Howard Wheeldon, Birmingham Post, 22nd June, 2009
With Government assistance still not getting through to the manufacturers, Howard Wheeldon, the Senior Strategist at BGC Partners, asks whether it is time to start writing the obituary of the UK premium car industry
Three months after the Government belatedly launched what it called a £2.3 billion Automotive Assistance Programme (AAP) with huge fanfare, it seems that not one single penny of assistance has yet been handed out to any struggling UK carmaker. Thus I am left to conclude that the Government is either unable, or more likely, unwilling, to deliver much needed help and that the AAP is not worth the paper it is written on.
Concerns about what help may be available to the new owners of Vauxhall are bad enough but with lack of positive news I am now becoming increasingly concerned for the future of Britain’s main premium market maker, Jaguar Land Rover. It was with no pleasure last month that given the promise of availability of European Investment Bank and Government assistance I found myself forced to publish an account of the onerous terms offered by HM Treasury to Jaguar Land Rover owner, the Indian-based Tata Group.
Given an “ultimatum” of just hours to accept, the Government had decided to block JLR’s access to already approved EIB loans for green technology development worth £340 million, replacing this with a miserly offer to guarantee just £175 million and to impose a 15 per cent upfront charge on the EIB loan.
To make matters even worse, the Government decided that it would underwrite any EIB loan for just six months as opposed to the originally intended three years. Given the ultimatum together with such onerous terms, few could have been that surprised that Tata would fail to accept the Government’s offer as it stood.
Commercially it made no sense to do this, but surely worse was that it highlighted just what the Brown Government thought of Jaguar Land Rover, its importance to the economy, to jobs and to UK exports. Indeed, it showed just what the Brown Government thought of UK manufacturing – and all but confirmed that whatever the request it probably wouldn’t be prepared to help.
The bottom line is that those that watch and care for this troubled industry together with those that work in it and indeed, across what is left of the once proud British manufacturing industry are left under no illusion – the Government couldn’t care less about manufacturing and it couldn’t care less about the car industry and it couldn’t care less about saving jobs.” Howard Wheeldon, Senior Strategist, BGC Partners.
We should not forget here that my understanding had also been that the Government was also demanding that Tata injected further funds into JLR on top of what it had already put into the company, was seeking a veto on all major decision-making at the company, sought commitment that no further redundancies would be made amongst the 14,000-plus employees, and to have a permanent seat on the JLR board. It was hardly surprising then that Tata, which had acquired the troubled UK premium car company from Ford in good faith and with a long term view to its development, reacted in the way it did.
Since then my understanding is that while talks have continued on a spasmodic basis, Lord Mandelson and the Department for Business, Enterprise & Regulatory Reform (BERR) have stuck rigidly to the original offer on the pretence that they have a duty to protect taxpayer money. Thus essentially we may regard the situation of JLR as being totally locked.
While it is absolutely right that the Government protects taxpayer money, it is important to remember that in this case no taxpayer money was being used. True, Tata was separately seeking to secure loans of about £450 million from RBS and Lloyds Bank in which the state does have a significant interest, but the Government, it seemed, was attempting to lump both EIB and the other loans into one single request. A pity, because commercial loans such as this should be regarded as little more than normal business loans on normal business terms and reasoning.
I will come back to the specific Jaguar Land Rover debate and what could happen next later in this opinion piece. Before then I would like to touch on the wider implications of the so-called Automotive Assistance Programme.
Like the Government’s scrappage scheme, which is aimed to encourage those with cars over ten years old to trade them in for a new model on a guarantee of £2,000 assistance, the Government has made AAP unnecessarily complicated. To say the least, it is “user unfriendly” – but then, one is left to assume that this is exactly what the Government intended. Given that AAP requires no actual cash to be put up front by Government – this being done by the European Investment Bank – all that it was required to do was guarantee a high percentage of any EIB loans that would be made available.
So far not one single UK-based carmaker has benefited from the scheme and not one penny of EIB funds has yet been released. Given the weakened state of the UK car manufacturing industry this is nothing less than appalling. Note here that French and German governments, while taking a rightly cautionary approach, have acted to support their industries through the current problem. They, it seems, have faith in their respective car manufacturing industries but it appears that the British Government, Gordon Brown and Lord Mandelson et-al, have no faith in our industries at all.
