Press Comment : Tata taking the long view at Jaguar Land Rover
Marc Reeves, Editor, Birmingham Post, 3rd August, 2009
Birmingham Post Editor, Marc Reeves, who has met Tata’s top management both in India and the UK, assesses their stewardship of Jaguar Land Rover.
The future is bright for Jaguar Land Rover – that is the word coming out of Indian parent Tata. The company insists its ownership is for the long term but it is clearly on a mission to restore profitability at JLR by bringing down the breakeven point.
It has started to spell out to Government, staff and management its longer vision for the carmaker and, with an improved credit rating, observers believe it is close to shifting its financial log jam as commercial banks warm to its strategy and the Treasury becomes more persuaded of its case for support.
JLR managers are being told in no uncertain terms that the company will be expected to take responsibility for itself rather than rely on the wider group. Tata has pumped in £1 billion and has no plans to make the bailout a regular occurrence.
These developments come as the long-running wrangle with the Government over loan guarantees seems to be coming to an end. Progress has been made on both sides with the many points of contention now said to be down to a handful.
Tata Motors posted a better-than-expected £65 million profit for the three months April to June, up 58 per cent, and that has calmed both the Government and the banks. It has pushed up the company’s credit rating, with the institutions now much more willing to co-operate.
Meanwhile, the Government seems to have finally worked out that it is not dealing with some tin-pot Indian outfit which could collapse tomorrow, but a business which is one of the best governed in the world.
The Government seems to have finally worked out that it is not dealing with some tin-pot Indian outfit which could collapse tomorrow, but a business which is one of the best governed in the world.” Marc Reeves, Editor, Birmingham Post
As a result, the Government has dumped its more ridiculous demands like a seat on the board and a veto over big decisions. The £340 million of investment from the European Investment Bank had been awaiting a guarantee from the Government, but is now expected to go through in a deal backed purely by commercial banks.
On the £175 million of working capital being sought, Tata is still requesting a Government loan guarantee albeit that appears less critical. It could now raise the money without any Government involvement, but after ten months of talks would prefer an agreement – so long as it comes interference-free.
The company is at pains to spell out to all-comers that no taxpayers’ money would be at risk. These are guarantees – not a grant – and backed by counter guarantees from the banks.
The result is that the Government is now said to be desperately keen to sign up to its side of the bargain. But the banks also have to be fully onside and Tata wants to ensure all the clauses are watertight and not prone to unravelling further down the line. Tata believes the purpose of a company is to “live for ever”, which demands a strategy in which profit is a means, not an end.
At a time when the recession has some business leaders looking no further than six months ahead, Tata’s horizon is 20 to 30 years away. Assumptions around the economic and industrial climate within that period then inform Tata’s objectives, and then its short and medium term decisions. And Tata is still deciding on those objectives.
The thinking is that JLR should be capable of making money at perhaps 50 per cent capacity rather than the 90 per cent or so today. That is considered critical for coping with the vagries of the economic cycle and its impact on consumer demand. Ultimately survival depends on it.” Marc Reeves, Editor, Birmingham Post
Hence, despite sabre-rattling at the height of its frustration with the Government, and hints that a plant, probably Halewood, might go if things failed to come together, it remains reticent on the subject.
In the Tata philosophy, deciding now whether to keep Halewood, Castle Bromwich and Solihull while the long term plan is still to be put in place, amounts to the tail wagging the dog. And the philosophy is still to be fully absorbed on the ground in the company. Tata has spelled out that JLR must depend on itself to survive, and management must learn to take the hard decisions required.
Tata believes JLR has the potential to be a top company, with great engineers and managers who have a real depth and understanding of manufacturing and design. But, JLR needs dynamic leadership and the ability to be fast on its feet. And there will be change because Tata is convinced JLR’s fixed costs are too high. It will preserve investment levels and the new model strategy, pushing hard to reorganise the company without cutting technology.
Consultants have been called in to stem the losses – Tata revealed pre-tax losses for Jaguar and Land Rover combined of nearly £350 million in 2008 compared with a pre-tax profit for the two marques of £660.5 million in 2007. JLR incurred a loss of £281 million in the ten months to March. The intention is to find ways of reducing the breakeven point.
The thinking is that JLR should be capable of making money at perhaps 50 per cent capacity rather than the 90 per cent or so today. That is considered critical for coping with the vagries of the economic cycle and its impact on consumer demand. Ultimately survival depends on it.
The three-plant structure has to pay its way and is under constant review. But Tata Group Chairman Ratan Tata has a belief in JLR, a feel and passion for cars, and plays with a straight bat. A vision is there. The company’s shape is a work in progress as change proceeds but, when Tata says there is a bright future for JLR, it means it. And that is good for the workforce and the West Midlands.
[Source: Birmingham Post]