David Smith, Chief Executive of Jaguar Land Rover, tells the Birmingham Post's John Cranage that JLR is not after a bail-out from the Government.
The speed at which the crisis engulfing Jaguar Land Rover, along with the rest of the world’s carmakers, has taken every one who has witnessed it by surprise.
Not least David Smith, chief executive of the Warwickshire company that only a few weeks ago was looking forward to a bright future under the ownership of Tata Motors of India.
Now, a little more than six months after Tata handed a cheque for some £1.1 billion to Ford for the two marques, the group is in talks with the Government over its request for help in overcoming the continuing credit squeeze.
Some 600 jobs have been shed and the company’s production plants put on extended shutdowns. More job losses loom between now and Easter.
JLR is keen to stress it is not asking for a “bail-out” or “hand-out” from the taxpayer – a fact that has escaped some London-based commentators who say JLR’s cash flow blockage is solely a problem for Tata.
What the company actually wants, says Mr Smith, is for the Government to do the banks’ job for them and provide either short-term loans or loan guarantees to help keep the wheels turning in what looks like becoming one of the most severe global economic downturns for decades.
In an interview with Mr Smith at an otherwise dark and deserted corporate headquarters at Gaydon during the company’s extended Christmas/New Year shutdown, I asked him what had caused such a deterioration in the outlook for JLR and the wider car industry since we met previously at the Paris Motor Show in October.
At that time, a slide into recession in the US was being matched by a softening of car sales in the UK. The sudden and severe acceleration into outright crisis since has been largely due to the collapse in financial and consumer confidence resulting from the US authorities’ decision to allow Lehman Brothers to go under, Mr Smith believes.
“Unfortunately, now what we have got is really, I think, a once in a century event where you have a big recession and a lack of bank funding and liquidity in the market at the same time,” he said. “So it is a really extraordinary state of affairs.”
Asked about the expected resumption of talks with the Government today, Mr Smith would discuss the details of JLR’s aid application (a figure of £1 billion over two years in the form of commercial loans or loan guarantees has been mentioned).
“What we have been talking to the Government about is absolutely the same as the rest of the industry,” he said. “We have been saying they have to do things to stimulate demand. They have done some things but there is a whole series of tax and other incentive actions they could take.
“We, our suppliers and our dealers are all suffering from cash problems, essentially because the banks aren’t lending properly to the sector.
“So we have said either we need to find ways to free up commercial lending or the state may have to put loan guarantees in place to allow some of that lending to flow. That is essentially what we have been asking for – us and the whole industry in fact.
“The frustrating thing in a way is that we have been talking about that for a couple of months and in the interim we have seen the French take action, the Swedes take action, while clearly the US has taken some major action for GM and Chrysler.
“So it is becoming a little bit of a competitive issue now as well. While we are not asking for a bail-out we do need access to these credit facilities otherwise we will be disadvantaged versus some of our competitors.”
Pressed on what exactly JLR is asking for, Mr Smith said: “I am not going to discuss the specifics. We have been supported very strongly by Tata since acquisition. They have put, and are continuing to put, significant money into the business for new investment – hundreds of millions of pounds so far.
“But what they, and we, have a problem with is the inability to access the credit markets. Really, that is all that we have asked the Government for: either help us to get the commercial funds flowing or provide loan guarantees so we can make that happen directly.”
Mr Smith said JLR had also asked for consumer credit companies – along with component suppliers and dealers – to be included in any package in order to help its potential customers to raise the money they need to buy its cars.
“Again, that is something we have seen in other countries but which the UK Government hasn’t so far done.”
Asked about the future of JLR, regardless of whether the Government agrees an aid package or not, Mr Smith said: “I am still very confident about the future because the fundamental things that make me confident haven’t changed.
“We have some great products, some great designers, really innovative engineering going on, and a lot of investment in future environmental technologies. We made a lot of progress in new markets in 2008 and have got more to come in 2009. So there is some great stuff going on in the business, but clearly we have been hit by this extraordinary combination of events.
“As a result we have had to take a whole series of actions to reduce production quickly, dramatically I would say, to levels that are running at nearly half where we were at the beginning of the year. That will continue probably through Easter as we adjust inventories to demand.
“As a result we have obviously had to take some fairly significant job losses as well, which is a very unfortunate thing but a necessary thing.
“We are going to have to continue to take action through the first quarter, so we may well have some further job losses. We are going to keep production at this level until we are satisfied that we have realigned demand and production. So that is putting a huge strain on our cash flow and liquidity.
“We are in the middle of a huge investment period for the business. This year is our biggest product year for years and we are also in the middle of a huge £800million investment in environmental technologies.
“Just to put that into context, as a business we have about a £7 billion sales turnover each year. It is a bit smaller than Marks & Spencer’s, but we are spending four times than M&S on environmental innovation at the moment, so it shows just how big a programme we are doing.”
I went on to ask David Smith what would happen to JLR if the Government should ultimately refuse a helping hand.
“I think JLR will have a good future,” he said, “but would have to adjust our investment and employment plans and probably have to cut back in areas where we don’t want to. This is really about trying to make sure that we maximise the potential for Jaguar Land Rover, and in fact the UK car industry.
“It is a very important industry, I think, and it is not really appreciated just how positive some of the developments have been over the past few years.
“We have got some good brands in the UK, some good designers, some good environmental technology being developed and companies like ours are investing huge amounts of money at the moment. We will just lose our competitive strength if we don’t support the industry at this time.”
* David Smith was born 47 years ago in a nursing home a stone’s thrown from Land Rover’s Lode Lane factory in Solihull, the son of a lecturer at Lanchester College in Coventry.
An accountant, he is a veteran of the Ford Motor Company and was previously Jaguar Land Rover chief financial officer before being appointed chief executive following the death of his predecessor, Geoff Polities, early last year.
Mr Smith serves as a director of regional development agency Advantage West Midlands and says of the region: “I feel really passionate about this area.”
He is married with three children and lives in Leamington