Jaguar Land Rover owners Tata have been waiting for the UK Government to underwrite loans from the European Investment Bank to help ease the pain of the current economic recession. But Lord Mandelson and his minions seem to be procrastinating over the deal.
Reports have indicated that the biggest stumbling block has been the Government’s insistence on having a seat on the board of JLR. But it seems that condition has now been withdrawn, and yet Tata /JLR has still not accepted the conditions attached to the loan guarantee.
The Sunday Times is reporting that the UK Government is insisting on a veto over any changes in JLR’s business plan as a condition of the loan. Which in some ways seems sensible if the funding was an investment; but it’s not. It’s a loan guarantee. And it seems a bit strong to lumber a commercial enterprise like JLR with a Government veto over its future plans.
But what are the plans that JLR has that it doesn’t want to be the subject of a Government veto? We think it likely that JLR plans to start manufacturing Land Rovers and Jaguars in India. And who can blame them? India itself is a rapidly rising market and also offers a great export base to other emerging and rapidly developing economies. And Tata are already the biggest car maker in India and, if they start to produce Jaguars and Land Rovers there, they will be in good company.
Major car makers like BMW, Audi and Mercedes all manufacture in India. Volume budget makers like Hyundai also have a big manufacturing base on the sub-continent. It makes business sense. The home market in India is growing rapidly, and India has big protectionist tariffs for imported cars.
So what will happen if Lord Mandy refuses to guarantee the loans unless JLR capitulate and give the Government a veto? Our guess is that they will simply move manufacturing out of the UK altogether. Not straight away, but all future investment will probably go to India or other low-cost manufacturing bases. Is that what we want?
I think not.