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US crisis forces car-makers to cut output

By Swaraj Baggonkar in Mumbai
October 14, 2008 09:31 IST
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The fallout from the US financial crisis is spreading to the automobile sector in Europe, the world's second biggest vehicle market after America, according to David Smith, chief executive officer of the Tata-owned Jaguar and Land Rover.

In a letter issued by the company, Smith warned that if the situation did not improve, there would be severe cumulative impact on manufacturing, leading to job cuts.

"We must find ways to help business improve cash flow and liquidity. The shockwave from the financial crisis has hit consumer confidence hard. The issue is clear and urgent. If we allow this to continue, the cumulative impact on manufacturing will be severe and that will definitely hit jobs," Smith was quoted as saying in the letter. The automotive industry, including the supply base, was feeling the full force of the impact, he added.

The executive's comment comes at a time when the management at JLR is planning to introduce production cuts through shorter working days at both its manufacturing plants.

In a recent report, JLR parent company Tata Motors had said that the luxury brands had reported a net loss of $383 million in the first half of the current financial year.

"We have confirmed with employees at Halewood (plant) that we are introducing a non-production week beginning on October 27. Employees will be encouraged to take holidays through this period. However, those who don't have any holiday entitlement left will attend the plant, where they will be involved in training programmes, housekeeping duties and other works," Smith said in the letter.

In reply to an e-mail query as to whether the move to cut production was right, the company said, "We will simply not be producing cars (Jaguar X-TYPE and Land Rover Freelander 2), which is a prudent business move to balance production with demand and avoid unnecessary and costly stockpiling. The move is also in response to the current economic climate."

According to media reports in the UK, virtually all car companies are taking similar short-term steps to maintain stability in the business.

"We are trying to protect our permanent employees as we continue to focus on investing for the future. But the economic environment is getting more challenging by the day, and I do believe that unless we introduce further measures to reignite the UK economy, there is significant risk," added Smith.

Other auto majors, including Japan's Toyota and luxury brand Bentley, have cut production.

As the financial crisis looms large, consumer confidence has gone down significantly in almost all the key automobile markets in the world. In addition, less availability of finance has also proved to be a major obstacle to auto sales.

In the letter, Smith has appreciated the recent steps taken by the UK government to tackle the current financial crisis, but also highlighted the need for more such steps.
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Swaraj Baggonkar in Mumbai
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