Page last updated at 17:53 GMT, Wednesday, 6 May 2009 18:53 UK

Jaguar aid talks 'near collapse'

Jaguar Land Rover
Jaguar Land Rover is relying on support from its parent Tata.

Talks between the carmaker Jaguar Land Rover and the government on a package of financial support are close to collapse, the BBC has learnt.

The carmaker received what it was told was a final offer from the business department on Friday.

Jaguar has not formally rejected it, but is understood to feel that the tough conditions demanded in return for guaranteeing a loan are unacceptable.

If no financial help is provided, jobs and important investment could be cut.

The government is understood to want a right to veto management decisions, appoint its own chairman and have a say in any future redundancies at the company which employs 14,500 people.

The BBC's business editor Robert Peston said Jaguar views the proposal as backdoor nationalisation - and is minded to turn the offer down.

This would not be curtains for a totemic company that until recently was making good profits, our correspondent said.

But it could lead to significant cost cuts that would entail job losses and serious reductions in valuable investment.

Taxpayers' money

The dispute centres on financial support from the European Investment Bank (EIB) and conditions the UK government is imposing in return for guaranteeing the loan.

A spokesperson for the Department for Business, Enterprise and Regulatory Reform (BERR) insisted the government was "prepared to help, although not on any terms".

"Any government financial assistance must, of course, protect taxpayers' money," the BERR spokesperson said.

Indian Tata Motors, which bought Jaguar Land Rover for £1.2bn just over a year ago, has refused to comment on the negotiations.

Conditional support

In January, Lord Mandelson, the Business Secretary, unveiled a £2.3bn package of measures designed to help the struggling car industry.

Land Rovers
We regard Jaguar Land Rover as a viable company with good long-term prospects
Business department spokesperson

Guaranteeing loans from the EIB was part of that plan.

But according to analyst Howard Wheeldon of BGC Partners, the government is only willing to underwrite half of the £340m loan offered by the EIB and for a period of six months rather than the three years sought by the company.

Emission targets

Jaguar Land Rover needs to invest heavily to re-engineer its fleet of predominantly large-engined vehicles to meet future environmental regulations.

But the company's ability to invest has been hit by the savage downturn in the global car market.

Since September it has been reliant on Tata Motors for cash to stay in business.

The loan from the EIB would be made to help develop technology to reduce the carbon dioxide emissions from Jaguar Land Rover cars.

Tata's responsibility

The government has always made clear that the primary responsibility for supporting Jaguar Land Rover lies with its parent company Tata Motors.

The Indian company is itself controlled by Tata and Sons - a group of businesses led by Ratan Tata.

At the heart of the dispute is the degree of control the UK government would be given in return for putting taxpayers money at risk by guaranteeing the EIB loan.

A spokesman for Jaguar Land Rover said that discussions with government were continuing.

"The government wants to see Jaguar Land Rover safely through difficult trading times and to provide stability for the company and its employees," the spokesperson from the business department said.

"We regard Jaguar Land Rover as a viable company with good long-term prospects."

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