Posted by: John Elliott | March 25, 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 is due to be completed by the end of June, and the  question is whether he 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. 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? There’s 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. And he doesn’t seem all that interested in 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. His 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 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 uncertainty at Land Rover and Jaguar won’t be over.


Responses

  1. really thanks a lot from core of my heart to the ICON OF WORLD (Ratan Tata)

  2. I have huge respect for Ratan Tata for his decision to buy a troubled company, i also admire his courage and business intellect , Yes he can and will definitely turn around this company, also given that India did have a British past this could be the deal of the century, i personally wish him well and all the success, my prayers are with him, i too am in a similar situation having bought into a troubled company, am struggling to keep it going but i see a light at the end of the tunnel.
    Good luck Sir Ratan Tata.

  3. When ever thing changes hand it get new by his owner, so we hope that Tata will add something in this two brands. Its
    true that his both brans are struggling in uk and us but they have good oppertunity in asia and specially in south asia, ans as tata has good network in asia. it ll help them. And on the contrary they can use uk’s plant of these brans for tata motors.

  4. This is a ‘wait and watch’ kinda situation for all the involved groups – TATA, British Labour Unions, and so on. If TATA had the capabilities to make wonders through their TATA Technologies, why hadn’t they done so yet and wait for Ford to sell their infamous brands for Cheap? As I said before, its a wait and watch game for all involved parties and Good Luck to TATAs to make it big.

  5. John,
    I persume what Mr. Tata is trying to do is to revive the legendary British brands by reducing the overhead, mass producing the vehicles, selling them in more countries simply by lowering the prices. Already the Jaguar and Land Rovers are heavily priced. We all want luxury+ performance+ Cheaper maintenance costs minus cheaper prices.

    Just sit back and relax. Watch how he is doing it.

  6. Say goodbye to Land Rover and Jaguar as we know them. The only plan that makes any sense for Tata is to whore out the brands around the world, slapping the name plates on mid-level vehicles. People buy top level cars for the cachet and drivers of Jaguars will now be laughed at..”hey, what did you pay for that, $2500?” Tata will now offer cars with 1 to 12 cylinders!

  7. The final episode in the travails of Jaguar & Land Rover which suffered at the helm of poor british management and the arrogance of the british unions.
    This jewel can only suceed in the hands of people who value a pedigree.

    Shame on those british managers and union leaders who had no vision or mission!!!

  8. I second mr. Durgaprasad’s openion. If Tata could manage and survive successful in India, he could easily do it elsewhere. He has made an average indian to dream of his own car through Nano. Hats off to Ratan Tata.

  9. I feel that this is a very good deal.Indian markets are ripe for such luxury cars.I am sure the Tata’s will make a killing.Firstly Tata motors have been for all these years have been inventing the wheel.Each design had to be made from scratch without any previous data.With the addition of the these companies it now has access to the cutting edge technology.
    Secondly it can train its engineers at the hitech plants which will result in massive improvements in its Indian operation.Well Mr Tata whish you all the best.I am also encouraging my son to join automobile engineering undergraduate course.Thier is a great uture up there.

  10. Hi,

    This is funny. I grew up watching ugly, rickety, extremely unsafe, highly polluting TATA trucks destroying lives either by running over people or thru pollution. Quality, reliability etc. were alien to TATA Motors for decades. And they end up buying such top quality brands! Tata will not remain profitable for long – its traditional model of screwing the Indian consumer is being spoiled by these hi-fi quality purchases. Clearly high quality equals losses and pathetic quality equals profits.

    Oh and to all my Indian brothers and sisters who’ll start commenting on what a traitor I am, please think back (why think back; they are still on the road!) to all those ugly, polluting, killing Tata 1612 trucks on our roads and stop acting so cocky.

    cheers,
    D

  11. 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

  12. Congratulation to Mr. Ratan Tata and his team. Even before acquisition of Jauar and Land Rover, Tata group has successfully acquired and integrated organizations like Tetley, Corus Steel and Hyundai Motors. This acquisition will not only help Tata Motors to emerge as a global organization, but ultimately help Jaguar and Land Rover in future.

  13. congrats to Mr Tata. getting used to that a developing country accuiring luxury brand at all cash deal when he knew that going is tough. hats off to them.
    dealing to UK unions isn’t easy, but i trust them , they will make turn around and every asian proud .

    rgds
    sudhir

  14. Well..Ofcourse TATA is one of the most prestigious institutions in India. It has such a varied and diversified business structure..Automobile, Information Technology, Tea, Steel just to name a few. It has not only succeeeded but also cretaed itself a position in an international arena.

    Check the link below the acquisitions it made in recent years.

    http://www.ndtvprofit.com/2008/03/26180332/Major-acquisitions-by-Tata.html

    Anyone would get an idea how big of a name and brand it is. Important thing is not how many acquisitions Mr TATA made..it is the Success which speaks all. Im pretty sure like its previous deals this would be a great sucess too.. and in no time you would see Jaguars and Land Rovers all over again!!

