Sun, Jul 11, 2004 - Page 11 News List

Struggling Rover sells parts firm to Caterpillar

THE GUARDIAN , LONDON

MG Rover, the struggling cars group, on Friday raised more than £100 million (US$185.1 million) to invest in its new model range by selling its parts business to a subsidiary of US group Caterpillar.

Britain's last independent volume carmaker is expected to get about £110 million (US$203.6 million) from Cat Logistics, which has managed the parts business on Rover's behalf for the past three years, supplying more than 2.5 million Rovers and MGs on the road.

Kevin Howe, Rover's chief executive, said the sale proceeds would be invested in the car business before a strategic partnership with China's Shanghai Auto took effect.

Shanghai, one of China's three biggest carmakers, last month signed a deal with Rover which will see it play a key role in developing the medium-size car on which the British company's future rests.

Rover has been relying on refits and restylings of ageing models in the four years since the four-man consortium Phoenix bought the company from BMW for £10 (US$18.51).

Sales have slumped, with a 40 percent drop at Rover and 19 percent for MG last month. The company's share of the booming British market is now 3.3 percent, less than the 3.8 percent enjoyed by BMW.

The new medium-size car, the R60, has been delayed for at least two years while Rover sought a partner after the collapse of a deal with another Chinese group, Brilliance.

The new car is due to be launched late next year, with the company scheduled to break even in 2006. But the Shanghai deal could trigger an R60 redesign and a range of derivatives.

Rover, which also has an outline alliance with Malaysian carmaker Proton, needs to re-enter the small car market with one of its partners.

Under the deal with Cat, which employs 390 people in Leicestershire, Rover will retain a share of profits and has an option to buy back the parts business in four to five years.

In 2002, the last year for which Phoenix has published accounts, the parts business, known as Xpart, made a profit of just under £2.5 million (US$4.63 million) in 10 months.

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