Byers' cut in car prices adds to Rover's woes

The attempt by Stephen Byers, the Trade and Industry Secretary, to force down UK car prices is undermining one of his other pet projects - ensuring the survival of MG Rover.

The attempt by Stephen Byers, the Trade and Industry Secretary, to force down UK car prices is undermining one of his other pet projects - ensuring the survival of MG Rover.

The DTI's bid to wipe 10 per cent from the cost of UK cars comes as the troubled British car marque is facing up to its lowest ever share of the domestic market, just 3.7 per cent. Industry experts estimate that the price cuts will cost MG Rover at least £150m.

John Towers, whose Phoenix consortium of local businessmen earlier this year acquired Rover from BMW, last week embarked on a long-awaited holiday in Portugal. However, he found time to deny reports that a cash crisis had forced him to seek an exit through Proton, the Malaysian manufacturer. However much Mr Towers denies there are problems, the smoke around MG Rover is thickening. The company is believed to be seeking an extra £500m from BMW to reflect the declining value of the assets it took on. Production of its flagship Rover 75 model, which has been transferred from BMW at Oxford to the Longbridge plant near Birmingham, appears to have slipped below schedule.

On Thursday came news of the drastic slump in MG Rover's share of the domestic market. And rumours abound that little remains of the £550m of working capital laid out by BMW.

Certainly, Rover's suppliers are concerned. MG Rover has denied that they will have to wait an extra month for payment, but these rumours reflect concern that the car manufacturer cannot be relied on to live up to its orders.

"There has been a pattern of their not wanting the number of parts they said they would acquire," said one supplier. "When MG Rover has negotiated a price, suppliers make plans on the basis of that information. If the deal falls short, it's a major problem for us."

But MG Rover remains adamant that its ambitious plans to produce the four Rover saloons plus the MGF sports car and three other MG models will yield a profitable company by 2002. Production of the 75 at Longbridge began last week and there are no plans to alter supply contracts. The attempts to winkle extra cash out of BMW are nothing more than a formality. But if there is no fire, who are the secret parties apparently bent on spoiling the adventurous dreams of Mr Towers? One source said that a major supplier had been briefing against MG Rover in the press, perhaps to warn its customers that contracts are not up for renegotiation.

Longbridge's 5,500-strong workforce has grown accustomed to the sniping. BMW had been expected to dispose of the subsidiary dubbed "The English Patient" for at least two years before it bit the bullet.

The likely buyer appeared to be Alchemy, the venture capitalist that planned to lay off most of Rover's workforce and produce only MG cars. The triumph of Mr Towers' more ambitious plan has failed to convince its many sceptics that he can succeed, much to the disappointment of Richard Burden, MP for Birmingham Northfield.

"The point made by critics in the spring was that Rover had a problem because no one wanted anything to do with it," he says. "Now there is a real feeling that this is a company doing what it said it would do. It deserves support."

But Mr Byers, whose ardent support did so much to ensure Phoenix's success, has since done much to jeopardise the gratitude felt by the 45,000 West Midlanders whose livelihoods depend on MG Rover. In a world which produces five cars for every three it needs, life is tough enough for a small player without friends such as Mr Byers trying to squeeze its profit margins even further.