Jaguar Land Rover (JLR) is reportedly in secret talks with the British government for a £1 billion loan to shore up its operations in the wake of the current economic downturn.
The move comes 9 months after Tatas bought the luxury car maker in one of the most hi-profile takeovers by the Tata group. The deal had been financed by a £2 billion bridge loan from banks.
The request comes at a time when the downturn has already driven a number of big car manufacturers close to bankruptcy. The economic downturn has not impacted the car industry alone, a number of British industrial groups are also believed to be looking for financial support from the government.
What makes the scenario particularly grim is the sharp fall in sales of the Tata group's vehicles. Around the world, the market for JLR has fallen 25 per cent, with fears that it could deteriorate. JLR has already effected cuts in shifts and production days at Solihull, Halewood and Castle Bromwich.
Car sales have plunged across the industry with the giants - Ford, General Motors, and Chrysler - fighting for survival. GM, which owns Vauxhall, is almost bankrupt and will certainly collapse if the US government does not come out with a rescue package.
British car sales have plunged 25 per cent with potential buyers putting off new purchases in the turbulent conditions. This has forced the UK industry to go look to the government for handouts.
Ratan Tata, chairman, Tata group, has put further acquisitions on hold considering the difficulties in raising cash in the economic slowdown.
Tata, however, continues to be confident of the future of JLR but needs the government's help to tide over the conditions for the next two years. While taking over JLR he said that he respected iconic brands like JLR and does not plan to tinker with them in any way. He says that with the help now coming to car makers in the Continent and the US, it is time for Britain to follow suit as there is a good case for extending financial aid.
The Society of Motor Manufacturers and Traders, representing the interests of the wider British industry, has also made an urgent demand for state aid of £2 billion to £3 billion.
Meanwhile, Japanese car maker, Honda announced it will shut its Swindon plant in England for two months next year. The Japanese car maker has already cut production by 32,000 units and plans to stop all vehicle production at Swindon in February and March, reducing output by 21,000 units.
Toyota has also scaled down operations at its UK plants, and so also has Volkswagen of Germany, at the Bentley, Crew plant. Bently, the British luxury car maker is majority owned by Volkswagen.