Joachim Milberg, the new chairman of BMW, confirmed that aid applications had been made to both the British and Hungarian governments for the new model to replace the Rover 200/400 series.
However, BMW denied that its final decision on where to locate the new plant would be based on a subsidy auction. A decision on the state aid is expected in the next two to three weeks.
BMW submitted an application for around pounds 200m in aid to Stephen Byers, the Secretary of State for Trade and Industry, last week. The investment is vital to the long-term survival of Longbridge. If it is chosen for the new model, it would secure 15,000 jobs direct and could provide the springboard for a doubling of Rover's UK production from 450,000 cars to around one million by 2004-05. BMW has plans to build a range of cars from family saloons to utility vehicles based on a single platform.
Speaking last night at the Geneva Motor Show, Mr Milberg confirmed there would be a replacement for the 200/400 series, saying BMW had decided that it would remain in every sector of the car market where it currently has models. But he said no decision had been taken on the location of the investment.
A Rover spokesman added: "In the end, the BMW investment is a lot of money and they must decide which country offers the best value for shareholders."
Apart from the subsidies available, BMW will also take into account productivity targets, flexibility and desired quality levels, he added.
Mr Byers insisted yesterday that there was "no question of the Government just bailing out any failing or ailing industry". But he added: "What we are prepared to do is to look at financial support which meets three key criteria: one, to raise the skills level of people working; two, to improve productivity; and three, to secure a substantial investment from BMW itself."
The chairman of Porsche, Wendelin Wiedeking, said he would complain to Brussels about the aid to Rover this week. He is writing to the European Competition Commissioner, Karel Van Miert, demanding that any plans by the UK to subsidise Rover should be stopped. Mr Wiedeking said to offer "such a gift" amounted to unfair competition. "I cannot just stand by and ignore that a subsidy will be given - this practice should stop."
Rover has already announced 2,500 job losses as part of a plan to boost productivity and achieve savings of pounds 150m a year. But the new BMW chairman will want to extract further efficiency gains if the balance is to swing in favour of Longbridge, rather than Hungary.
A Rover spokesman said: "We are aware of the conditions they want us to meet for the investment, which includes the higher productivity, and we have been making great steps towards that.
"Obviously the fact that we have put in for a grant from the Government shows that we now have a project and we want to go ahead with it a Longbridge."