Saturday, March 28, 2009

A year after dream acquisition, Tata forced to justify JLR buy

S Kalyana Ramanathan / London March 29, 2009

A year after the Tata group took over the two of Britain’s most iconic automobile brands, Jaguar and Land Rover, it is faced with newer and bigger challenges than it would have expected when it paid $2.3 billion to Ford for the acquisitions on March 26, 2008.

Strapped for cash and facing sagging demand in the automotive sector, Tata is fighting to justify buying JLR in the first place. Even the successful launch of the Nano, its Rs 1-lakh car, has helped little. Within hours of the launch of the Nano in Mumbai, Group chairman Ratan Tata, in a television interview, appealed to the UK government to help JLR with loans for running the company. In an exclusive interview to UK’s Sky News, Tata said that if flow of money continued to be an issue, “The damage is going to be quite devastating.”

“Undoubtedly, if funds are not available, a company will not be able to run…so layoffs will take place, redundancies will take place necessarily,” he said. Ironically, Ford had sold the company because it could not invest sufficiently in either R&D or product development. Despite the Tatas pumping in millions of pounds into JLR after the acquisition, the company needs more. The onset of the worst economic recession since 1930 has made the challenge bigger.

“Jaguar and Land Rover had progressed significantly under Ford. In the 18 months prior to the credit crunch, it made an operating profit of £327 million in 2007 and £310 million in the first six months of 2008. The projections for 2008 had been positive, but both demand and consumer confidence were severely affected by the credit crunch and had a significant impact,” a JLR spokesperson told Business Standard in an email response.

Eric Wallbank, director of automotive practice at Ernst & Young UK, said despite the challenges JLR faces today, Jaguar is one of the few brands that have reported positive growth in sales in the recent months. “Nobody expected the market for cars to go this way. It has come as a surprise and a disappointment to all,” said Wallbank.

After the Tatas acquired the company, business challenges were mostly a result of adverse market conditions. In the first half of 2008, Jaguar’s sales volume was 11.2 per cent more than in the same period in 2007 while Land Rover’s was 0.6 per cent ahead of 2007 (the most successful year in its history). At the end of 2008, Jaguar was 8.2 per cent ahead of 2007 for the year, while Land Rover had felt the impact of the downturn and its full-year sales were 17.6 per cent less than in 2007.

In the first two months of 2009, Jaguar was 6.9 per cent ahead of 2008 and Land Rover 45 per cent down when compared with the same period last year.

There have been a series of non-production days at all three of its UK assembly plants — Castle Bromwich and Solihull in the West Midlands and Halewood on Merseyside. Each plant lost an average of 25 days’ production, which equated to a volume reduction of approximately 25 per cent month on month, said the company spokesperson. Being an unlisted company, JLR does not discuss its production or sales volumes in absolute terms.

Analysts believe that Tatas’ ownership of JLR will open doors for outsourcing of parts from India, particularly from the current pool of suppliers who service Tata Motors in India. Abdul Majeed, automotive analysts for Pricewaterhousecoopers India, said, “Knowing the Tatas, there will be scope for cost-cutting by outsourcing from India in the long run.” This option, however, may be a bit of a challenge given the current political climate in the UK due to rising unemployment.

Wallbank says, “This is nothing new. Even under Ford, some bit of work from JLR was outsourced from India. That door is still open for the Tatas.”

Despite the challenges, there have been some good news, the company’s 14,000-odd workers agreed to a two-year pay freeze on condition of no compulsory layoffs. This is expected to save the company up to £68 million a year. The company also bagged a significant order from China for supplying 13,000 cars worth £600 million over the next three years. More recently, the UK government approved a grant of £27 million (Rs 192 crore) to JLR for producing a new eco-friendly car based on Land Rover’s LRX Concept. Luxembourg-based European Investment Bank is also considering giving a loan of £275 million (Rs 2,100 crore) for research to reduce the CO2 emissions from JLR’s future products.

Even as the Tatas envision a European version of the Nano by 2011-12, they have plans to take Jaguar and Land Rover to India. Market for luxury cars in India is bound to grow, opening up new opportunities for JLR in India, says Majeed.

