March 26, 2008
Scanning a major news site this morning, I faced a difficult decision—which story would I read first? Vying for my attention were the compelling headlines about the escalated fighting in Iraq, the floods in Arkansas, and American Airlines grounding its MD-80 jets and the not-so-compelling stories about Chelsea Clinton and the Lewinsky question, who was voted off "Dancing With the Stars," and lava lovers who live on an active volcano.
Of all the articles on this site's home page, the one that leapt out at me and received that first click of the day was the one about Ford selling Jaguar and Land Rover to India's Tata Motors. I completely understand Ford's need to sell the brands. I'm just wondering what took them so long. And what is Tata thinking?
Granted, Tata paid less for the brands than Ford did when it purchased them. Ford bought Jaguar in 1989 for $2.5 billion and Land Rover in 2000 for $2.73 billion. Tata is purchasing both for $2.3 billion. Of that amount Ford will pay about $600 million into the Jaguar-Land Rover pension fund when the deal closes, which means the company will net around $1.7 billion.
So on the surface, Tata got a bargain. But maybe, just maybe, they bought the proverbial pig in a poke, albeit a very fancy poke.
Guardian.co.uk reported that at March"s Geneva motor show, Tata's head, Ratan Tata, said he planned to keep "the image, touch and feel" of the two marques. "There is no reason to tinker with the brands. Our challenge is to make them grow."
And a challenge it is. Ford faced and failed the challenge. What makes Tata think it can succeed?
A Bloomberg article about the acquisition addressed the challenge: "These are vanity products and probably these brands will have a tough time in a weak economy,'' said Edwin Merner, who oversees $2 billion as president of Atlantis Investment Research Corp. in Tokyo. Mumbai-based Tata Motors "will have trouble doing well in this sort of environment,'' he said.
And I'm going to jump in here with my own, highly subjective, Jane-Doe consumer opinion. Part of the mystique of Jaguar and Land Rover, at least for this writer, was the country of origin. (I also liked the fact that they were owned by a U.S. company.) There"s something about vehicles made in the U.K. and other European countries. To many, they are expensive symbols of achievement. Owning a Jaguar, BMW, or Mercedes can be a subtle announcement that one has "arrived" or wants to project the appearance of having done so. Will the same vehicle produced in India carry the same weight?
Then there's the perceived quality issue. Vehicles produced in developing countries long have had to overcome the stigma of sub par parts and production. This shouldn't be a problem for Jaguar and Land Rover in the immediate future, Tata is expected to stick to existing business plans for the next few years, with the headquarters operation remaining in Britain.
Long-term, it remains to be seen how the purchase will affect Tata. Short-term, some believe the acquisition marks a significant expansion of the Indian company's car-making capability, which includes models such as the Indica, Indigo, Sumo Grande, and the recently launched Nano, which sells for a little over $2,500.
Has Tata bitten off more than it can chew? Time will tell.