Jaguar Land Rover (JLR) is pressing the Government to help it to secure a £1 billion loan as it contends with plunging car sales and a lack of credit.

The business, owned by the Tata conglomerate of India, wants to borrow the cash for two years, after which time it hopes that the global car market will have recovered.

The move comes nine months after Tata bought it from Ford in one of the highest-profile purchases by an Indian company in Britain.

JLR and other companies in Britain’s car industry are urging the Government to force the banks to free up capital for them, possibly by acting as a guarantor or to arrange funds itself. Many big carmakers are believed to be having trouble securing affordable finance as a credit squeeze sweeps across industry. Until now, small firms have been thought to be suffering the worst of the squeeze, but now finance is tightening for larger businesses, too.

JLR has called on the Government previously to bail out British carmakers after the US Government’s creation of a $25 billion (£16.7 billion) fund intended to support the development of more environmentally friendly cars.

JLR and the Society of Motor Manufacturers and Traders (SMMT) have told ministers that without adequate funding, work on research and development will dry up, putting British-based businesses at a disadvantage when there is an economic recovery. Unlike most foreign-owned carmakers in Britain, JLR undertakes research and development in the UK, rather than in its parent’s home country. JLR’s technical expertise was one of the attractions to Tata when it bought the business from Ford.

However, the operation is suffering significant cashflow pressures: sales of Land Rover have plunged by more than 50 per cent during some months. JLR is thought to want to avoid total shutdowns of its factories to keep developmental work on track.

Total shutdowns are starting to be implemented at other car factories, threatening a contraction in the components industry. Honda said last week that it would shut its Swindon factory for two months next year and Mini, which is owned by BMW, is to close for a month from next week.

JLR has already cut a shift at all its factories in the Midlands and on Merseyside to reduce output and has also announced several hundred job losses from its 15,000-strong staff.

David Smith, JLR’s managing director, has given warning of big job losses in the automotive industry. Moreover, carmaking has a high multiplier effect on supply-chain jobs. It is estimated that for every job in a car-assembly factory, there are four or five in the supply chain.

JLR and the car industry’s general appeal for help will test the Government’s willingness to become involved in industrial policy. Last week Richard Lambert, the Director-General of the CBI, advised ministers against giving big bailouts to the car industry. He said that such steps had not worked in the 1970s and that the Government was not in a position to determine which industries should prosper and which should not.

However, last night the CBI said: “The credit crunch is having an increasing impact on cashflow and inventory finance across industry. Wholesale vehicle finance plays a critically important role in the motor industry supply chain and the CBI backs the SMMT in its proposals to improve liquidity in this and other areas.

“This is not a call for a blanket bail-out for the industry, but rather for a careful targeted programme to support this vital part of the manufacturing economy through the current difficult times.”

The SMMT is arguing that it is critical to help the motor industry through the present tough time to preserve a good carmaking base for the future. The SMMT is believed to want several billion pounds to be made available across the industry. It is thought to be pressing for cash for Vauxhall’s Ellesmere Port plant if funds from its parent, General Motors, stop.

JLR said: “The automotive industry is facing unprecedented trading conditions as a direct fallout of the banking crisis and turbulence in financial markets and we are, of course, keeping the Government appraised of the impact on our business.”

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