The government should support Jaguar Land Rover in view of its strategic importance but consider taking a stake in the company in return for providing funding alongside the shareholders, Institute of Directors West Midlands chairman Richard Boothas said.
The alternative to a shareholding would be to agree royalty payments on the back of underwriting JLR’s research effort. It was the R&D, he said, which made JLR a very special case.
His comments came as the government continued talks with Tata over possible help for JLR. Tata denies it is seeking a bail-out and is looking to fuel efficiency and new hybrid engines.
Mr Boot said it was a “complex issue” on a number of levels, not least how far aid should extend. He pointed out that Staffordshire construction equipment and digger manufacturer JCB was struggling with much the same problems. There were question marks over how deep was Tata’s pocket and, if it remained financially strong, why it should not take full responsibility. “The government seems to be rightly playing a measured game on this one,” he said.
“So I would certainly be against easy money being given to JLR. I suspect JLR needs to restructure anyway and we shouldn’t fund a business that requires surgery until it is clear that a plan has been developed and reviewed.
“Simply making credit available is only part of the issue; sales are down because of a lack of confidence for both consumer and business. It is about job and business security, not necessarily prices or cost of finance. So simply coming up with lines of credit will not automatically fix the issue.
“The hardest part of the funding for JLR to secure is for R&D; it is an equity risk. The government could help with this for a host of reasons such as keeping auto technology in the UK. But we should take a share in the business and/or take a share of the commercial revenues coming from say the hybrid engines when they are developed. I am talking royalty payments. The taxpayer should get something tangible.
”The impact on the West Midlands and the UK is too profound not to do something but I hope the government is clever over this. It is not a question merely about support; it has to be how that support should be provided.”
JLR also needed to offer guarantees on maintaining jobs.
Mr Boot applauded yesterday’s government package to help small and medium-sized firms by using taxpayers’ money to insure banks against businesses defaulting on loan repayments but said the problems ran deeper.
The government will guarantee £10 billion of £20 billion in loans to companies with a turnover of up to £500 million. It will also guarantee £1 billion of £1.3 billion in loans to small firms with a turnover of up to £25 million.
Struggling small firms will also be invited to sell a stake of their business to the taxpayer in return for the government underwriting their debts. But Mr Boot cautioned: “To some extent I think the government may be over-focusing on this credit aspect. I believe in good measure it is more about jobs and business confidence.”