After months of prevarication, Tata Motors finally secured the finance it needed to keep Jaguar Land Rover afloat during the downturn. Now the dust has settled, Alun Thorne looks at the fall-out from an inglorious episode.
Indian group Tata says it was amazed at the Government’s behaviour given that it is one of the largest investors in British industry.
After all, among Jaguar Land Rover, steel concern Corus and other outlets, it employs 45,000 in the UK.
It will be funding JLR’s model programme without any help from the state.
Of the Government’s so-called £2.3 billion package made available to the UK car industry, not one penny has so far been paid out – due, say pundits, to such onerous terms nobody could afford to access the money – and details have emerged of just how onerous.
A highly-placed Tata source at the company’s Mumbai headquarters points out that £1.3 billion of the cash is European Investment Bank finance, of which £340 million is earmarked for JLR to develop a new generation of low-emission cars.
The expectation had initially been that it would be straightforward to clear the deal.
Far from it.
A three-year loan was on the table yet the Government was prepared to offer a guarantee for only six months. In addition it was only ever willing to guarantee £175 million of the total and, for its troubles, was demanding 15 per cent commission.
“Tata was insulted,” the commentator said.
Having effectively dumped negotiations with the Government, it has said it now expects to secure the EIB loan in the coming weeks through “appropriate commercial arrangements”.
The sources insist that throughout the whole drawn-out saga Tata had always “recognised its responsibility” to JLR.
It previously stated that it had pumped in £1 billion – that figure is understood to have risen to £1.2 billion.
The commitment, suggest industry experts, is similar to how Ford bailed out Jaguar in the early 1990s during the last big recession. Without it JLR would have been bust.
But, it is pointed out, no company of any size can do without borrowings, and when the credit crunch broke and car sales worldwide collapsed this was virtually unobtainable.
Hence the plea to the Government for loan guarantees.
Sources say that while the whole experience may have soured Tata, the commitment to JLR is as strong as ever.
One said: “Tata is a long-term player. It is going to be around as the owner of JLR for decades – and certainly long after those people it has been dealing with in Government for the last year are well gone.”
And, despite its woes, Tata has stressed all along that it was determined to safeguard JLR’s model programme.
It was determined also to continue with research and development and, though jobs have gone and will continue to go as it seeks to lower its break-even level, the aim has been to maintain employment and the skills base.
But it also made plain just how high the stakes were.
JLR employs 15,000 people in the UK and spends £400 million a year on research and development, half the automotive industry total. It exports 80 per cent of its production – to 160 countries.
It has a £7 billion turnover, about the same as Marks & Spencer.
It was spending £800 million on environmental innovation. It had 300 suppliers, and spent £2.5 billion a year with those in the UK.
That meant directly and indirectly some 75,000 jobs were dependent on JLR.
For months Tata was desperate for a deal with the Government but, as negotiations dragged on, it finally saw some light at the end of the tunnel.
Tata Motors posted a better-than-expected £65 million profit for the three months April to June, up 58 per cent.
And then came signs that international lending was freeing up.
That led to the deal with the banks on working capital while the EIB agreement should follow suit.
Meanwhile, consultants have been called in to stem the losses – Tata revealed pre-tax losses for Jaguar and Land Rover combined of nearly £350 million in 2008 compared with a pre-tax profit for the two marques of £660.5 million in 2007. JLR incurred a loss of £281 million in the ten months to March.
KPMG and Roland Berger Strategy Consultants are advising on cost-cutting and cash management.
It takes place as Tata is taking a more proactive role with JLR and a tighter hold on its finances.
At the height of its frustration with the Government, Tata hinted at temporary plant closures, with Halewood the likely target, if things failed to come together rather than its Castle Bromwich and Solihull operations.
No-one knows what conclusion the consultants will come to but it is thought the lending deal makes it less likely that a factory could go.
Nevertheless, after such a traumatic period, Tata is clearly committed to sorting out JLR and lowering its breakeven level.
Whether its long-term plans do envisage a three-plant strategy or only two remains the next great controversy.