Although both sides refused to divulge the value of the deal, it is understood that they struck a compromise between the pounds 220m demanded by the German company and the pounds 118m initially offered by ministers.
The deal, one of the biggest agreed by a British government, was sealed after head-to-head negotiations yesterday morning between Stephen Byers, the Secretary of State for Trade and Industry, and Professor Joachim Milberg, the BMW chairman.
The agreement will secure 12,000 jobs at the Midlands plant, although union sources believe the workforce will be reduced through natural wastage. The deal also means that the threat hanging over a further 50,000 jobs that are dependent on the plant has receded.
Management is expected to press ahead with an ambitious pounds 1.7bn programme to build a new range of cars at the site and to modernise the huge factory. A joint statement from the Government, BMW and Rover said that an agreement in principle had been reached, which would secure production of the new medium-sized car at Longbridge. It added that a final agreement depended on BMW board approval on 12 April and the approval of the EU authorities who monitor state aid to industry.
Tony Woodley, the national officer for the motor industry at the Transport and General Workers' Union, said the state aid was tremendous news that removed the "uncertainty, insecurity and anxiety" that had hung over the union's members for the past five months.
Workers at Longbridge could now look forward to a "bright new future", Mr Woodley said. "While we have always been optimistic that a positive outcome would eventually emerge, it is an immense relief that the long dark days of purgatory are over."
Ken Jackson, the general secretary of the Amalgamated Engineering and Electrical Union, said the agreement was good for Longbridge and its workforce. "I was always confident that the Government and BMW would reach a successful conclusion given that the workforce had delivered new flexibility at the plant. The months of despondency are finally over and we can get on with the real job of producing cars that we can be proud of."
It is understood uncertainty over the future of the complex had led to difficulties in the implementation of an agreement to introduce the new working practices - part of the package that secured the plant's future. A Rover source said workers were disinclined to improve productivity while management was threatening to switch production to Hungary.
Mr Byers said the Government's objective had always been to secure the long-term future of Longbridge. "When the details are announced it will show that this deal breaks new ground as far as government support is concerned, not just for the preservation of jobs, but to increase productivity and improve the skills of the workforce." Mr Byers had always maintained that the deal would need to secure good value for taxpayers as well as help the industry to prosper.
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