MG Rover was forced to stop production yesterday as suppliers suspended deliveries, amid growing concern about a British government delay to a loan that will be essential to saving the UK's last major car maker.
The 100-year-old firm warned that time was running out to save it from collapse. It needs a £100 million (€145 million) loan to secure an alliance with China's largest car maker, Shanghai Automotive Industrial Company (SAIC), and keep its UK plant open.
"The implications are devastating. We can not survive this," Peter Beale, vice chairman of MG Rover's holding company, Phoenix Venture Holdings, said.
MG Rover's collapse would directly affect 6,000 staff at its Longbridge plant in central England and thousands more supply jobs, creating a political headache for the British government in the run-up to the general election on May 5th.
"If the bridging loan is not offered to us by the government, Longbridge will face closure," Mr Beale added.
Sources close to the talks and unions said it now appeared unlikely that the government would approve the loan, ending the chances of SAIC stepping in and taking control of MG Rover.
"Without SAIC, they can't be saved. It is really their last salvation," said Ferdinand Dudenhoeffer, a professor at Gelsenkirchen University's Centre of Automotive Research in Germany.
MG Rover and SAIC have been waiting for days for the UK government to decide on the loan, which SAIC says it needs to consider advancing talks on a tie-up.
Some suppliers, worried about the company's financial health, said they were suspending the delivery of auto components, citing fears that MG Rover might not be able to meet its payment obligations.
MG Rover has denied newspaper reports it would run out of money by the end of the week.
A source familiar with the situation said MG Rover had hired accountants PricewaterhouseCoopers to be on standby as administrators. MG Rover denied the accountants had been hired.
Unions representing MG Rover workers urged suppliers not to panic and said they remained hopeful a deal would be done.
However, privately they were not confident about the company's future. "It looks grim," one union source said.
An MG Rover spokesman said none of the workers at its Longbridge plant had been sent home and it hoped to have production back up as soon as possible.
Automotive engineering group Wagon Plc said in a statement it was suspending supplies to MG Rover, adding that it was owed £900,000 by the company.
Sources close to the talks said earlier yesterday that there was "increasing frustration" among Rover's management and workers and at SAIC over the lack of a government decision on the loan.
"It's pretty clear the government isn't going to put any money in," one source close to the process said.
SAIC is seeking guarantees that MG Rover's holding company, Phoenix Venture Holdings, can keep the company solvent for the next two years. Phoenix's directors pledged £10 million of their own money yesterday.
Trade and industry secretary Patricia Hewitt said everything was being done to secure a deal, reiterating comments by British prime minister Tony Blair on Wednesday.
The collapse of MG Rover would deliver a severe blow to Britain's car-making industry. Ford, which owns the luxury brand Jaguar, cut jobs in England last year.
MG Rover, a former British icon dating back to 1905, was sold to Germany's BMW AG in the 1990s, returning to British hands when it was sold to Phoenix four years ago.
