The government has raised false hopes at Jaguar Land Rover. There has been no decisive action' | Nils Pratley

"Decisive? Really? That is not how life looks to many on the ground in the UK car industry. Some smaller suppliers to Jaguar Land Rover are shouting that cashflow pressures on them are getting worse. Nothing has changed since last week, they say. One cannot be surprised, because the government's intervention took the most roundabout route. The state, via the UK export finance scheme, merely agreed to guarantee up to 80% of a five-year, 1.5bn loan that JLR had secured from a commercial bank."

"The guarantee presumably enabled JLR to borrow at a slightly cheaper rate but that is all. It cannot be considered a gamechanger, for two reasons. First, JLR's access to cash was never seriously in doubt. The company should be quite capable of raising debt under its own steam if it needs more than the 5bn liquidity it was trumpeting just weeks before August's cyber-attack."

"Second, the cashflow pressures were always most intense among JLR's suppliers. What matters is the speed at which JLR can advance payments to its direct suppliers, who in theory should then be more equipped to pay their own suppliers, and so on. Cash has to cascade down the chain to be effective. Did the government, when it agreed the guarantee on the third-party loan, set conditions for JLR to hurry up? We haven't been told."

The state guaranteed up to 80% of a five-year 1.5bn loan that Jaguar Land Rover secured from a commercial bank via the UK export finance scheme. The guarantee likely only modestly lowered borrowing costs and did not transform JLR's liquidity position, since the company made 2.5bn pre-tax profit last year, had announced 5bn liquidity, and benefits from parent Tata Motors. The most acute cashflow pressures are concentrated among smaller suppliers. Effective relief requires rapid advance payments cascading through the supplier chain. No public conditions tied the guarantee to faster supplier payments. JLR is advancing payments to first-tier suppliers and exploring an advance-payment scheme.

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