JLR buy: let Tata bear the consequences

JLR buy: let Tata bear the consequences
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First Published: Fri, Jan 23 2009. 10 12 PM IST

Updated: Fri, Jan 23 2009. 10 12 PM IST
Peter Mandelson, the UK business secretary, is in India this week. His schedule will have included an audience with Ratan Tata, the industrialist hoping to get UK state support for JaguarLand Rover. Mandelson should take a hard line against such requests. Tata overpaid for the luxury car maker in a debt-funded £2.3 billion (Rs14,628 crore) deal last year—and should be first in line to bear the consequences.
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Just before the deal, JLR had turned its first annual profit after years of losses under the ownership of Ford Motor Co. But sales have since collapsed and JLR is once again loss-making. JLR insists it isn’t about to go bust, but the company is facing a squeeze. It can no longer easily fund working capital and invest in next-generation technologies. Tata is after £1 billion in loans or loan guarantees, according to a person familiar with its thinking.
There is one reason why Mandelson might have some sympathy for Tata’s predicament. JLR cannot access the state aid already supplied to car makers in other European countries.
But that’s not reason enough for the UK to set a risky precedent by giving the sector special treatment. JLR needs to be able to stand on its own two feet. And Tata has a big incentive to provide whatever assistance the company needs—saving itself from humiliation. Perhaps Tata’s enthusiasm to pump in further cash has been dampened by the debt burden on this and its other highly leveraged foreign trophy purchase, steel maker Corus. But that is a problem of Tata’s own making.
Not that the UK should be blind to JLR’s predicament. The government has already launched a massive support package for its banking sector, which is the appropriate source of JLR’s financing needs. Mandelson should work to ensure the mass of policy measures designed to kick start the banking system work rapidly to JLR’s benefit.
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First Published: Fri, Jan 23 2009. 10 12 PM IST