UK dept under fire for delay in lending to JLR

S Kalyana Ramanathan / London July 18, 2009

The Business & Enterprise Committee in the UK, appointed by the House of Commons to examine the expenditure, administration, and policy of the Department for Business, Enterprise & Regulatory Reform (BERR), has voiced its disappointment over the government’s delays in providing support to the cash-strapped Jaguar Land Rover (JLR), the Midlands-based car maker which is now a part of Tata Motors.

In a report submitted by this committee, it said: “Despite its strategic importance and although the government considered that Jaguar Land Rover was a ‘top priority’, the company told us it had proved impossible to conclude negotiations between the company and BERR about the terms of a guarantee, even though it had already received loan approval from the EIB for a substantial facility, £340 million, against our future technology investments.”

“All that is under discussion is the government’s guarantee. As on 7 July 2009, there has been no indication that there will be such a guarantee: we are astounded that it has taken so long to arrange this, particularly since the support needed is so limited,” the committee’s report said.

Though European Investment Bank (EIB) had approved a loan of £340 million for JLR to invest in “green technologies” in the first week of April 2009 to help it compete with other major European luxury car makers like BMW and Daimler, JLR has been unable to access this money for want of a guarantee from the UK government. It has been widely reported that the conditions posed by the UK government have been too stringent and may come in the way of smooth operations of the car marker.

Earlier last week, in an exclusive interview to Business Standard, JLR’s CEO David Smith said, though he was hopeful of securing this guarantee, the company was willing to do so only on commercial terms and the company will not offer the UK government a berth on its board.

“I think we all believe that the government is not very good at running companies. Anything we agree with the government or in fact any other lender should not interfere with our ability to run the company. Any agreement we do reach is commercial and gives us the ability to run the business properly,” Smith had said.

Reacting to the committee’s remonstrance at the government’s delay in providing the guarantee, JLR today said: “We welcome the committee’s conclusion that the UK industry has strong premium brands which, together with the supply chain, can lead the transition to low carbon vehicles as outlined in the recent NAIGT report. Jaguar Land Rover is playing a full role, investing over £800 million to reduce vehicle CO2 emissions and improve fuel efficiency. The report refers to the delay in drawing down the £340-million European Investment Bank loan for green technologies approved in April, which supports our investment plans. Clearly, we are eager to see this resolved as soon as possible.”

Smith was among the experts who gave evidence to the committee. Today he echoed the sense of urgency expressed in the report.

“For a year now, Jaguar Land Rover and other UK automotive exporters have been conducting business in the face of a severe recession that has stalled global economies. I fully support the Business and Enterprise Committee’s call for urgent action to allow the UK automotive industry to survive this crisis, coupled with a long term strategy to enable motor manufacturing to flourish in the UK. Environmental innovation is absolutely critical to our future and, if we are serious about a low carbon industry in the UK, we are going to have to decide to invest in it now,” he said.