    By the way nice article John!

  15. Kuddos to the team of Tata,This is actually quite an achievement for an Indian based company.
    British Labour Unions destroyed their automobile industry and manufacturing sector.As of today does Brits contribute any thing to the world economy or specialize in any field?
    Except Banking nothing seems to be going right for them.
    I guess it’s time to shed the title ‘Royal’,Way to go “Tata”

  16. With continuing improvement, updated designs and dependability, Jaguar will succeed. It still is and will continue to be the dream car of many people who have earned their success. The surveys out there testify to the fact that not only is it a beautiful car but one that is becomming rock solid. Only Lexus is scoring higher…Mercedes is still near the bottom on owner surveys, yet people still buy them.

  17. Very good reporting…..Congatulations to Ratan Tata on this deal…..considering his track record, I am sure he will succeed here also and when he succeeds the world will know for sure that Indians are capable of taking the country to superpower status in next 20 years….Cheers for Ratan TATA again.

  18. Good riddance. Ford should never have bought either brand in their moment of hubris. Both Jaguar and Land Rover were the proverbial money pits for Ford. They were damaged brands when Ford bought them and they should have been left on the vine to rot. Tata is getting a great deal however, as Jaguar has become a much more reliable, albeit boring, product since Ford took over and Land Rover, well that brand is still unreliable as ever as compared to other cars. Only time will tell to see how Jaguarists and Land Roverites react to the sale.

  19. Tata is largest truck manufacturers of India. They purchased Korea’s truck manufacturing company before. Just look at wikipedia.
    http://en.wikipedia.org/wiki/Tata_Motors

  20. Living in the west and understanding the limited knowledge most of the Americans have about rest of the world brings out some sort of cynicism towards many positive things. I surprised John has hinted and questioned Tata’s ability considering the melted US and UK auto industry. He has not mentioned a word on EU auto industry, China, Japan or India.

    I would love to see how things turn out for Tata in 5 years of this purchase of J & LR, considering Tata’s experience of being successful with acquired companies – this acquisition seems to be the monster of all (not the finances but the customer value & future interest)…

  21. I work for Ford and both of these companies have great potential. Jaguar has just produced some brilliant models and Land Rover now also produce very good products.
    Since Ford ownership these companies have improved ten fold (IMO) and I believe this deal will provide a base for a good future.
    Ford have made a decision to concentrate on their core brand (Ford), which is also the correct move.

    Good luck to TATA they have purchased two companies that produce quality products and that are improving all the time.

  22. Nice article. Remember his earlier one on Minister Praful’s pretensions which the Indian media has no courage to take on.
    John is right when he talks of impending threats but that doesnt mean he is being mean. appreciate you , John.

  23. I wish Mr Tata and his companies well. The mix does not appear to be homogenous however – ultra-cheap and ultra-expensive. Add to that the infamous British Labour Unions that destroyed the British m/v industry and it looks far worse. Unsure why he is doing it – perhaps prestige. Bringing the British Colonialists to heel. Nothing else makes much sense. If he succeeds he is indeed a better man than Gunga Din. I wish him well.

  24. John,

    I was quite amused to read your caption “Tata buys into trouble”.

    I am sure it must be real hard for an American to accept an Indian company grabbing a piece of action from one of the oldest American institutions viz. Ford.

    Please do not underestimate the power of the Indian brain. And certainly not Mr. Tata’s.

    Sniff, sniff, did I smell smoke somewhere?

  25. John,
    Brilliant piece – JLR have had their fair share of troubles, however none bigger than the industry itself. While Ford and GM have managed to stay afloat the british marque’s have not had much success.

    TATA’s (Ratan and his team) have adept dealmakers and a great rung of management/administrators. So there is no doubting that too. Ratan has been a hands of Group CEO – not interfering in any of the various companies day-to-day operations.

    It is not so much the management but Ratan’s Panache that may be missing on his retirement – but knowing TATA’s they wud have another trick in their hat – we just have to wait and watch.

  26. John!
    it was such a nice addition in your basket .Tata Motors is going to have very bright future,Mr. Tata has done a great job from my point of view.Only point of issue is Leadership gap after Tata.

    I am foreseeing the era of Cheap Jaguar based on Indian Technology , with same western outlook, which is going to be the car of middle man in South Asia , which was only a day dream before this.

    Congratulation again for putting such an interesting article once again

    Best Regards

    Muhammad Shafiq

  27. How you know that Tata is buying trouble or comfort? Don’t write negative articles.

  28. Well,Good Luck to TATA and Ratan too. Tata is one of the very well reputed companies in India, they survived the license raj of pre globalization era without any major glitches. They very well know how to manage Unions and Politians and i can tell you for sure that it is no small task to survive in India at that time and at the same time they have done a commendable job in all the industries they touched.
    Tata is one of the few companies that realized and utilized Indian potential. way to go Ratan…


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