'The unacceptable face of capitalism'

The most senior BMW executive in Britain has launched an astonishing attack on the directors of MG Rover, describing them as "the unacceptable face of capitalism".

The most senior BMW executive in Britain has launched an astonishing attack on the directors of MG Rover, describing them as "the unacceptable face of capitalism".

The phrase was coined by Edward Heath in 1973 to describe the former Lonrho chief executive Tiny Rowland. But Jim O'Donnell, managing director of BMW (GB), said that nowadays it could equally apply to the five directors of Phoenix Venture Holdings, the parent company of MG Rover. Referring to the five men - John Towers, Peter Beale, Kevin Howe, John Edwards and Nick Stephenson - Mr O'Donnell said: "I think it is a disgrace that the Rover board pay themselves more that the board of BMW if you include pensions. It is the unacceptable face of capitalism."

Mr O'Donnell also questioned the amount of risk the Phoenix Five had taken when they bought MG Rover from BMW for a nominal £10 in May, 2000. They each put up £60,000 of risk capital and, in return, BMW injected £550m into the Longbridge-based car maker in the form of an interest-free loan repayable in 2049.

Last year the five Phoenix directors took home more than £16m, including salaries, pension trust contributions, loan note payments and other income even though MG Rover lost £89m. The highest-paid director was MG Rover's chief executive Kevin Howe, who received a total of £1.55m. Last year the board of BMW, led by its chairman Helmut Panke, received €10.7m (£7.5m) while the company made a profit of €3.2bn (£2.24bn). BMW does not disclose the pay of individual directors.

This is not the first time the Phoenix directors have been criticised over the amount they have taken out of MG Rover. Earlier this year, the chairman of the Commons Trade and Industry Select Committee, Martin O'Neill, accused Mr Towers and Mr Beale, respectively chairman and vice-chairman of Phoenix, of using "financial sleight of hand" to line their own pockets and failing to exercise good corporate governance.

Mr O'Donnell's outspoken attack came as fresh details emerged of inter-company payments between the various private businesses that the Phoenix directors own. Techtronic, the ultimate holding company used by Mr Towers and his fellow directors to acquire MG Rover, paid a £32.5m dividend to Phoenix Venture Holdings, even though it made an operating loss of £119m. Meanwhile, Phoenix Venture Holdings paid £11m of interest on the BMW loan back to Techtronic. Since 2000, it has received £70m in dividends and paid £40m in interest payments.

Separately, Mr O'Donnell claimed that new rules being imposed on the motor industry next year by the Financial Services Authority in line with a Brussels directive could force up the cost of car warranties by as much as a quarter.

The legislation, introduced in compliance with the Insurance Mediation Directive, means that car warranties must be classed as insurance policies. Therefore, dealers will have to be registered with the FSA and warranties will become liable to Insurance Premium Tax, VAT on the tax and whatever mark-up the insurance company puts on top, costing the car industry millions of pounds. The warranty, for instance, on a three-year old BMW3 series could go up from £510 to £637.50.

"I believe this is a case of the law of unintended consequences," he said. "What a farce, the FSA can now dictate who can and cannot service one of your cars."