It has been reported this morning that Gordon Brown and Alistair Darling have agreed to dip in to tax payers funds to help Tata, the owners of Jaguar and Land Rover.
Along with most other car makers in the world, Jaguar and Land Rover has been hit hard by the current economic blight. But it seems that Tata has been hit by more grief than most.
Heavily funded by Tata, Jaguar/Land Rover is however an efficient, quality car maker with a good range of marketable products. But when Tata bought Jaguar/Land Rover from Ford recently, they took out some pretty heavy short-term borrowing to do so. That would in itself make Tata’s life difficult, but it would seem that the downturn in steel demand (one of Tata’s key products) has hit cash flow badly, plus the recent terrorist activity in India has hampered business for the company.
No money has changed hands yet, but it would seem that Tata has managed to secure bank help this morning on the strength of the promised government help, which will take at least a month to put in place.
Helping struggling companies in extraordinary times is something responsible governments should do, particularly if that company’s demise would have a significant impact on the economy and on public confidence. But it should only do so where the business is fundamentally strong. It would be wrong to pour tax-payers’ money in to companies that are lame ducks (which possibly includes 2 of the US big three car makers), but help to get through troubled times and back in to less troubled economic waters is a sensible, and cost-effective, way to help the economy.