David Bailey, Birmingham Post, 27th July, 2009
The UK operations of Jaguar Land Rover lost £673.4m (around $1.1bn) last year, after a £640 million surplus the year before. Adding in actuarial and pensions adjustments, “total recognised losses” at JLR topped almost £1.2bn last year, accounts filed with Companies House reveal.
None of this should come as a surprise of course. This is a “once in a century” downturn which has seen most car makers record huge losses – including Toyota, for the time in its history.
All of this comes at a time when JLR has announced the early cessation of X-TYPE production at Halewood at the end of this year, leaving a huge question mark over the viability of the plant. To put it bluntly, on current volumes minus the X-TYPE it is difficult to see how JLR can keep open three plants in the UK.
To keep Halewood open (which at full capacity is a hugely efficient plant), production of the LRX concept vehicle needs the green light soon. That in turn means accessing the EIB loan of £340 million which is already on the table.
Which brings us back to the loan guarantee from the British Government. Quite why it has taken months of haggling to sort this out is beyond me. The latest rumours are the Government has dropped some of its more onerous (read preposterous?) conditions like appointing the Chairman, and is prepared to offer JLR a guarantee for a £175m commercial bridging loan over six months.
To keep Halewood open (which at full capacity is a hugely efficient plant), production of the LRX concept vehicle needs the green light soon. That in turn means accessing the EIB loan of £340 million which is already on the table.” Professor David Bailey, Coventry University Business School
That is still far short of what Tata has been looking for – both in terms of the scale of the guarantee (75% rather than 50% would seem more appropriate to me) and the term. Just six months seems to ignore the reality of the credit crunch facing Tata.
As detailed in the Birmingham Post in recent months, Tata had originally asked for loan guarantees for commercial financing of around £500m and for a £340m European Investment Bank loan to help fund investments in greener vehicles (i.e. the LRX). The latter has been forthcoming from Europe . By the way, that’s all a bit disconcerting for Euro-bashers, isn’t it? Europe backs British industry but the UK Government fails to get its act together.
Tata bought JLR from Ford for $2.3 billion in a deal finalised last year and, since then, has put in over £1bn into the firm. Quite where JLR would be without Tata backing isn’t worth thinking about. Saab has been cut loose by GM and Ford is trying to offload Volvo. A private equity firm – if it had got its hands on JLR – would already have taken the hatchet to UK operations, with many more job losses than the 2,200 we’ve seen under Tata.
Underneath the headline figures, Jaguar is doing very well with a stunning new line up of XK, XF and new XJ models. Meanwhile, Land Rover is badly affected by the credit crunch and shift away from 4×4 cars. It ideally needs a model like the LRX on sale now. This makes the wrangling over a loan guarantee even more problematic as development work on the LRX needs to crack on.
It seemed that last week the loan guarantee was within reach. Hopes though subsided after a letter from Lord Mandelson to Tata were leaked to the Coventry Telegraph. This coincided with an apparent ‘take it or leave it’ attitude to Tata from Mandelson on TV.
I’m not in the loop so can only guess why someone in Mandelson’s team deemed it appropriate to leak the letter, which called for immediate “face to face” negotiations. Perhaps it was to shift attention to Tata after the stinging criticism by the Business Select Committee for the failure by the Government to arrange a loan (MPs said they were ‘astounded’ it had not been sorted).
JLR will get through this recession. The question is: in what shape, with how much R&D, with how many plants open and with how many workers employed? It is not asking for a bail out but rather help in accessing commercial finance.” Professor David Bailey, Coventry University Business School
If so, it didn’t work – last week the West Midlands Select Committee said it was “dismayed’ no money had been forthcoming for West Midlands’ producers. It called for an acceleration of applications for the Automotive Assistance Programme, including that by JLR. Needless to say, it didn’t go down very well with Tata either.
I hope politicians can step back for a moment and consider where things stand. Given where JLR is right now, Halewood’s fate hangs in the balance. It’s that serious.
This may or may not be what Tata’s Vice-Chairman Ravi Kant’s meant recently by the comment that “plant shutdowns” could not be ruled out. He may well have meant temporary shutdowns, as Halewood will face in September. Without LRX production, though, I can’t see how Halewood can be kept open in the medium term.
JLR will get through this recession. The question is: in what shape, with how much R&D, with how many plants open and with how many workers employed? It is not asking for a bail out but rather help in accessing commercial finance.
The slow pace of agreeing suitable access to finance is the responsibility of the Government, not Tata. JLR has kept a dignified silence in public throughout the whole affair. I wish our politicians did the same. Less spin, more action, please.
[Source: Birmingham Post]
[Editor’s Note: Professor David Bailey works at Coventry University Business School.]
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