The German car maker is seeking a subsidy of up to pounds 200m to support the manufacture of a new range of medium-sized cars to replace the Rover 200 and 400 series. The alternative is to build the new cars in Hungary - a move that would spell the end of Longbridge, threatening up to 50,000 motor industry jobs in the West Midlands.
A fortnight ago the Department of Trade and Industry shocked BMW by offering an aid package worth only pounds 118m. Discussions have continued, and a spokesman for the Secretary of State for Trade and Industry, Stephen Byers, repeated yesterday that he was confident of agreeing a deal.
But speaking in Munich, the new BMW chairman, Professor Joachim Milberg, said: "The longer the negotiations drag on, the greater will become the likelihood of a production site outside Great Britain."
Prof Milberg hinted that a rival aid offer from Hungary could be higher than that made by Britain. "Hungary would have advantages in comparison to Longbridge, but there are a number of factors playing a role which have to be taken into account," he said.
DTI sources suggested there was an element of brinkmanship in the BMW chairman's comments, noting that there had never yet been an application for regional assistance where the company involved had not applied for more money than it needed.
"This is not just a case of us bunging a blank cheque in the direction of BMW and letting them do what they want with it," he added.
The aid package, if one can be agreed, will come with a list of conditions relating to BMW's overall investment in Longbridge and the level of productivity and skills improvements that will be achieved.
BMW is already cutting 2,500 jobs at Rover, and there will be further redundancies even if Longbridge is selected for the new family of cars, codenamed the R30 series. However, Prof Milberg said he was sure that no compulsory redundancies would be necessary given the age of the Rover workforce and the high take-up of previous voluntary severance schemes.
The local MP for the Longbridge area said Prof Milberg's warnings about the dangers of the talks dragging on had to be taken seriously. But Richard Burden, the Labour member for Birmingham Northfield, added: "The important thing is that the discussions between the Government and the company should come to a successful conclusion."
Meanwhile, BMW produced fresh evidence of the continuing free fall in Rover's share of the car market following its pounds 650m loss last year. In the first three months of this year, sales fell by 38 per cent. Rover sales fell 3 per cent in March, even though the market overall has been boosted by about 50 per cent because of the introduction of the new registration letter.
Sales in Europe, excluding the UK, were down by 40 per cent on a year ago. In Italy, an important market for Rover, the fall was 53 per cent.