Tuesday, March 24, 2009

JLR may get Rs 2,100 cr to work on emission control

S Kalyana Ramanathan / London March 25, 2009

Luxembourg-based European Investment Bank (EIB) is considering a £275 million (Rs 2,100 crore) loan to the Tata group-owned Jaguar Land Rover that will part-fund the group’s proposed £550 million (Rs 4,200 crore) research and development work at reducing the CO2 emission from its future products.
This comes under the category of a supporting loan that the European automotive industry gets to produce vehicles that are environment friendly.

The UK government provides guarantee for loans that EIB gives to the automotive sector for work to reduce emissions. This package, nnounced by the UK government earlier this year, included loans up to £1.3 billion from EIB and another £1 billion from the UK government.

Earlier this month, JLR received the UK government approval for a grant of £27 million (Rs 192 crore) for producing a new eco-friendly car based on Land Rover’s LRX Concept, which was first showcased at the 2008 edition of the Geneva Motor Show.

The EIB said, “The project will contribute to the increase of the promoter’s knowledge and know-how in development of technology for small hybrid powertrains and new lightweight vehicle architecture. The project aims at a very significant reduction in fuel consumption of the promoter’s (JLR’s) future range of vehicles; it is expected to bring about positive environmental results. The completion of this project will assist the promoter to comply with the upcoming European CO2 emission requirements.”

The bank said the support would be focused on the development of new engines designed to meet the CO2 emission targets set by the EU Commission, particularly the development of smaller diesel engines, the development of micro-hybrid and full hybrid downsized drivetrains.

The EIB is also considering a £370 million loan to Japanese car maker Nissan to part-finance a similar project in the company’s facilities in the UK and Spain. Nissan has estimated the total cost of its project at £920 million.

A JLR spokesperson said the likely date of formal approval from EIB was not known yet.

Wednesday, March 18, 2009

FSA may expand regulatory role to examine working of banks

S Kalyana Ramanathan / London March 19, 2009

The current global financial crisis has forced UK’s Financial Services Authority (FSA) to tighten its grip over the financial services sector, with some of the options being considered including monitoring the working of banks and other financial services players.

FSA in the UK, from a regulatory perspective, is the equivalent of such Indian regulatory bodies as the Securities and Exchange Board of India and the Reserve Bank of India, and can also be compared to the Securities Exchange Commission in the US. It is an independent, non-governmental body which has been given statutory powers under the Financial Services and Markets Act 2000.

The FSA published today the Turner Review, authored by Lord Adair Turner, chairman of the FSA, that has made recommendations on the ‘changes in regulation and future supervisory approach needed to create a more robust banking system.’

The Turner review has said in no ambiguous terms that the role of FSA must now be expanded to look at the business models, strategies and even risks and outcomes of banks, rather than just focus primarily on systems and processes. This will be a considerable departure from the ‘principle-based approach’ adopted by the regulator so far.

Lord Turner said, “The (current global) financial crisis has challenged the intellectual assumptions on which previous regulatory approaches were largely built and, in particular, the theory of rational and self-correcting markets. Much financial innovation has proved of little value, and market discipline of individual bank strategies has often proved ineffective.”

“The changes recommended are profound, and the banking system of the future will be different from that of the last decade. The world’s economy will be better served as a result,” he added.

The Turner Review comes less than a week after FSA’s CEO Hector Sants’ said that “...people should be very frightened of the FSA.”

At the time, Sants too had said that a “...principle-based approach must give way to outcomes-focused supervision. A principles-based approach does not work with individuals who have no principles.”

The Turner Review is a product of six months of work which was carried out at the behest of The Chancellor of the Exchequer in October 2008. The 126-page report covers a wide range of financial services players, including credit rating agencies and hedge funds, apart from banks. The Review broadly identifies three underlying causes of the crisis – macro-economic imbalances, financial innovation of little social value and important deficiencies in key bank capital and liquidity regulations.

“These were underpinned by an exaggerated faith in rational and self-correcting markets,” the reports said.

