Press Report : Mandy gets set to spend £1bn of taxpayers’ cash to rescue Jaguar

Ray Massey and Michael Lea, Daily Mail, 18th December, 2008

Car production slumped by a third last month as the motor industry was increasingly hit by the economic downturn, new figures showed today. It comes as the government prepares a taxpayer-funded bailout worth up to £1billion to rescue the Indian-owned firm which makes Jaguars and Land Rovers. Any bailout of the firm, which employs 15,000 workers, would attract strong criticism as the company is now in foreign hands.

The number of cars built in factories in the UK was 97,604, down by 33 per cent on November last year, the Society of Motor Manufacturers and Traders said. Almost 1.4 million cars have been built this year, a 2.7 per cent fall on the same period last year, the figures showed. Commercial vehicle production slumped by 50 per cent last month. The SMMT said the rapid slowdown in output was caused by falls in domestic and export demand for vehicles and officials repeated their call for ‘urgent support’ to restore demand and loosen credit restrictions.

Jaguar-Land Rover’s executives have been locked in secret talks with ministers discussing a rescue package for the luxury car company. Such a decision would create a politically explosive precedent. With many other major businesses expected to go to the wall in the deepening recession, the Government would come under increasing pressure to use public money to prop them up too.

Sources at Jaguar-Land Rover believe Business Secretary Lord Mandelson is sympathetic to their case. He said that the Government was analysing the situation ‘very carefully’. However, the final decision rests with Gordon Brown, who is said to have not yet made up his mind.

Help for Jaguar-Land Rover is most likely to come in the form of the taxpayer underwriting its loans. The company said it needed help with its cashflow in the ‘unprecedented’ financial climate. It is understood to be seeking access to £1billion over two years – roughly what Indian parent company Tata paid when it bought the company from Ford earlier this year.

The controversial proposals came as official figures revealed that unemployment has jumped to 1.86million, the highest figure for 11 years. But while more and more private sector firms are being forced to lay off staff, the bloated private sector is still hiring. State employment has risen by 14,000 in the last three months to 5.8million. Ministers have already come under fire for giving the banks a £37billion handout while denying financial help to other sectors. Last night it was confirmed that High Street chain Woolworths is to close in the New Year.

The potential bail out for Jaguar-Land Rover follows increasing speculation in recent weeks that the Government is ready to follow America’s lead and consider giving loans to motor giants. Lord Mandelson told Sky yesterday: ‘We’re analysing very carefully what is going on in this sector. We will make good judgments in good time if it is appropriate for the Government to take any action, or possible for us to do so. I’ve had discussions with the owners of Jaguar-Land Rover in particular because they are under particular strain.’

He also reinforced comments made in an earlier speech, when he said that the Government should not make a habit of propping up failed companies. ‘I don’t have an open cheque book,’ he said. ‘It’s the taxpayers’ money and we have a responsibility to the taxpayer. There are not going to be a great long list of industrial bailouts. It’s not right, it’s not possible.’

Sources close to Lord Mandelson last night played down hopes that a deal would be struck this week. But they made clear that the Business Secretary is looking closely at ways to help the company, although this would almost certainly not be through a direct cash payment.

In a lecture on industrial policy last night, Lord Mandelson delivered a strong hint that he is ready to act. He referred to ‘transitional assistance for businesses faced with the extraordinary strains of the downturn’. However, any bailout of Jaguar-Land Rover, which employs 15,000 workers, would attract strong criticism as the company is now in foreign hands. It is owned by one of the richest businessmen in the world, 70-year-old Indian tycoon Ratan Tata.

Critics have also pointed out that the firm’s factories cover some key of the country’s most important marginal constituencies. It has factories at Castle Bromwich and Solihull near Birmingham, and Halewood on Merseyside. It recently sought 600 voluntary redundancies and some 300 temporary workers were axed. Solihull workers are on a four-day week, and Halewood and Castle Bromwich are both operating non-production days.

Unions have warned up to 40,000 jobs are at immediate risk if car manufacturers go under. The UK Society of Motor Manufacturers and Traders said that the industry supports more than 200,000 manufacturing jobs and another 580,000 in areas such as sales, servicing and refuelling.

TaxPayers’ Alliance campaign manager Susie Squire said the bail out for Jaguar was ‘the wrong move’. She said: ‘At a time when ordinary taxpayers are tightening their belts it’s entirely wrong for the government to become lender of first resort rather than lender of last resort.’

Elsewhwere, Chrysler announced it is closing all its North American manufacturing plants for at least a month, the starkest move taken by U.S. car makers as they anxiously await word about government loans. All three companies have been taking dramatic steps as they struggle to survive the recession and U.S. sales have dipped to their slowest rate in 26 years. Chrysler and General Motors fear they might not have enough money to pay their bills in a matter of weeks.

Attempting to cut costs, GM was halting construction of a plant tied to one of its most important projects, the Volt. Ford also said it will shut down ten plants for an extra week in January because of sluggish sales. Chrysler said it would extend the normal two-week holiday shutdown that begins Friday to at least January 19 at all 30 of its factories due to slumping sales.

Executives at General Motors and Chrysler have restarted talks to combine the two ailing automakers, according to The Wall Street Journal. The Journal, citing people familiar with the discussions, said the talks have been rekindled after Cerberus Capital Management LP, the majority owner of Chrysler, signalled it is willing to part with some of its stake in the automaker. GM and Chrysler had been in talks earlier this year to combine in order to survive, but financing emerged as an obstacle.

The report comes as the Bush administration is mulling ways to help the car makers after Congress failed to reach a deal on $14billion in loans for GM and Chrysler. Funding for the loans is expected to come from the $700billion Wall Street rescue fund, but many Republicans have objected.

[Source: Daily Mail]



Clive Goldthorp

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