Howard Wheeldon: Treasury throws Jaguar Land Rover to the wolves

May 7 2009 Birmingham Post

Has the Government turned its back on Jaguar Land Rover by imposing unacceptable conditions on an offer of short term financial aid? Birmingham-born Howard Wheeldon, senior strategist at brokers BGC Partners, believes it has.

Onerous underwriting terms given by HM Treasury to Jaguar Land Rover owner Tata Motors are an object lesson to others that had wished to believe the UK government was genuine in its willingness to support the UK auto industry.

If the gun now being held to JLR by the Treasury and to the head of Tata is an example of reality within the overall £2.3 billion auto industry support package announced by business secretary Lord Mandelson a few weeks ag, then the best that can be said is that this just isn’t worth the paper it is written on.

Given just a few hours to agree to ridiculous government terms last Friday, Tata are absolutely right to be furious at the sleight of government hand.

This latest government failure to support the future of the UK economy is in my view an absolute disgrace - tantamount to throwing the best of the highly valuable British luxury car industry and export potential into a den of wolves.

Turning its back on JLR and effectively writing the company off in such a manner demonstrates to me that this already failed government has now completely lost its way. Either that or perhaps this could be an attempt at backdoor nationalisation in the manner of Railtrack. I sincerely hope not.

Either way, it is apparent to me that there has been serious disagreement between BERR and the Treasury on the whole issue of JLR loan guarantees to the point of even suggesting that Prime Minister Gordon Brown has lost control of the Treasury.  

The terms that I understand have been imposed on JLR that would allow the automaker to make use of already agreed loans from the European Investment Bank are now all but impossible for Tata to accept.

Given that EIB loans are solely intended to provide sufficient commitment from Tata for future investment the apparent lack of trust is frankly amazing.

Clearly, and despite comfort words to the contrary about the need to invest now to provide the basis of future growth and prosperity, the Labour government appears to be turning its back on the important luxury segment of the UK automotive industry.

This appalling and heavy-handed behaviour by the Treasury will now put the jobs of all 14,000 remaining JLR workers in very serious jeopardy.

In rejecting the bulk of the request from Tata Motors for government guarantees that would have enabled JLR to obtain loans from clearing banks (RBS and Lloyds) of around £450 million, my understanding is that Tata has been told the following: The government has decided to block full access to available EIB loans worth £340 million to JLR that have already been approved by the European Investment Bank and which require a UK government guarantee before the EIB could release them.

Instead, the government has told Tata that it will only guarantee £175 million of the available EIB money that is intended for use on “green technology developments”.

In doing so, the government has told Tata/JLR that if this loan is taken up they must immediately pay 15 per cent to the UK government in the form of a charge thus reducing the loan guarantee to less than one half of the loan available from the EIB

The Government has also said it would be prepared to underwrite the intended three-year EIB loan for only six months.

I understand that government requires that Tata Motors inject hundreds of millions pounds more on top of the near-£900 million the parent company has already put in.

The Government is apparently demanding significant management control of JLR in that it requires to choose a chairman and to have a permanent seat on the management board.

Ministers are also seeking a veto over all decisions taken by the company management, including investment, day to day matters and employment issues. In other words, it appears that decisions appertaining to current and future direction of JLR must first all be approved by the government.

I understand that the Government also requires commitment from JLR that no further redundancies would be made amongst the 14,000-plus employees.

One way of interpreting the above list would be to suggest that the government appears to be demanding to take effective control of the company without putting a single penny up front. This must clearly be unacceptable to Tata management and