In addition, the Review highlights areas where it is has not recommended a specific action, but where wide-ranging options need to be considered, which include product regulation in retail (mortgage) and wholesale markets ( like Credit Default Swap).

Sunday, March 15, 2009

BRIC calls for more balanced IMF

S Kalyana Ramanathan / Horsham (near London) March 15, 2009

Brazil, Russia, India & China (known collectively as BRIC) today sought a re-balancing of representation on the executive board and the International Monetary and Financial Committee of the International Monetary Fund (IMF). The committee is the policy-making arm of the IMF.

The demand was made at the G20 finance ministers’ meeting being held near London. India was represented by the Deputy Chairman of the Planning Commission, Montek Singh Ahluwalia, RBI Governor Duvvuri Subbarao and the Secretary, Department of Economic Affairs, Ministry of Finance, Ashok Chawla.

The BRIC economies also said that protectionism was becoming an increasingly real threat to the global economy. They also sought commitment from the world leaders that they would walk towards a prompt and successful completion of the Doha round.

A joint communiqué issued by the BRIC economies said: “We consider that the IMF’s resources are clearly inadequate and should be very significantly increased through various channels. Borrowings should be a temporary bridge to a permanent quota increase as the fund is a quota-based institution. Hence, we call for completion of the next general review of quotas by January 2011.”

They also asked for speeding up of the second phase of voice and representation reform in the World Bank group by April 2010. G20 nations broadly agreed on curbing tax havens. The BRIC members, in their communiqué, said: “We consider that all financial activities must be subject to adequate regulation and supervision.”

Wednesday, March 11, 2009

UK says auto aid package now open

S Kalyana Ramanathan / London March 12, 2009,

UK’s Business Minister Ian Pearson today said the £2.3 billion Automotive Assistance Programme is now open for automobile and automobile parts makers. Speaking at a seminar on supply chain in the automotive sector, Pearson said, “The Automotive Assistance Programme is now open for business. We are determined that this scheme delivers support as quickly as possible, and today's event was an important opportunity for companies and banks to understand how to access the scheme. We have already received a number of EoIs and look forward to other companies.”

The scheme to facilitate loan and loan guarantees now has clearance from the European Commission and is inviting applications. It applies to the UK automotive sector and supply chain with a turnover of over £25 million.

“The government has put the scheme in place and has now clearly set out the criteria against which applications will be judged. Now it's up to companies to come forward with their bids,” he said.

JLR to get UK grant for green car

S Kalyana Ramanathan / London March 12, 2009

The UK government today approved a grant of £27 million (Rs 192 crore) to Tata Group-owned Jaguar Land Rover (JLR) for producing a new eco-friendly car based on the Land Rover’s LRX Concept that was first showcased at the 2008 edition of Geneva Motor Show.

The company is yet to officially announce if it would go ahead with this project and therefore will use this grant. Earlier this month JLR had managed to secure a major three-year deal to supply 13,000 cars to China worth £ 600 million (Rs 4400 crore) and later secured a pay freeze deal with its workers that will help save £68 million a year.

“We welcome the government's support for this project, which would form a key part of our future product plans and which we very much want to put into production,” said Phil Popham, managing director of Land Rover. The overall cost of this new project to produce the new car based on the LRX Concept is expected to be £400 million.

“It would be the smallest, lightest and most efficient Range Rover that we've ever built," Popham added. “Despite the current economic challenges, we remain committed to investing for the future, to continue to deliver relevant vehicles for our customers..." he added.

A JLR spokesperson later added, “It (new project) still has a number of approval gateways to go through in our product development process before we can give it the go ahead and that process won’t be completed until later this year.” The new model is expected to push the company a few steps closer to its goal to exceed a 20 per cent improvement in the CO2 emission.

The new product will be developed and produced from the company Halewood plant which employs 2000 people. The plant currently produces the Land Rover Freelander 2 and Jaguar X-Type models.

Friday, March 6, 2009

JLR workers accept pay freeze

S Kalyana Ramanathan / London March 07, 2009

Workers at Tata Group-owned car-maker Jaguar Land Rover (JLR) have agreed to a pay freeze until 2010 to avoid compulsory redundancies in the non-management workforce over the next two years.

