Orientalisation of UK motor
industry?

Sub prime lending has recently become the ‘top gloom’ story
ahead of global warming. One question is – ‘are there potential
implications for the automotive industries and vehicle financial
services?’
 
 
 

Conventionally, lenders securitised property loans/mortgages,
sold them as being property backed loans – the best of all – and
used the proceeds of the sale to the institutions and insurance
companies to source the next round of money to be lent. A couple of
assumptions: Banks and other financial institutions were willing to
buy bundles of paper including sub prime; second, interest rates
would stay low so there was a margin in the deal – and third,
borrowers could manage the often-high percentage of income
repayments. If the borrowers defaulted, the properties could be
repossessed and sold to clear the debt. It has not worked. Property
prices slipped, interest rates have risen and the domino effect has
run through the market, leading to a growing number of defaults
within those securitised blocks of mortgages. Nobody wants to buy
lucky-dip parcels which may contain less than top quality paper.
Result? Banks cannot sell the parcels of loans to release
liquidity.

Go deeper with GlobalData

Data Insights

The gold standard of business intelligence.

Find out more

Access deeper industry intelligence

Experience unmatched clarity with a single platform that combines unique data, AI, and human expertise.

Find out more

The immediate impact is that finance institutions and lenders
have driven up interest rates and become more selective in lending.
Hedge funds and private equity borrowings to finance and sell on
their debts have become more risk averse and more closely
scrutinised.That in turn may lead to a slowdown in the rush to buy
through leveraged deals and sophisticated financial instruments as
already slim profit margins are eaten into by higher interest
rates. Transparency, not a word widely used in such circles, is
being reviewed.

Take that line of thought one step further. Cerberus has managed
to get the Chrysler deal away – but at what cost? The effect of
higher rates will be a downsizing in the potential rewards to hedge
funds as they may be less able to sell the debt. As a result, deals
using hedge fund and private equity may become less attractive.

To pursue that train of thought further – Jaguar Land Rover
might well have been seen as the next takeover target for the hedge
funds, but does the crisis change the picture?

We have two new players in the hunt. Tata and Mahindra from
India both appear to have swept to the top of the favoured buyers’
list even if in association with more conventional names. Ford may
not have attracted the usual suspects as potential buyers – but
could the credit crunch be a new factor to contribute to further
stirring of the Indian automotive industry – starting to build a
global presence?

GlobalData Strategic Intelligence

US Tariffs are shifting - will you react or anticipate?

Don’t let policy changes catch you off guard. Stay proactive with real-time data and expert analysis.

By GlobalData

These two iconic brands could grant their masters global status
in three ways. Land Rover/Jaguar have established global
distribution and service networks. Such networks take a generation
to build from scratch. This is a once in a lifetime opportunity to
go global in one.

Are we seeing the first real step in what may become the
orientalisation of the automotive industry’ with India and China
buying historic western assets?

The strategic implications of the credit squeeze and potential
suitors for Land Rover Jaguar are fascinating – and perhaps not yet
fully appreciated. Any significant reduction in credit availability
at an attractive rate could slow down leveraged buyouts and force
companies not to sell, or be willing to sell at lower prices.

New funds for acquisition, through the hedge funds or banks, may
come from sovereign wealth sources – i.e. government provided or
backed – Russia, China, Mid East, West Africa, Norway – perhaps
even Iran. What might this mean over time? Could it be that over a
generation or less, western strategic industries – finance,
automotive, rail, oil and gas, utilities have been acquired by
sovereign funds – directly or otherwise. China and Russia are on
the acquisition trail as are the Gulf States – and they have
already shown success in the leasing industry.

The automotive finance industry has an insatiable appetite for
funds as well as generating significant cash flows. It will be
interesting to watch, over the next year or two, as industry
consolidation continues, just where the funding for such deals is
being sourced – and with which organisation or country the ultimate
control and ownership rests. Might an unintended consequence of the
collapse in poor quality home loans in the Mid West lead to changes
in ownership of independent leasing companies in the UK?