BMW threatens to build the Mini in Hungary

BMW IS considering moving production of Rover's new Mini to Hungary unless the Government agrees to a pounds 200m aid package for Rover's Longbridge plant in Birmingham.

Several sites in Hungary are understood to have been examined by BMW executives as an alternative to keeping the Mini in the UK. Another possibility is to produce the car in Poland or the Czech Republic.

News of the threat to production of the Mini came as Rover was poised to announce a deal on flexible working with its 39,000-strong manual workforce.

The agreement, expected to be announced on Monday, will involve up to 3,000 job losses and save the company pounds 150m a year. It will mean an end to overtime payments - currently costing Rover about pounds 50m a year - and the introduction of "working time accounts".

Rover is also abolishing holiday bonuses, worth about pounds 200 per worker each year, along with management bonuses. In return, the working week will be cut from 37 to 35 hours and Longbridge not be closed.

The job cuts will cost Rover about pounds 60m and will mean payments averaging pounds 20,000 for those who volunteer to take redundancy. The company is seeking to avoid compulsory redundancies.

The 3,000 job losses are higher than had been expected. In October, when BMW set a six-week deadline for agreement on a new flexible working deal, it indicated that it was seeking 2,400 job cuts.

About 1,200 of the redundancies are expected to be at the Longbridge plant, with the remainder spread elsewhere in the group.

Even with the new flexible working agreement, BMW is still seeking government support in order to invest at Longbridge in the new Mini and a replacement for the Rover 200-400 series, codenamed the R35.

BMW intends to invest pounds 1.2bn in re-equipping Longbridge for the two models. A further pounds 500m will be spent with suppliers on production tooling.

Rover is expected to lose about pounds 600m this year under German accounting rules, compared with pounds 110m last year. Much of the loss is due to the rise in sterling, which has made exports unprofitable and forced Rover to cut prices at home to compete with cheaper imports.

Rover's overseas revenues had been hedged at favourable rates for the first half of the year, but since July the company has been converting them at spot rates. It has also been hit by a collapse in sales to Japan, which have halved from 32,000 units last year to about 15,000 this year because of the Japanese recession.