By 21 December 2008 1 Comments Read More →

Press Report : Jaguar Land Rover must be allowed to fail

Martin Vander Weyer, Daily Telegraph, 18th December 2008

It’s never easy to guess what’s going on inside Lord Mandelson’s head. On the issue of whether he might be about to offer a £1 billion bail-out to the Jaguar Land Rover group, the thought processes of the Business Secretary are particularly opaque.

Jaguar, we can agree, is an iconic British brand – but does that make it a vitally important British business? And if “iconic” status does somehow make it more than the sum of its parts, is it really the business of the Business Secretary to be hinting that he might throw a billion at it? After all, it’s not as if he has a billion to spare, or that there isn’t a lengthening queue of other significant British brands on the brink of financial difficulties this winter.

Jaguar, we can agree, is an iconic British brand – but does that make it a vitally important British business? It is conventional to talk of today’s still-deepening economic crisis as ‘unprecedented’, requiring swift, muscular, outside-the-box policy solutions that sweep ideologies aside – especially the free-market ideology that seems to have got us into all this trouble in the first place.

It is conventional to talk of today’s still-deepening economic crisis as ‘unprecedented’, requiring swift, muscular, outside-the-box policy solutions that sweep ideologies aside – especially the free-market ideology that seems to have got us into all this trouble in the first place.

Across the political spectrum, we acquiesce in the idea that high street banks had to be bailed out with new capital from the Government because they were in dangerous new territory: unable to fund themselves by normal market mechanisms, they were unwilling to lend and in danger of running out of cash. As confidence in them crumbled, the economy began to grind to a halt. If any major bank had failed, taking our current and savings accounts with it, there would have been widespread public disorder and political mayhem.

So the rescue of the banks had to be big and bold to be effective – and it has created new parameters and precedents for the relationship between government and private sector business. Not only do ministers now call the shots in the banks in which the taxpayer has by force of circumstance become, for the time being, the largest shareholder: they also summon the bosses of all the other high street banks to Downing Street, and lecture them as to who they should lend to and on what terms. And now Lord Mandelson – while denying that he has “a great long list of industrial bail-outs” in mind – is signalling that the car industry might also be a suitable case for interventionist treatment. The state knows better, is the subtext; only government has the power to halt the market’s destructive surges.

But before we all buy in to this superficially comforting new consensus and make a bonfire of the history books, let us take a backward glance. The 1970s taught us that a Labour government was peculiarly incompetent at directing the motor industry, then heavily concentrated in the state-owned British Leyland; the 1980s taught us that, given a favourable free-market business environment, the motor industry was capable of a quite remarkable revival on the strength of massive foreign direct investment.

Now the cycle has turned again and the global auto industry is in a very different, but more familiar, kind of crisis than the global financial sector. The banking world has been brought to its knees by a toxic once-in-a-century combination of reckless risk-taking, greed and over-sophistication. Car makers are in trouble for much simpler reasons of supply and demand.

There are too many competing marques, making too many of the wrong sort of cars. In America, they make too many gas-guzzling SUVs when consumers want cheaper, fuel-efficient, mostly foreign-made family cars. The American giants, Ford, General Motors and Chrysler, go on building outdated models in inefficient factories with massive wage bills, while pleading with Washington to bail them out because so many jobs are at stake. In the global luxury car sector, which includes Jaguar, there are just too many cars being made for a rapidly shrinking, recession-hit market.

Essentially, the industry around the world is overdue for a shake-out, in which model ranges and production levels may have to be drastically cut – and major investments made in new technologies for the 21st century. In the next wave, fewer cars will be built in high-wage economies, and more built in China, India, Turkey and Latin America. The only western factories that prosper will be those that are extremely efficient and at the cutting edge of technology, both in terms of what goes into cars and how they are put together.

So where does that leave Jaguar, and its flirtation with Peter Mandelson? It is owned by an Indian business group, Tata, which bought it only six months ago from Ford, which had invested billions in modernisation but could not make it a consistently profitable business. It needs another wave of investment to make its model range greener and to bring its image up to date, but the jobs of its 15,000 workers are at risk if Tata – which has big problems at home – cannot support that project. Beyond Jaguar Land Rover, the company claims that 60,000 other jobs in component-making firms and dealerships (out of a total of more than 800,000 in the wider motor sector) might be threatened.

Meanwhile, the Society of Motor Manufacturers and Traders describes the state of its industry as “a national emergency requiring urgent action”. Trade union leaders such as Tony Woodley, joint general secretary of Unite, will no doubt be pressing Mr Mandelson to step in; so will his old benefactor Geoffrey Robinson, former chairman of Jaguar in its state-owned days and MP for a Coventry seat where jobs are at risk. No doubt, calculations are being made about how much money might have to be deployed to hold jobs in place until the first opportune moment, next spring, when Gordon Brown might summon the courage to call a general election.

But special pleading and cynical calculation aside, what possible logic is there for pouring taxpayers’ money into any part of an industry that has utterly failed to move with the times, simply to postpone the inevitable consequences – and at a time when there are so many competing claims for state cash? Why start with Jaguar, which for all the historic associations with the name is in reality now only a minor player in a vast international field? Why do 15,000 Jaguar jobs have a higher claim than the 27,000 jobs about to be lost at that other iconic British business, poor, worn-out high-street Woolworths?

If Jaguar is a dying brand for want of technological investment and entrepreneurial flair, then throwing a billion pounds of our money at it to keep it alive in its present state is a misguided and wasteful return to 1970s socialist thinking. We have certainly learned new lessons from the banking crisis, and it has demanded solutions that have shaken our beliefs. But that does not mean we should forget the old lessons, one of which is that industries naturally and periodically go through waves of creative destruction out of which something better eventually emerges – and they do it more effectively if the Government confines itself to making Britain an attractive place to do business, and otherwise stays well out of the way.

[Source: Daily Telegraph]

Keith Adams

About the Author:

Created in 2001 and watched it steadily grow into AROnline. Is the Editor of Classic Car Weekly, and has contributed to various motoring titles including Octane, Evo, Honest John, CAR magazine, Autocar, Diesel Car, Practical Performance Car, Performance French Car, Car Mechanics, Jaguar World Monthly, Classic Car Weekly, MG Enthusiast, Modern MINI, Practical Classics, Fifth Gear Website, and the the Motoring Independent... Likes 'conditionally challenged' motors and taking them on unfeasable adventures all across Europe.

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