Jaguar Land Rover’s factories have been shut for almost a month after a cyber-attack that forced it to turn off computer systems in the UK, Slovakia, India and Brazil.
The UK government has stepped in with support for JLR, and the company has started to prepare for a very limited restart of production. However, the company’s workers and supply chains are still facing weeks of uncertainty.
Here’s the latest on what we know.
What is happening now at Jaguar Land Rover?
The extent of the hack means the company is having to rebuild in stages. The first things back up and running were IT systems that make it possible to pay suppliers, send cars to retailers and spare parts to mechanics – the latter being crucial to avoid alienating loyal customers.
However, the stages of restart will mean that a return to full production is still likely to be weeks or even months away. Suppliers are talking of six or seven weeks with no revenues, with broader disruption almost certain to last months.
How much will it cost?
David Bailey, professor of business economics at the University of Birmingham, has estimated that a month of downtime would mean £1.7bn in lost revenues, or about £120m in profits.
Nevertheless, investors appear sanguine about JLR’s ability to ride it out. JLR is not a listed company, but so far the Indian-listed share price of its parent, Tata Motors, has barely been disturbed during the month of crisis at one of its key subsidiaries. Neither has the market-implied risk of default on JLR’s bonds risen markedly.
Analysts at Creditsights, a debt rating agency, said that JLR’s cash burn could reach as high as £2.6bn over a 30-day period, mainly because of outgoings rising while revenues slump. However, that is not necessarily the same as a loss if JLR can make back some of its sales later.
What help has the government announced?
Even if the risk for JLR is not existential, £2.6bn would still be a large amount of cash to burn in the short term. For that reason, JLR has welcomed the government stepping in over the weekend with a guarantee on loans worth £1.5bn. The guarantee will be offered by the export credit agency, UK Export Finance, and the loan will be paid back over five years, the government said.
Bloomberg News reported that JLR had also agreed a £2bn debt deal with America’s Citigroup, Japan’s Mitsubishi UFJ and Britain’s Standard Chartered Bank.
Will this help the supply chain?
The business secretary, Peter Kyle, said on Saturday that the loan guarantee “will help support the supply chain and protect skilled jobs in the West Midlands, Merseyside and throughout the UK”. However, there are still questions over whether that money will help the network of suppliers who rely on JLR as their main source of business.
JLR is expected to use the cash from the loan to continue to pay invoices that were outstanding at the time of the hack. However, it is not thought likely that the manufacturer will advance credit to suppliers – and it has no relationship with companies further down its supply chain.
Supply chains are often split into separate “tiers”. Tier 1 suppliers send their products directly to JLR, but their products (such as seats or gearboxes) are often made up of smaller parts that come from tier 2, and so on. JLR does not have a direct relationship with many of the companies – often small and family-owned – in the lower tiers.
The government should ensure that money does filter further through to the smaller companies, said Stephen Morley, president of the Confederation of British Metalforming, a lobby group that counts many JLR suppliers among its members.
“This needs to go down the supply chain as well. We need some clarification from JLR on what’s going to happen now. We need some direction for the tier 1s to pass it down. A tier 2 supplier can still stop JLR,” said Morley.
What about workers?
JLR told staff on Monday that it will aim to restart some production “in the coming days”, and its Wolverhampton engine factory is expected to be among the first to get back online. However, the bulk of JLR factory workers remain at home, with only tentative signs of when they might be able to return.
Government support has come too late for many workers in the supply chain. Smaller companies immediately moved to lay off temporary workers in order to save costs, while permanent workers’ jobs are also under threat in companies whose income is mostly or even solely derived from JLR business.
Sharon Graham, the general secretary of the Unite union that represents many JLR workers, said: “The money provided must now be used to ensure job guarantees and to also protect skills and pay in JLR and its supply chain.”