Soured Tata’s commitment to JLR seen as strong as ever

Aug 25 2009 by Alun Thorne, Birmingham Post

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.