MG Rover stuck in the red

MG ROVER, the company bought from BMW for £10, today reported another year of heavy losses as sales of medium-sized models tumbled.

The group said its ageing Rover 45 models and the MG ZS sold 8,300 fewer cars than a year earlier. Losses in the year to 31 December were £62.2m against the previous year's £76.9m despite a £10m windfall gain from selling surplus land. Turnover fell from £1.74bn to £1.67bn.

The group was hit by controversy this week when it emerged that the four owners of the Birmingham-based business had taken pension contributions of about £4m from the company.

In an apparent effort to calm an impending row with unions, chairman John Towers, who led the buyout four years ago, stressed that the company was committed to a relatively generous final-salary pension scheme for its staff.

Holding company Phoenix Venture Holdings said its net liabilities were £224m although much of this was after accounting for the original £427m loan from BMW, which is not payable until 2049. Chief executive Kevin Howe said the improved Rover 75, launched in January with MG versions of the luxury saloon, would be among models to drive sales forward in the future.

He added: 'Our target is to get to a position of break-even during 2005. In the meantime, we have to review every part of the business and to revisit regularly our cost base to ensure that we operate in a totally prudent manner.'

Meanwhile, a tie-up with China's Shanghai Automotive Industry Corporation is expected to fund the development of new models and give the company a strong distribution route into China.

At the time of the negotiations, Phoenix was also in collaboration talks with Proton of Malaysia but those discussions have now been terminated.