The difference is perhaps that France and Germany recognise the huge benefit that the car industry represents to their respective national economies, their respective balance of trade positions, exports and jobs. They well know, too, that it isn’t just the future of assembly plants that are called into question, it is the thousands of jobs involved in component makers and the like. Not Lord Mandelson though. He is all smiles, promises and bluff from whose department comes little if any action to support industry other than if it happens to be for the purposes of good government PR. What’s certain is that there is rarely any delivery.
The bottom line is that those that watch and care for this troubled industry together with those that work in it and indeed, across what is left of the once proud British manufacturing industry are left under no illusion – the Government couldn’t care less about manufacturing and it couldn’t care less about the car industry and it couldn’t care less about saving jobs. Clearly one must now worry whether any commitments the Government makes in the current talks with Opel/Vauxhall owners will be delivered.
Indeed, one frets that the UK car industry has no one out there pushing its virtues and strengths and no one standing up for the UK. True, there is too much available capacity in car and van manufacturing and at some point Britain must shoulder its part in reduction. To that end, I reluctantly supported the view that the LDV plant in Birmingham did not have a future, that inevitably at some point GM’s van factory in Luton would probably have to go and that ultimately Ford would cease manufacturing vans in Southampton.
However, the point is that the UK still has a hugely successful car manufacturing industry in the form of Toyota, Honda, Nissan, Mini and the Vauxhall plant at Ellesmere Port. Brits may have a nasty habit of buying most volume cars from abroad, but the point is that what our domestic vehicle manufacturers all do very well is to export. This, of course, includes Jaguar Land Rover, which represents the bulk of remaining premium car output.
What makes this lack of government action and the lack of duty of care to the many thousands of employees left in this industry all the more surprising and disappointing is that the UK auto industry is predominantly based in the Midlands, the North-East and North-West of Britain – and mostly in Labour-held seats.
If the industry was actually asking for state handouts and taxpayer cash one might well be more supportive of government caution. But the bottom line is that the industry is not asking the Government to put a hand in its pocket and dole out cash. Indeed, the industry is actually asking for what it is as entitled to as any other EU carmaker or component manufacturer – that national government involvement is merely to guarantee EIB loans and show faith that despite huge problems, the industry does have a future and one that the economy needs.
The hope must be that the Government finally comes to its senses and begins to consider the importance of the manufacturing sector to jobs, votes and the wider economic benefit. JLR is in my view certainly worthy of such support.” Howard Wheeldon, Senior Strategist, BGC Partners.
Finally back to the plight of Jaguar Land Rover. Leaving internal JLR politics aside – and which we could probably do without – I am in little doubt that Tata Motors will continue to support JLR as far as its resources allow.
That JLR’s need for loans remains acute is not in doubt. While it is true that there have been some small signs of trading improvement for JLR in certain markets – China, Russia and not surprisingly, India – it would surely be right to say that there has been no improvement in the more traditional markets of the US and Europe.
Without new commercial loans, the Government must realise that JLR will probably have no choice but to implement plant shutdowns, be they temporary or permanent, make widespread lay-offs and without EIB loans JLR will probably be forced to cut back on investment.
At what may be considered a perfect time to invest and ready the carmaker not only for eventual upturn but to better grow its global market share and position with premium products that could match or better the competition, the idea that the Government could abandon JLR in its hour of need should be unthinkable.
True, Jaguar does have a rather chequered past, and the lack of investment through the 1980s and 1990s seriously damaged the company. Ford essentially took on a virtual wreck back in 1989, but to be fair, it changed manufacturing processes and invested in new plant and at the very least set JLR on the right forward path.
Clearly, at the time of the purchase of JLR by Tata only a few would have predicted that the industry would have been quite as badly hit as it subsequently has. Nevertheless, Tata Motors had every intention of developing JLR and to the best of my knowledge it still has. Clearly the company needs support to do this, but it is important to remember that it is not looking for state hand outs.
Key to JLR’s future are the proposed hybrid version of the new XJ and the LRX “green” Range Rover that would meet new EU emission targets and standards. These products require further investment and it is for this that the EIB money was proposed. As already implied, without new loans it seems to me that JLR will have no choice but to implement plant shutdowns, make widespread lay-offs and cut investment.
The hope must be that the Government finally comes to its senses and begins to consider the importance of the manufacturing sector to jobs, votes and the wider economic benefit. JLR is in my view certainly worthy of such support.
[Source: Birmingham Post]
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