£427m 'black hole' in Rover finances

By JAMES CHAPMAN FOR THE DAILY MAIL
Updated: 02:21 EST, 15 April 2005

FURTHER questions have been raised about the finances of MG Rover after the discovery of an apparent black hole in the troubled firm's accounts of more than £400m.

Reports claim that analysis of the company's books show that £427m is unaccounted for. The cash - which formed a loan from former owner BMW - would be enough to plug the shortfall in the Rover pension fund.

It could also be used to give its 6,000 workers redundancy payments of more than £65,000 each.

The revelation brought calls for an urgent investigation by the Department of Trade and Industry. The analysis, by academics at Warwick University, shows the firm has come into £1.3bn in the last five years - £427m from the loan and a further £900m from car sales.

The company, which is owned by the four-strong Phoenix consortium, has recorded losses of £900m, which appears to leave some £400m unaccounted for. The apparent shortfall comes as the four businessmen who bought Rover for £10 in May 2000 look forward to a £40m windfall on their retirement.

Motor industry analyst Nick Matthews, principal fellow at the Warwick Manufacturing Group, said the Department of Trade and Industry should launch an inquiry into what has happened, as the company's tortuous accounting structure made it impossible to get an accurate picture of MG Rover's financial health.

'We have reviewed this analysis. It is very rigorous. It suggests to me the need for an urgent and thorough DTI investigation,' Matthews said.

Executives at MG Rover and its parent company, Phoenix Venture Holdings, said that Rover's accounts had been fully audited by the accountants Deloitte Touche and that the company stood by its published figures.

There have been allegations that the Phoenix executives have made personal fortunes despite Rover hitting trouble. The executives have consistently rejected this charge, arguing that the company's structure was a legitimate step designed to give the car company the best opportunity to survive in a highly competitive market.

Workers at Rover were sent home on full pay at the beginning of the week as hopes of a deal with Chinese car maker the Shanghai Automotive Industry Corporation faded.

The Government is still hoping the Chinese can be persuaded to buy MG Rover but SAIC has said it is 'highly unlikely' it would be interested in the firm when it is in administration. Rover workers also face the threat of having to pay thousands of pounds for cars they leased from the company.

The Longbridge workers were encouraged to lease cars with the help of a loan from a bank or from MG Rover to prop up sales figures, claimed Julie Kirkbride, who is standing for re-election as Tory MP for Bromsgrove. After 10,000 miles or a year, the car would be returned and replaced by a new car, and a new loan, with Rover settling any outstanding finance.

Kirkbride said workers may now be liable for this finance when they sell their Rover. 'Not only do they now face losing their jobs, but being thousands of pounds in debt on top,' she said. 'It adds insult to injury.'