London, May 7: The proposed rescue of Jaguar Land Rover appeared close to collapse last night amid bitter disagreement over the terms of a government bailout.
The Tatas, who own the company, have rejected conditions demanded by the UK treasury in return for guarantees that would underpin multimillion-pound bank loans to ensure its survival.
The impasse puts at risk the jobs of 14,500 people who work for the automotive manufacturer. Thousands more jobs would be lost among suppliers of components.
Jaguar Land Rover has asked the government to give loan guarantees so it can borrow £450 million from British banks. It also wants full access to £340 million awarded to it for green technology development by the European Investment Bank but which needs to be underwritten by the UK government.
According to sources, the treasury and the department for business, enterprise and regulatory reform have rejected much of the request for guarantees for £450 million and have said that they would underwrite only £175 million of the European money for which Tata Motors, the owner of Jaguar Land Rover, must pay 15 per cent upfront, effectively giving it access to only £150 million.
Ministers also want the Tatas to invest £300 million to £400 million before it will guarantee any loans. The Indian conglomerate has invested £900 million since it bought the business from Ford last year.
Additionally, the government wants some involvement in the control of the company through a veto on some decisions, an appointment to the board and the choice of a chairman.
The Tatas feel the offer is unacceptable, throwing the future of JLR into doubt. Talks are said to be continuing.
Howard Wheeldon, an analyst at BGC Partners, who divulged the details of the impasse, said: This appaling and heavy-handed behaviour by the treasury will now put the jobs of all 14,000 remaining JLR workers in very serious jeopardy.
Wheeldon said that the governments wish to have some say in the running of the business could be an attempt at backdoor nationalisation in the manner of Railtrack.
A spokesman for Jaguar Land Rover, which agreed with unions recently that there would be no compulsory redundancies, said, We knew that these talks would be complicated and take some time. But talks are continuing. The two sides have been in talks about securing finance since before Christmas after banks refused to lend to the group.
Like all other car makers, Jaguar Land Rover has been hit badly by the global slump in sales.
In March Ratan Tata, chief executive of the engineering group, expressed frustration that the government would not enable access to finance from banks that it largely owned. He warned that there might be plant closures and job losses if the company could not secure cash.
It is believed that the government has not been convinced that Tata is doing enough to help the British brands. It wants significant restructuring of the business to see more funds pumped into it. Government sources indicated that scaling down the European grant could be temporary and that more money would be underwritten when ministers were more convinced of the long-term plan for Jaguar Land Rover.