Jaguar Land Rover Asks for Bailout. This is Nonsense.

Jaguar Land Rover, which sells swanky vehicles to affluent folks, wants a bailout of its own (Financial Times):

Jaguar Land Rover (JLR), which is owned by India’s Tata Motors, said…that government intervention in the industry was required. Help was needed to improve liquidity in the supply chain, support continued investment in carbon-reduction technology and stimulate consumer demand, the company said.

It declined to comment on reports in The Sunday Times that it was seeking £1bn in state assistance, saying only that it was talking to the government as part of industry efforts to win support.

David Smith, JLR’s chief executive, said at the weekend that there would be more significant job losses in the UK’s motor industry, among manufacturers, suppliers and retailers.

Despite that, JLR said on Sunday it was planning no further job cuts in the immediate future. “We think we’ve done enough for now,” it said. “It obviously does depend on how demand continues from here on. If it continues to fall and fall, it will be different.”

The JLR issue begs several points that are decidedly contemporary in nature:

1) JLR is owned by India’s Tata Motors, but is asking Britain for help. If the state agrees, it will effectively benefit an Indian company while stabilizing its own national economy. Why isn’t Tata’s company Tata’s responsibility? If the government steps in, will it demand some return from Tata? Britain’s national economy is at stake, but Tata, watching from a distance, could be the ultimate benefactor.

2) It is unnatural for a government to bail out a luxury brand.
I assume JLR’s pretense for asking for a bailout is that the banking crisis has made it difficult to operate. Understandable, but–the company sells luxury vehicles. Banking crisis or not, luxury brands shrink during recessions. JLR needs to adapt, continue to shrink, and be put up for sale again, if necessary. The government bailing out a luxury car brand when nobody can afford it anyway smacks of Russian oligarchy.

3) The bailout makes more nationalistic than economic sense.
I get the feeling that many proposed bailouts are more sentimental in nature than necessary.

Take GM. What if it fails? This has been discussed in detail in other forums, but there’s an unspoken X-factor: Foreign companies will take over vital economic machines. If this happens, profits go abroad, some say jobs disappear (I would dispute this point), and national government loses power. That’s the last thing a government wants.

On the other hand, bailing out means that government increases its power, companies maintain national ownership, and the ship stays afloat just a little bit longer. I have trouble believing that we’ll look back on this mess in 10 years and say “Remember how the bailouts saved us? Government was so wise.”

The more likely scenario will involve national bankruptcies, increased supranational oversight (an expanded IMF, for example), and mass corporate sell-offs to foreign entities. We’ll bicker about how Chinese companies have taken over our national treasures, but we’ll have food on the table.

This is not a new phenomenon. We’ve done it abroad many times before; now it’s our turn. The best avoidance maneuver would be to let companies fail and refocus resources on more promising industries–wave energy in Britain comes to mind–which the government can play a role in supporting.

Hanging onto carcasses isn’t going to get anyone very far.

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Written by Drea Knufken

Drea Knufken

Currently, I create and execute content- and PR strategies for clients, including thought leadership and messaging. I also ghostwrite and produce press releases, white papers, case studies and other collateral.