plans to accelerate the productivity drive at Rover and outsource more work to component companies and overseas suppliers in a bid to stem the company's losses.

Professor Joachim Milberg, the new chairman of BMW, said it intended to invest a total of DM30bn between now and the middle of the next decade. A third of this would be spent on Rover, in what amounts to the biggest inward investment programme in the UK ever.

The DM10bn investment is in addition to the DM6.5bn BMW has already spent since it bought Rover for pounds 800m in 1994 and does not include BMW's planned investment in a new UK factory to produce Rolls-Royce cars. The centrepiece of the Rover investment will be a pounds 1.7bn expansion of the Longbridge factory in Birmingham to produce a new Mini from the end of next year and a replacement for the Rover 200/400 series, codenamed the R35.

A pounds 152m aid package for Longbridge, which was finally announced by the Government yesterday, is tied to productivity improvements and an undertaking to maintain a workforce of 9,000 at the plant.

Stephen Byers, Secretary of State for Trade and Industry, denied that he had had "my arm shoved up behind my back" by BMW to agree to the aid package and said that if the productivity targets were not met then the money would be repayable.

Professor Werner Samman, the Rover chairman, said BMW was looking for productivity improvements of between 15 and 20 per cent a year at Rover to bring it into line with the group's German car plants.

In addition, more components will be sourced abroad because of the high pound while Rover will move to a new system of production involving the pre-assembly of whole modules, such as complete dashboards and steering columns outside the factory. The modules will then be bolted together on the production line.

Rover lost pounds 620m last year and is expected to lose a further pounds 400m this year. Professor Samman said the break-even target of 2002 - two years later than planned - was based on the value of the pound staying in a range of DM2.80 to DM3 and Britain joining European monetary union. "We expect the pound to be in the euro in 2002 - maybe it will not happen but it is our hope."

Professor Milberg added that the present high level of sterling was having "a significant negative impact" on the whole of UK manufacturing.

Under the ambitious investment programme, the output from Longbridge will rise to between 350,000 and 450,000 cars, while production at Rover Cowley, which is making the new R75 executive car, will increase to 150,000 with a long-term possibility of doubling to 300,000 with the introduction of a second model. Meanwhile, output from the Solihull factory, which makes the Range Rover and Land Rover range, will rise to 200,000.

Unions are to hold talks shortly with the Rover management on the latest productivity and outsourcing proposals. Tony Woodley, the chief car industry negotiator for the Transport and General Workers Union, said: "We have no problems with BMW's productivity plans.

By the time the dust has settled it will not be an issue. "The crisis over whether there is a future for Rover is gone but this company still has less than 5 per cent of the UK market, which is a disaster," he added.

The pounds 152m of aid is made up of pounds 129m in regional selective assistance payable in six installments and pounds 23m from Birmingham City Council, the local Traning and Enterprise Council and new Regional Development Agency. The bulk of the RSA, pounds 82m, is payable between 2002 and 2004.

Outlook, above