Jaguar Land Rover (JLR) has joined the ranks of automotive giants shunned by major trade credit insurers as a significant risk of bankruptcy.
Euler Hermes and Atradius have withdrawn their insurance for component makers supplying the Indian-owned group, which has laid off 1,450 staff since the autumn as the recession battered sales.
In a letter to policyholders in January, Atradius cited concerns about JLR’s trading position. It also pointed to the June deadline for refinancing the $3bn (£2.1bn) bridging loan Tata Motors took out when it bought the luxury marque last year.
As the combination of falling consumer confidence and scarce credit have wreaked havoc with sales of cars, trade insurance has already been withdrawn for a number of car makers. Cover for supply to GM and Ford was withdrawn before Christmas.
A spokesman for JLR said: “This is an issue for the whole of the automotive industry and many retail businesses as well. It underlines the need to restore confidence by feeding liquidity back into the market and increasing the availability of credit.”
Component suppliers say business is so slow that lack of insurance is the least of their problems. One industry source said: “Since November most companies have had their order schedules decimated, and you can’t insure against not having any business.”
The situation also calls into question payments of hundreds of thousands of pounds for cover that is withdrawn as soon as there are signs of trouble, component companies say. But the insurers say their role is misunderstood. The primary function is as an early warning system for unacceptable risk in the customer. When that system fails, and buyers go bankrupt without notice, they pay out.
JLR spends £2.5bn on suppliers every year. So far Tata has refused to say how much money it has poured into the group following its $2.3bn purchase in June last year, although reports suggest figures in the tens of millions of pounds. The company approached Lord Mandelson, the Business Secretary, before Christmas about a bailout, but so far to no avail. “[JLR] has owners who are well-resourced,” Lord Mandelson said in December.Reuse content