Posted by: John Elliott | March 26, 2008

Tata buys into 40 years of trouble

Ratan Tata, who runs the Tata group, one of India’s two biggest conglomerates, is buying into a history of trouble with his $2.3 billion cash deal, announced today,  to acquire the Jaguar and Land-Rover companies from Ford (F). Transfer of ownership to Tata Motors is due to be completed by the end of June, and the  question is whether Tata can then break a cycle of decline.

It’s been 40 years since the British government, in a bid to rebuild the country’s automobile industry, cobbled together ailing car brands such as Jaguar, Rover, Austin, Morris and Riley into a giant called British Leyland. BL, as it became known, was a failure, mainly because of endemic labor problems, uninspired products and poor quality.

[Added Dec 10 '08: See http://justbritish.com/2008/12/10/auto-industry-bailout-lesson/ for more details of the history, including  how the British government had committed £11bn at today's prices by the 1970s to save BL, and Ford spent another $10bn later]

Since 1968, there have been many rescue attempts, but only rare short bursts of success. Several of the once proud names are long forgotten and none is British-owned; the iconic MG brand was bought three years ago by China’s Nanjing Automobile to make sports cars in China and the U.K., and the Morris Mini cult car is with BMW.

So could Tata succeed where others have failed? Market and industry analysts have their doubts, fearing the companies do not fit and that Tata’s optimism about growth could be hit by worsening economic problems in the United States and elsewhere. Tata Motors shares lost 4.4% on the Mumbai stock market today as brokers awaited the announcement.

But there is some reason for optimism. Ratan Tata isn’t expected to treat Jaguar and Land Rover like a traditional takeover: He says he’s not planning to overhaul senior management, close factories in Britain, or cut workers.

He said today: “We have enormous respect for the two brands and will endeavour to preserve and build on their heritage and competitiveness, keeping their identities intact. We aim to support their growth, while holding true to our principles of allowing the management and employees to bring their experience and expertise to bear on the growth of the business.” Ford will continue to supply Jaguar and Land Rover with powertrains and other components, in addition to a variety of  environmental and other technology and support services.

Tata also doesn’t seem all that concerned about instant profits – just as he doesn’t expect instant returns from the tiny Nano car he hopes to launch by year’s end. Instead, he is expected to use the brands and their U.K. plants, executives and labor to help build Tata Motors, which had $7.2 billion sales in fiscal 2007, into a global car company. He’s been on this mission for several years, buying Britain’s Tetley Tea in 2000, a Korea-based Daewoo truck plant in 2004 and steel giant Corus (previously British Steel) last year.

Ratan Tata’s hands-off ownership could win him crucial support as he tries to fold the Jaguar and Land Rover brands into Tata. Mark Norbom, the head of General Electric in Japan, wrote recently in the Financial Times about the importance of the “soft side” of a takeover deal. The “look in the eyes that (the buying) company is worthy” has special value, said Norbom, and is something that “does not come naturally to the typical western-trained dealmaker.” Well, it seems to come naturally to Tata and his people. It was evident in the Corus deal, and it seems to be at work again in their Jaguar and Land-Rover plans.

This could, of course, mean that Tata is seen – especially by British trade union leaders – as a soft option who will let workforces carry on as usual. Land Rover has had three years of record sales for Tata to build on. But there’s no telling how long the status quo can last, especially if demand slackens in the United States and elsewhere and Ratan Tata has to institute cutbacks at the luxury car makers.

Tata has said that Land Rover and Jaguar will benefit from India’s low-cost design and IT ability – and boost sales in Asia. His company will “add value in co-operating on engineering and development which are considerably cheaper (in India) than in the West,” he said. Tata Technologies, the group’s advanced industrial design house, is based in Pune and operates in twelve countries, with international headquarters in Singapore. It has been involved in the design of Tata Motors’ cars and vans, but does about 75% of its work for foreign clients, including Chrysler, General Motors (GM), Boeing (BA) and Airbus.

There’s another question hanging over the deal: Tata’s future once its 70-year old patriarch retires. He is not due to step down until he’s 75 – in December 2012 – but has said he would like to go earlier, and there are rumors it could be at the end of this year.

That seems unlikely, if only because there is no clear successor. From inside the Tata family there is a reclusive cousin, Noel Tata, who runs some of Tata’s retail businesses, but there is no sign of him being groomed for the corporate and public life that goes with the top job. One or two top executives from outside the family, and even outside the Tata group, have also been rumored, but none has been publicly held out as a successor.

