http://altlantic-internationalpartnership.com/2011/04/atlantic-international-partnership-headlines-why-jaguar-gives-us-reasons-to-be-cheerful/
Many years ago, when the Bay City Rollers were still described as “heart-throbs” and Margaret Thatcher had just replaced Edward Heath as Conservative Party leader, there was a joke in America about Jaguar cars.
Such was their atrocious build quality you had to buy them two at a time – one to drive while the other one was in the garage being fixed.
The demise of the British car industry became a metaphor for the decline of the UK. The fact that we couldn’t make the door fit on a sludge brown Austin Allegro (renamed the “All-aggro” and voted the UK’s worst car ever) said a lot about our inability to run world-class businesses. Strikes, poor material and build quality and failing management came together in a toxic virus that left us the Sick Man of Europe.
Roll forward four decades and we see a much healthier picture – and no more Bye, Bye, Baby complete with tartan scarves and the infamous “mullet” hairstyle either. The automotive renaissance is well embedded in the UK, although often unsung. We now build 1.4m vehicles a year, below the 2m (badly produced) in the early 1970s but well up on the dark days of the late 1970s and early 1980s. Japanese giants Nissan, Toyota and Honda have made significant commitments to the UK and their plants – in Sunderland, Burnaston, Derbyshire, and Swindon – are some of the most productive in the world. The automotive sector contributes more than 10pc of UK exports with a value of $25bn (£15bn) over the last five years.
When it was announced in March 2008 that the Indian conglomerate Tata was taking over Jaguar Land Rover from Ford in a £1.15bn deal, concerns were raised that the well-surfaced motorway of automotive progress was about to hit a speed bump. Surely Tata would announce the mother of all Indian takeaways, sending Jaguar Land Rover manufacturing eastwards and out of the UK?
The opposite has been the case, with Tata Motors investing heavily in its UK business. Yes, Jaguar Land Rover is in talks with potential Chinese partners about building some assembly capability in China but that is a sensible move given the import cost of bringing wholly finished goods into the country. China is a huge growth market for luxury cars and Jaguar sold 30,000 cars there last year.
Even with the China plan, Jaguar Land Rover is a positive UK story. Last year Tata Motors, after plunging into the red as it was caught up in the consumer slump following the financial crisis, dropped plans to close one of its three major factories already operating in Britain. Such was the surge in orders and revenue, the company decided that far from retrenchment the story was all about expansion.
As we reveal today, that expansion is hopefully about to hit a higher gear. Jaguar Land Rover is well advanced in planning for a new engine plant in either the Midlands or South Wales. Although an as yet unnamed site in India could still overcome the two UK favourites, the fact that it would mean shipping the engines back to the UK to be put together with the cars that are assembled here must make it an outsider.
It is unlikely that Jaguar Land Rover will be looking for direct Government support for the plant. After getting entangled in a turf war between the then trade secretary Lord Mandelson’s business department and the Treasury over a £290m rescue package in 2008, it would be well advised to raise any money needed this time in the markets. As Sheffield Forgemasters found to its cost, relying on public grants is a risky game.
What Jaguar Land Rover does need is the type of business-friendly environment conducive to growth. That means more from the Government than simply saying you are business friendly.
It must be hoped that George Osborne and Vince Cable – who have both visited Jaguar Land Rover plants in the past year – do all they can to ensure Tata Motors does choose to bring at least 1,000 new employment opportunities to the UK. Beyond that headline number there are, of course, all the extra supply-chain jobs at local firms which will be linked to the new factory. Do not underestimate either the “good news” boost of a global firm committing to Britain.
There is much talk from the Government about the need to “rebalance the economy” away from an over-reliance on the financial sector and towards manufacturing. This is an opportunity to put such talk into action.
JAMES MURDOCH’S GIANT PEACH
As well as planning for his new life in America as News Corporation’s deputy chief operating officer, James Murdoch will have to blow the dust off another file that has been sitting in his in-tray for a while now – the offer for BSkyB.
Last week BSkyB’s shares hit a nine-year high as investors anticipated the imminent green light for the deal to progress. Jeremy Hunt, the culture secretary who gave initial regulatory approval for News Corp to purchase the 61pc of BSkyB it does not already own, is expected to give the final go-ahead in the next fortnight, after MPs return from the Easter recess.
This week BSkyB announces its third-quarter results which are expected once again to show increasing revenues and profits. Although Jeremy Darroch, the much respected chief executive of BSkyB, has told colleagues that his company is not immune from the recession and cannot be expected to hit record after record on all of its metrics, BSkyB’s strong performance over the past year is set to continue.
How will Mr Murdoch play it? He needs to secure the peachy whole of BSkyB but not at a price so vertiginous that it is more froth than substance.
Many of BSkyB’s shareholders want a far higher offer than the initial 700p approach made by News Corp. With the share price now approaching 850p, some have said nothing short of 900p or even even 1000p will clinch it.
Mr Murdoch does not want an ever-spiralling bidding war, ending up with a figure so high that financing it could put at risk News Corps’ own credit rating. He also knows that “going hostile” could be suicidal.
All along News Corp has said it will not make an unreasonably high bid for a company whose uninterrupted share price was below 600p. People with close knowledge of the matter are saying that rather than upping his price significantly, Mr Murdoch could choose a waiting game approach. He could offer a standstill agreement where he puts a slightly higher than 700p “final offer” on the table.
It would certainly be high-risk. Yes, BSkyB’s share price may fall a little but given that much of the premium is connected to stellar performance rather than bidding frenzy, it is unlikely to stay low for long. In the end Mr Murdoch is likely to have to pay far higher than 700p for BSkyB, whether it is now or some time in the future.
