Large parts of the Longbridge plant will be razed to the ground under a pounds 1.7bn investment programme that will involve the production of a new medium-sized car and an increase in productivity levels from the current 33 cars per man to between 45 and 50 cars - closing its 30 per cent efficiency gap with BMW's plants.
While the board of BMW, the parent company, will have to approve the deal, it is highly unlikely they will reject it.
The agreement was struck between Stephen Byers, Secretary of State for Trade and Industry, and Professor Joachim Milberg, chairman of BMW, who will be recommending the package to his fellow directors.
Rover has already announced 2,500 job losses, but it expects to achieve a further 2,000 on top of that. Of the additional redundancies, about 1,000 have already been identified. Together with the transfer of workers to other sites, the Longbridge workforce has fallen from 14,000 a year ago to 9,500 now.
The expansion of the plant to build a new family-sized car to replace the Rover 200 and 400 series will result in a near-doubling of production to 500,000 cars a year.
The investment will involve the building of a new assembly hall, paint shop and body-in-white shop where the frame of the car is welded together.
Rover is aiming to produce about 350,000 units of the new car, codenamed the R30. In addition, Longbridge will produce up to 150,000 of the new Mini model from late next year under a separate pounds 400m investment programme.
It is also expected that management will be seeking further changes in working methods on top of the radical flexibility agreement already in place.
The new working practices already agreed aim at closing the productivity gap. Rover employees will work longer hours during busy periods and will then recoup the time through prolonged breaks and holidays.
Working time will be averaged over 12 months, and management agreed to reduce the average working week from 37 hours to 35. Salaries are to replace wages and overtime is to be abolished. The package borrows heavily on a one-off deal agreed by the unions for Rover's new Hams Hall engine plant near Longbridge.
Rover's financial position meant that root-and-branch changes were urgently needed. The company plunged much deeper into the red last year after sustaining huge restructuring costs. In 1998 Rover incurred a loss of pounds 650m compared with a deficit of pounds 91m the year before.
BMW said the decline in Rover's fortunes were caused by "model changes, market and currency factors and the restructuring measures".
Garel Rhys, director of Cardiff University business School, said the deal was "very good news indeed". He said: "It takes away the uncertainty and gives Rover and BMW what is in effect a new plant. Longbridge is going to be very much a streamlined facility. I just hope we are not throwing good money after bad. The company must begin to show that it can survive on its own."
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