The Government knew Rover was in deep trouble almost a year before it collapsed but the firm's directors refused offers of help, an inquiry has found.
The National Audit Office, the independent financial watchdog, also criticised the Government for spending #6.5 million in a last-ditch attempt to save the manufacturer which was never likely to succeed.
The finding is likely to be seized upon by Conservatives, who have accused the Government of using taxpayers' money to prop up the company for political reasons in the run-up to the General Election last May. The results of a National Audit Office inquiry into the collapse of the Birmingham car giant were published today.
The Department of Trade and Industry knew Rover was in serious trouble long before it went into administration on April 8 last year, the National Audit Office said in a report.
"In April 2004 it fore-saw the looming cash problems at the company."
However the directors of Phoenix Venture Holdings, which bought Rover from BMW in 2000, were reluctant to accept help from the DTI.
"Up until the end of 2005, the department reported that the company was reluctant to share detailed information."
The report says the directors had done nothing wrong, because Phoenix was a private company.
The DTI was reduced to searching through public documents, such as Phoenix's annual report and stories in newspapers, to find out what was happening.
When Phoenix began negotiations with Chinese manufacturer Shanghai Automotive Industry Corp (SAIC), the department offered to help the negotiations - but the directors turned down the offer.
"The department reported that diplomatic support was offered in June 2004 and initially declined by company management; support was, however, accepted from November 2004 onwards."
The Department of Trade and Industry was concerned Rover had been damaged by reports the five Phoenix directors were making personal fortunes out of it. About #16 million was paid into their pension funds over two years.
The report says: "The negative publicity about the director's remuneration would undermine confidence in the company and not helps its efforts to find a strategic partner."
When Rover went into administration, the Government provided a #6.5 million loan to keep it going, in the hope SAIC might still be willing to buy it. However, SAIC had withdrawn its negotiating team and the Government was not even able to contact SAIC during this period, or get clarification from the Chinese government.
"The prospects of achieving a going concern sale was remote," says the report.
"We therefore doubt whether the department obtained sufficiently good value for the loan, of which #5.2 million will probably not be repaid."
A DTI spokesman said: "The department offered the administrators a #6.5 million loan on Sunday April 10 to give them a week to see if a sale could be made to save jobs."
At that point there had still been hope SAIC might buy Rover, he said.
The spokesman added: "It was not the department's job to do the deal on MG Rover's behalf, but once they were ready to accept help, Ministers put a lot of effort into diplomatic support with SAIC and the Chinese government."
The report praises efforts to offer advice and job-seeking services to the thousands of redundant workers after Rover's collapse, but warns that some had been frustrated at the time it took to get on to training schemes.