Jaguar Land Rover has won the first round in its fight to survive the recession and credit crunch after securing a £340 million European loan.
But it was left waiting for news of its application for a further £500 million in aid from the British Government to boost its rapidly dwindling cash resources.
Hopes that this will soon materialise were boosted by business secretary Lord Mandelson who gave the strongest hint yet that the Government was prepared to help keep the luxury carmaker on the road.
If so, it would mark a successful conclusion to a campaign waged by the Birmingham Post and its sister newspapers to win public and government support for the company, the West Midlands’ biggest manufacter.
The grant, approved by the European Investment Bank meeting in Luxembourg, will help to finance JLR’s ambitious £800 million project to develop a new generation of vehicles utilising new materials and low-emission engines.
But the cash will be ringfenced for R&D purposes, meaning it still needs to boost its cash flow in order to finance its day to day activities and keep its creditors at bay until the recession clears and sales pick up.
Lord Mandelson said the Government was close to a deal to save JLR after the EIB showed confidence in the company.
Welcoming the EIB announcement, which also included £370 million in aid for Nissan, which had to cut 1,000 jobs at its plant in Sunderland in February, he said: “This is good news and offers the opportunity for real help for UK car companies.
“For Nissan it is recognition of their commitment to a low carbon future in the UK, and is a particular boost for their workforce. For JLR it is a welcome step forward. We are actively engaged in discussions with JLR on this and wider company restructuring issues and hope to reach a conclusion shortly.”
Industry insiders said the EIB loan – which is guaranteed by the UK government – is a positive sign that the firm will receive the credit support it needs to keep its head above water.
The EIB loan was £60 million higher than expected, and although it is ringfenced for research and development funding, JLR said it would reduce financial pressure on the rest of the company, and was a good statement of support from Europe.
When Lord Mandelson announced a support package for the automotive industry in January, approximately half the £2.3 billion budget was in the form of loan guarantees for research finance just agreed by the EIB.
The other half – the details of which is still being negotiated by the government and automotive companies – was expected to take the form of emergency interest-bearing loans.
Ratan Tata, the head of the Indian group that owns JLR, has said the firm needs £500 million in lending from the Government to avoid the “devastating” effects of the recession.
JLR has been struggling after being hit by the appalling drop in consumer confidence caused by the recession. New car sale figures for March – normally a boom month with the arrival of the new number plates - showed a 30 per cent fall in new registrations.
With demand low, production has been scaled back all over the country and monthly new vehicle manufacturing figures have been around 60 per cent down so far this year.
A spokesman for JLR said that while negotiations were ongoing, the EIB loan was an encouraging sign, adding: “This loan will support Jaguar Land Rover’s significant investments in environmental technologies that are crucial for the future – part of a total commitment by the business of over £800 million.
“Access to the funding is subject to a number of due diligence and commercial loan criteria including partial backing by the UK’s government guarantee scheme that we will be working to complete as quickly as possible.
“Our base application was for 300 million Euros. Clearly the EIB has looked kindly on us and given us a more generous loan than we applied for.”
“Once we can access the funding it means we have funding to concentrate on developing those technologies. This means we can draw on some of our own funding now to support the business now more than we could before. Our resources have been stretched across all parts of the business.”