It is Tata who has provided the personal drive and leadership to turn Tata Motors into a business that can produce the Nano and buy two world famous brands – in the same year. There’s a big job waiting for someone – and Tata is not yet saying who. Until it does, the era of uncertainty at Land Rover and Jaguar won’t be over.

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Responses

  1. Emerson- I agree that perception will be Tata’s overwhelming hurdle entering the luxury car market, but not because they own both “cheap” and luxury car brands. Selling cheap cars as well as luxury cars is what all of the major automakers do, albeit through different divisions. Ford owned Jaguar and Land Rover (still owns Volvo, I believe). Of course you’ve heard of a Ford Focus (or Escort or Festiva, for that matter)? Lexus and Infiniti are the luxury divisions of Toyota and Nissan respectively, and they have managed to overcome any negative associations (although it’s easier for them because they have a reputation now for quality even on their lower end models). What may be concern among luxury buyers is a negative perception of the quality of Indian products in general. Unfair and uneducated bias, but it likely exists all the same. Even though the cars will still be built in Britain. As a Jaguar owner myself, I’ve faced more than a few comments from people who teased me about my car being “an overpriced Ford”.

  2. Tata will have a hard time equating jaguar to brands like lexus infiniti, etc. bmw/mercedes still use older technology and they lost a lot to lexus (the king) and infiniti (the coolest aesthetic designer – basically all new bmws are copied from infiniti, except for the front headlamps/grille).

  3. Jaguar and Land Rover might lose their status as luxury brands; consequently their stock value will struggle against a wall and probably, Tata will just absorb the knowledge of making dream cars.

    It’s difficulty to imagine the coexistence of two different segments and strategies, selling cheap cars as well as luxury cars, by the same group. To be profitable and have success, it’s important to get recognition by the customers and it won’t be easy.

  4. It will be interesting to see the future of JLR and Tata Motors, probably in couple of years we will get results on cards of this take over.
    I think JLR is a white elephant to maintain and manage, and importantly Tata has capabilities and experience to handle white elephants. If problem lies with trade unions only, then I am sure Tata is familiar is to handle trade unions in India, especially in his steel plants. However, if the problem is in quality, I doubt how Tata will take it and improve it. However, if, sale or marketing of product is a problem, then in my opinion Tata does not have enough experience, because very few brands in India belongs to Tata are popular in India, his home country. We’ve to wait and watch the development.

  5. RE: “Riding a Elephant!!! Very biased headline!! Tata, although Indian, comes from well respected Parsi family..for that matter, even Winston Churchill was born in India…”

    I’m sure no slight was intended to Mr. Tata. The elephant, in question, refers to the British automotive firms being purchased. In American slang, a “white elephant” is something that is impractical and has expensive upkeep, but is considered to be too valuable to dispose of. Jaguar is just that. The author is speculating that Tata will be feeding that elephant for some time, and questioning whether it will be worth the cost of its upkeep.

    Also, Sir Winston was born in Blenheim in Woodstock, Oxforshire, which was in England at the time … probably still is, for that matter.

  6. The ‘TATA CONGLOMERATE’ may prove to be a ‘better fit’ than the porcein BILL FORD led FORD company.

    FORD would rather live-off his forebears huge stock holdings than actually show any competence in ‘steering’ parts of his company.
    To this extent – FORD has foregone their stock dividend under BILL FORTD’s inept ministrations.

  7. The TATAs have a variety of businesses in which they have been highly successful chemicals,IT, autos, finance,steel,telecommunications to name a few they have a range of talented executives and deep pockets that they bring to the jaguar land rover deal.
    NJK.

  8. This is deal that does not make a lot of sense for Tata. I think that Ford would have been happy to give Jaguar/LR away. Although LR was profitable last year after losing money, Jaguar will continue to bleed. It has basically three models of old-tech cars to compete with the likes of BMW, Mercedes and Audi. At least they have nice interiors. Jaguar will still require huge infusions of capital to develop new models so Tata is basically buying the right to throw in yet more money.

    Further to the poster who indicated Churchill was born in India: this would come as a bit of surprise since Blenheim Castle, where he was born, is in Oxfordshire, England.

  9. The design of a people car (cheapest car) was also a question among many. Now that dream that has come into reality indicates how good and efficent a company like Tata under the true leadership of Ratan Tata can come out. I am pretty sure with his leadership and commitment we will be able to see Jags and Lrovers emerging out with proper British Soul and true value.

