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Jaguar Land Rover Owner Increases Calls for Aid from U.K. Government

25 Mar 09

A senior executive at Tata Motors has said that the Jaguar Land Rover group must be given around £500 million in loan guarantees by the U.K. government, or else it could be forced to lay off further staff.

IHS Global Insight Perspective
Significance	Ratan Tata, the chairman of Tata Motors, has called on the U.K. government to provide £500 million-worth of loan guarantees to Jaguar Land Rover (JLR), warning that without them it could be forced to make further lay-offs.
Implications	Although the U.K. government is said to be providing some help to JLR in finding additional funding, and although the company has applied for loans and grants, it seems unlikely that there will be much relief for its short-term funding headaches.
Outlook	As the difficulties in the financial markets continue amid the contraction in liquidity, ordinary methods of funding would seem to be out of the question for Tata Motors, and although the company has been proactive in raising funds it has also had to put up with pressures at home. With this in mind, the U.K. government may want to reconsider its stance or else the company could be forced to reduce its headcount further.

The chairman of Tata Motors, Ratan Tata, has said that further redundancies could take place at Jaguar Land Rover (JLR) if the U.K. government does not provide around £500 million (US$733.7 million) in loan guarantees. In an interview with the Sky News television channel yesterday, a senior company executive said that such funding would provide additional assistance to the business, which has witnessed a downturn as demand for its luxury vehicles and sport utility vehicles (SUVs) has tumbled. Tata told the channel that, "If funds are not available the company will not be able to run", before saying that without these loan guarantees "layoffs will take place". He added that, "If the attitude of the government is who blinks first, the damage is going to be very devastating."

In response to the interview, a spokesperson for the U.K. government told Automotive News Europe that government ministers have been helping JLR in its discussions about financing with both British banks and the European Investment Bank (EIB). However, she added that, "The primary responsibility for short-term financing or longer-term restructuring rests with the parent company."

The joint general secretary of the union Unite, Tony Woodley, lent his support to the call for loans, telling The Times newspaper that, "It's no secret that JLR desperately needs a commercial loan from the Government. If it is to develop and produce the models of tomorrow, keeping thousands of workers in position and off the dole, then this loan is of paramount importance."

Outlook and Implications

Despite having received £27 million-worth of support for a new "baby" Range Rover based on the LRX concept in recent weeks from the U.K. government's Grant for Business Investment scheme, the automaker is still in need of immediate funding as its sales have fallen. Although the Jaguar XF has seen strong sales since its launch, demand for other JLR models has shrunk, not helped by its focus on the luxury and SUV end of the market, which is being hit the hardest by the current troubles. The company has already been forced to release 500 manufacturing staff, in January, and it will lay off a further 150 temporary staff by the end of April, on top of the 850 that it let go in December last year. It has also offered voluntary redundancy to 300 managers.

Although the government has put in place a £2.3-billion package of aid for the U.K. automotive industry, which includes 1.3 billion euro (US$1.77 billion) of funding from the EIB for green technology projects, there is some concern in the industry over the conditions and criteria set out for companies hoping to qualify for the loans. According to sources, any cash handed out has to be apportioned to specific projects and focus on long-term goals rather than dealing with the immediate pressures being faced by automakers and component suppliers. Although JLR has applied for this aid, it would not offer it any relief with regards to its short-term funding problems.

The difficulty for JLR, and its parent company Tata Motors, is that there remains a distinct lack of easily available, low-cost credit in the marketplace, which it would traditionally use to support its day-to-day activities. Although the U.K. government has said that as a private concern it should use normal methods of funding, this avenue remains largely blocked in the current economic environment. Tata Motors' operations in India have come under increasing pressure as well, from both the delay in the Nano ultra-low-cost car project and a contraction in its commercial vehicle sales, which traditionally make up a significant component of the automaker's profit base. It has already tapped into many of its funding lines and has sold shares to raise additional capital, but it is unlikely to have enough in its coffers to support its U.K. operations in the short term as well, particularly with the prospect of it having to pay down at least some of its bridging loan for the JLR acquisition last year. With this in mind, the government may want to reconsider its stance in the short term in order to safeguard as many of the 15,000 workers that are employed by JLR as possible.

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