Rover admits 2300 UK auto workers face sack in reshuffle

British auto manufacturer MG Rover's rescue joint venture with the Chinese car maker Shanghai Automotive Industry Corporation (SAIC) will be completed next month, with significant job losses predicted for the British company.

The new joint venture company's owners, the Phoenix Four, will hold on to businesses worth £10m, while up to 2,300 workers will lose their jobs.

The Independent on Sunday reported that it has obtained details of a letter, jointly signed by MG Rover's chief executive, Kevin Howe, and the SAIC president, Zhao Feng Gao, sent last week to MG Rover's dealers.

The letter says that the long-awaited joint venture should be signed on 20 April. It also confirms there will be significant UK job losses, saying 35 per cent of the workforce at MG Rover's Longbridge plant - around 2,300 jobs - would be cut once the deal was signed.

MG Rover will also be a more junior partner in the joint venture than previously thought. It will have a 20 per cent share, rather than the 30 per cent widely believed, according to the letter.

The joint venture with the Chinese is expected to be split into two separate companies, one of them based in Longbridge and the other in China. The two companies could be split between SAIC and the smaller Chinese car maker, Nanjing Auto Group, which is also forming part of the joint venture. Production of Rover's larger 75 car will move to China, while a new small car will be built at Longbridge ready to be launched in 18 months.

MG Rover, which confirmed the existence of a letter, was not available for comment.

Jacqui Smith MP, whose constituency is in the West Midlands and who is a minister at the Department of Trade and Industry, would not comment on the job losses outlined in the letter. She said: "As a government, we have done what is possible to support the joint venture. It's the best proposal for Longbridge and my constituents."

The timing of the job losses, coming shortly before the general election expected in May, would be highly embarrassing for the Government, which is to defer up to £50m of VAT to ease the deal. It will stress the number of jobs to be saved by the joint venture.

It has also emerged that the four directors who own Phoenix Venture Holdings, the acquisition vehicle set up to buy MG Rover from BMW in 2000, will retain significant assets excluded from the joint venture deal.

These are thought to include parts of its property portfolio not already sold, such as Studley Castle in Warwickshire, which is used as a conference centre. The directors are also expected to retain the remainder of MG Rover's car loans book and its car leasing business. Together, these assets could be worth at least £10m.

MG Rover has confirmed that the four men will continue on the board of PVH alongside any board positions they secure on the new joint venture. This means they will continue to receive an income from PVH's profitable non-car-related businesses, which are ring-fenced from MG Rover and the joint venture. They are also understood to be entitled to the proceeds from any sale.

The news will reignite claims of profiteering by the Phoenix Four, who stand to receive income from MG Rover's original businesses even after control is passed to the Chinese. In 2002 they transferred £16m into a trust fund for themselves and Mr Howe. The directors also netted £10m in 2003 from a loan note they awarded themselves for free after buying MG Rover.

- INDEPENDENT