Around 70 per cent of the workers, who participated in a ballot that lasted over one-and-a-half week, agreed to the new deal that will also help JLR save around £68 million annually. Around 12,000 people work at JLR units spread over six locations in the UK.

JLR’s chief executive officer David Smith said in a statement: “This is an important step for us as a standalone business. It also confirms our determination as a team to steer JLR through these extraordinary and challenging times, so that our business is ready to take advantage when the downturn finally ends. I am also pleased that the company and trade unions have been able to work together so constructively when dealing with such sensitive issues.”

A separate statement by GMB and Unite, the two unions representing JLR workers, said, “We did not want our members in JLR to be faced with the same fate as the thousands of others who have been dismissed in other companies. Our members in JLR deserve better — much better.

The management agreed with our view that, when this unprecedented recession ends, the retention of a skilled and loyal workforce is an integral part of the ongoing success of this business.”

Key elements of the package include a pay freeze until 2010, no compulsory redundancies in the non-management workforce in the UK over the next two years, a four-day week at the plants (from a two-hour reduction in the working week for hourly-paid employees, but with only a one-hour reduction in pay) and a 40-hour working week for salaried employees (as opposed to the current 37 hours) with no increase in pay.

The new deal also gives JLR’s management the option to move its workers across the JLR’s West Midlands sites.

Further, JLR will not have to pay bonus to 2,400 salaried employees, which was scheduled for 2009. However the company has agreed to an increase in employee pension contributions and introduction of a salary sacrifice scheme.

All these measures are expected to achieve savings of around £68m, which will make a significant contribution to the company’s crucial cost reduction targets, the JLR statement said.

The company will continue to keep open the option of offering voluntary redundancy and sabbatical programmes. Over the last few months, the company has been saving costs, partly by offering voluntary redundancy programmes which when completed will result in reduction of the total workforce by 2,000 in the next few months.

Other companies in the UK, like Nissan and Honda, have either announced job and production cuts or temporary plant closure to overcome the fall in global demand for automobiles.

Tuesday, March 3, 2009

Indian, UK bodies plan norms for Darjeeling tea

S Kalyana Ramanathan / London March 04, 2009

Darjeeling tea may finally find its legitimate place in the European market with well defined parameters put in place, stipulating what blend of tea will qualify as genuine Darjeeling tea. The Tea Board of India, along with The United Kingdom Tea Council, is in the final stages of discussing an appropriate system that would define Darjeeling tea and the mechanism to ensure that the Darjeeling tea planters get the right price in the European markets.

For the last few years, tea planters in India through the Tea Board have been seeking a conclusive definition of Darjeeling tea in the global market. The most recent proposal from the Tea Board to its European counterparts has suggested the blend must consist at least 90 per cent of Darjeeling tea to qualify to be called so.

Though the UK Tea Council and the EU Tea Committee are not opposed to the idea of finding a clear definition of Darjeeling tea, there has been some apprehension on the implementation of such a definition. “We support this completely. What the Tea Board of India is doing is a laudable effort. But the procedures need to be simple and benefit all parties,” said William Gorman, executive chairman of The United Kingdom Tea Council. The council has been vested with the task of representing the 27 EU trading partners on this subject. The trading rules not just in the UK but in other European countries would be considered, said Gorman.

India has every reason to protect the integrity of Darjeeling tea, which is considered as the ‘Champagne of Tea’. This variety, according to Tea Board statistics, accounts for 1.24 per cent of India’s annual tea production. However, it fetches nearly twice the price of any competitive variety of tea, commonly consumed in the UK (like the typical English breakfast tea), according to trade sources in the UK.

In 2007-08, India produced 8.05 lakh tonnes of tea and the estimated production in the current year is 8.32 lakh tonnes. Between January and November 2008, India exported 1.76 lakh tonnes of tea.

