John Waples/Sunday Times
 
London, Nov 24: Jaguar Land Rover (JLR) is in secret talks with the British government for a £1 billion loan, just nine months after Tata bought the luxury-car marque. The request demonstrates the sharp downturn in the global car market, which has already pushed a handful of the big car manufacturers to the edge of bankruptcy.

The speed of the economic decline has not just hit the motor industry. A number of large British-based industrial groups are also considering asking the government for financial support. If help is not given tens of thousands of jobs are at stake.

According to one government official familiar with the approach made by JLR, PM Gordon Brown is studying the request and an answer could be made in the next fortnight.

Tata paid $2.3 billion for JLR and financed the acquisition with a $3 billion (£ 2 billion) bridging loan. Since then sales of new cars have plunged which has caused big problems with the cash flow needed to service debt payments. It comes at a time when Tata — one of India's most successful companies — is also facing financial issues. It paid $11 billion 22 months ago for steelmaker Corus and since then the metal price has collapsed.

Similarly, shares in Tata Consulting Services, its American-listed IT business, have also tumbled, as have shares in Tata Motors. Ratan Tata, the conglomerate's chairman, has put on hold further acquisitions amid the difficulty in raising bank finance and in the face of the economic slowdown.

Tata still has confidence in the future of JLR but believes he needs government help to tide it over for the next two years. At the time of the purchase last March he said: "These are iconic brands that I respect enormously. Our plan is not to tinker with them in any way." David Smith, chief executive of JLR, has made a direct plea to the government for cash. He believes that with help being given on the Continent and in America to carmakers Britain has a good case for financial aid.

At the same time, the Society of Motor Manufacturers and Traders, which is representing the interests of the wider British industry, is thought to want between £ 2 billion to £ 3 billion of state aid. Last week Honda announced it is going to close its Swindon factory in England for two months next year.

The Japanese carmaker will stop all vehicle production at Swindon in February and March, reducing output by 21,000 units on top of job cuts of 32,000 already announced. Toyota has also cut shifts at its UK plants, and Bentley, the luxury carmaker majority-owned by Volkswagen of Germany, has cut shifts at its plant in Crewe.

Despite success with its new Jaguar XF sedan model — particularly in America — JLR is facing similar issues. The group, which employs 15,000 workers in the UK, needs to slow production in order to sell a backlog of vehicles that have already come off the production line. Last year Land Rover produced 230,000 vehicles, while Jaguar made 54,000.

Around the world the market for JLR cars has fallen 25% and analysts fear this could further deteriorate. JLR has already cut shifts and production days at Solihull, Halewood and Castle Bromwich.

Tata is looking to the government for a bridging loan to help it over the next 24 months, a period where the industry will come under further financial pressure when it is difficult to access funding markets.

The component suppliers to the automotive industry are also in difficulties, many of them already facing issues with credit insurance.

For JLR, its need for additional finance, just months after it found a new owner, marks the start of another turbulent chapter in the group's history.