  10. I am an engineer who would like to buy a new car. My previous car was a VW passat and i think i can use this for another 5 years. However i would like to buy a jaguar or a Land Rover vehicle if they fall into the falling categories,

    1. cost price 40 miles or should be a gas/electric hybrid on the same lines as the efficient japanese hybrid cars.
    3. should have a compact/strong european footprint.

    How about taking any of the jaguar or a Land Rover models, shrinking them by about 25%, making them more aerodynamic and adding a gas/electric hybrid engine.

    Its time to make jaguar and land rover models affordable and gas efficient for the common man and then the tatas could pull a rabbit out of his hat with this deal.

  11. Riding a Elephant!!! Very biased headline!! Tata, although Indian, comes from well respected Parsi family..for that matter, even Winston Churchill was born in India…

  12. Congrats Ratan Tata. You got dealer network in 137 Countries. You have abundant markets for Nano, Tata Trucks etc. Hats Off to you!!

  13. if I’m correct Ford paid $2.3 bln in 1989 and $2.5 bln in 1996 for 2 carmakers. In today’s money it comes roughly to $10 bln. And after absorbing losses for many years, it is selling for 2.3 bln minus 600 mln needed to fund the pension plans. Bravo, Ford. I I were conducting my personal financial affairs like this, I would be living on the street. After garage sale at Bear Stern, garage sale at Ford courtyard!

  14. Tata have bought the brands cheaply. If you consider the figures – Ford bought these brands for 5.2 billion and have invested ?10 billion since. Land Riover last year made a profit of ?1.5 billion so spending 2.3 billion ignoring jaguar seems like a good deal to me not to mention the technology transfer and access Tata will have to foreign markets.

  15. I think the article makes sense….Tata is buying these brands from Ford…..at a very high price…..with the current market trends and gloomy economy, Tata should have bid much lower than the 2.35 billion offered.

    That was bad business even for a company trying to make a statement in the world.

    Besides, Ford had more to lose if this deal fell through than TATA. Since it was a buyer’s market, sticking with the initial offer of 2.35 billion…makes less sense.

  16. Tata has a vision and commitment to realize it. There are several examples where this is displayed – may be in achieving the impossible NANO, or in turning around Deawoo trucks or the Corus steel deal. This is the only website that I’ve seen this story headlined as ‘trouble’ and it only protrays the cynical view of the reporters. Doesn’t matter how you portray it, the reality never changes. Does it? Only the time will prove.

  17. Tatas are not simply after profit or short term gains. They are truely for doing the right business and be socially responsible. The soft cooperative management style have earned them accolades at Daewoo. They will be able to master with these brands too. You will be pleasantly surprised in 2 years from now. They do their homework right.

  18. The choice of the column title just goes on to show how parochial and biased the outlook of these western reporters is! The takeover of these brands by Tatas is more like buying a sick elephant from the west, injecting it with some health potions, and bringing it back to life.

    These are the same people who scoffed at the NANO, calling it names for the safety and emission shortcomings; what else do you expect from a $2500 car!! It will at least make driving safe for millions of people who have to ride bikes in unsafe road conditions. People in these countries are not as wasteful as the westerners who have no qualms in taking a car, all for one person, to go for a workout. Every NANO will save fuel and emission worth two bikes, and make life a little safer for a good number of people!!

  19. After years of incredibly bad management by Ford, it is hard to see how Tata, with the apparent plan to leave things as they pretty much are at Jaguar, will succeed with this. The Indians may not be buying for the sake of vanity but they will need deep pockets for this. Jaguar has a three car line-up, basically, and old technology and has to compete against BMW, Audi and Mercedes-Benz on the competitive basis of really nice interiors.

  20. Tata is not buying into trouble. He is buying JLR out of trouble! No one even in India believed that a Nano could be done, right till the moment it was unveiled to everyone’s pleasant surprise.

    Lakshmi Mittal has been similarly buying “trouble”, often the seemingly impossible one, all over the world, and see what he has done. Despite India’s tech wave, the world has yet not really seen in full the ability of Indians to achieve a lot with a little.
    In the West, it now takes a lot to achieve a lot. Profligacy and redundancy is making it lose the competitive edge as the East wakes up from centuries of slumber. That is why Ford has quit and that is where Tata has the edge. It may a while in coming, but the fortune of JLR will swing around dramatically, even after Ratan Tata quits at 75.

    http://www.vinodksharma.blogspot.com

  21. Rather than trouble for Tata, I would call it a ray of hope for the beleagured Jaguar/LandRover.

    These brands were in the bottom of heap as far as Ford was concerned but would be the crown jewels of the Tata automotive empire.


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