“It is like the Scotch Whiskey or Champagne. We are quite aware of what the Tea Board is trying to do,” Gorman said. The concern among the EU trading partners is the “policing” of the proposed system. They are seeking an efficient, intelligent and yet a simple mechanism for qualifying a blend as Darjeeling tea. Interestingly, the real challenge for Darjeeling tea comes from much closer home than one would expect. Certain varieties of tea grown in Nepal manage to pass on as Darjeeling tea. “Even tea tasters at times find it difficult to distinguish between these two and hence they (Nepalese tea) pass on as Darjeeling tea,” said Gorman.

Proposals from the Tea Board have been vetted by the legal councillors for The UK Tea Council. Their response and suggestion will be considered by the board of The UK Tea Council on April 22. The UK Tea Council believes that the new system to evaluate and price Darjeeling tea should be in place this year, said Gorman.

The UK Tea Council along with other members in the EU are taking extra care to put in place a system to evaluate a specialty tea such as Darjeeling tea so that other similar teas can benefit from this. Other varieties such as Assam, Nilgiri and from various countries Sri Lanka, Rwanda and China can emulate this model to ensure that the planters get the right price and buyers get what they are paying for, said Gorman.

The UK is the largest consumer of tea in the western world while most other parts are large coffee consuming nations. It imports nearly 160,000 tonnes of tea every year.

In per capita terms, the UK is the second largest tea consumer (per capita consumption at 2.5 kg) in the world after Ireland (2.6 kg). Though India China and Kenya are large tea growing nations, their per capita consumption ranges between 0.3-0.4 kg.

Monday, March 2, 2009

'Tata affirms its reputation for fair dealing with workers'

Q&A: Des Quinn, Regional Industrial Organiser, Unite (Midlands), UK
S Kalyana Ramanathan / London March 03, 2009

UK-based union leader Des Quinn was the pointsman at Unite, the workers’ union that welcomed the Tata Group to Jaguar and Land Rover when Ford Motors had to choose between two front runners to sell JLR. Unite is the largest union in the UK with over two million members across 24 different industries.

Quinn, the lead negotiator for JLR workers in the Conventry region (Midlands), says though the current turmoil in the global automobile industry has been a testing time for all Tata Group stakeholders, the Indian conglomerate has lived up to its reputation for fair dealing with workers. He tells S Kalyana Ramanathan why his experience with the Tata Group has been unique in many ways and showers praise on JLR’s Indian owners.

Q: It has been nearly a year since the Tata Group took over JLR and the union had backed its offer. Does the current situation (including job losses) make you wonder whether you had backed the right suitor?

A: When Ford decided to sell JLR, three groups showed interest — Tata, Mahindra & Mahindra and a consortium led by Jack Nasser, a former CEO of Ford. But the union had supported the Tatas as its preferred buyer.
We were quite aware of its (Tatas’) reputation for fair dealing with its workers and it seemed to be the only one who was interested in protecting and further developing the Jaguar and Land Rover brands. Nasser was talking about a turnaround strategy with an exit through market in five to six years. Mahindra seemed to be more keen on Land Rover and with its four-wheel drive technology, the company was not too keen on taking over Jaguar. Hence, the union backed the Tata and it has been a good experience so far.

Q:Good experience despite the job losses at JLR?
A: The job cuts so far have been voluntary and not compulsory. It has been quite painless (with nine months severance pay). At the time of taking over JLR, Tatas had agreed on a few things with the union and Ford: the management would remain the same, business would continue and no (compulsory) job losses for 5-6 years. The company has stuck to this so far. This apart, it has managed to keep JLR at arm’s length till now. The only communication I get from them is a routine Tata UK newsletter.

Q:What has been the status on voting on the pay freeze at JLR that would guarantee no compulsory job cuts for two years?
A:The voting is going on and we will announce it on March 6. From what I hear, we are likely to accept it. It would be disappointing if the workers refuse to accept it.

Q:When Tata took over JLR the global economic situation was not as bad as it is today, and since then the automobile industry has gone from bad to worse.
A:The agreement with Tata though allows them to revoke some of the clauses should the automobile industry break from below, which they have not. We were right about the Tatas. Ratan Tata gave his commitment personally. He even asked us to come to Mumbai to meet the union leaders there, which was not necessary.