Tata’s acquisition of Jaguar and Land Rover
Tata the giant Indian motor manufacturer acquired Land Rover and Jaguar in March 2008 for $2.3 billion, taking advantage of the weak Dollar. Tata appear to have got an excellent deal but only time will tell just how good a deal it proves to be. But what was this acquisition all about, an organization that is part of a former colony, getting it’s own back on the British? The answer is that most specialists in the industry feel that it was a very well thought out and sound investment for Tata and that was Tata’s primary motivation. Everyone’s gain is someone else’s loss and Ford’s loss is considerable; they invested in all some $10 billion in the two companies and then to add to the pain a further $600 million was required to make up the shortfall in both Jaguar’s and Land Rover’s employee pension fund. Although when you consider Daimler Benzs loss over its purchase and sale of Chrysler it doesn’t look so bad; Daimler Benz put a reported $36 billion into Chrysler. Nine years on they found themselves in a position where they had to sell the majority of the company (80.1%) for $7.4 billion. There is always a risk with these acquisitions but if you can buy at the right price, which Tata appear to have done, it’s a very good start.
How will this change things for the two companies? The likelihood is very little will change at Land Rover; the Range Rover Sport will continue to be ordered in large quantities by contract hire companies that are still having difficulty in meeting demand. The Discovery and Freelander models are also very popular and selling well. The demand for Land Rover continues in spite of all the attention it attracts from critics, who say the vehicles use far too much fuel. The company is very profitable. Changes will probably be needed in Jaguar.
The fuel efficiency of these vehicles will be the real challenge for Tata in the future; the demand for Land Rover seems assured but how are they going to deal with the constant downward pressure by governments on carbon dioxide emissions? Even the Freelander that is quite economical compared with other Land Rover models has emissions far above the European Union’s proposal, of manufacturers having an average carbon dioxide output of 130g/km across the range. It is however planned that in 2009 the Freelander will be fitted with a system that that switches off the engine when it comes to a stop, for example at traffic lights and then re-starts it when it is ready to go again. Presumably they are also going to have to look at making their vehicles lighter across the range.
A major benefit to Tata as a result of the purchase of Jaguar and Range Rover will be the latest technology that they are acquiring. There own cars are very old fashioned; perhaps more like the cars we were producing in the 1950’s. It presumably won’t be long before they start to harness that technology and apply it to there own production.
Jaguar is likely to be far more challenging for Tata, the company is loosing money and certainly contract hire companies have seen a considerable drop off in demand for Jaguars in the past five years. Ford made considerable progress in terms of Jaguar’s manufacturing technology, although in practice, as with any takeover, there is a limit as to how much a company can interfere with a long established organization, before it knocks it off track. That is certainly what appeared to happen, when Ford took over Jaguar, Ford has been strongly criticized for interfering too much.
The X Type Jaguar is an example of how Ford disrupted the Jaguar tradition and produced a small economical model aimed the mass market but that is not what Jaguar is about. The model was aimed at the BMW 3 Series buyer but completely failed to attract the younger buyer. Instead it attracted those who had retired and wanted a Jaguar but not a large car. The more they bought the X Type, the more they put off the younger buyer. Jaguar tried to change the car’s image through advertising but it didn’t work. Many observers thought they would scrap the X Type but it continued in production. At least in other countries it does not have the same image problem as in the UK.
It is likely that Tata’s intentions are for Jaguar to concentrate on producing high quality prestige cars and distance itself from Ford’s plan to make Jaguar a mass production car; a move that stemmed from Ford’s fear that motorists were going to turn their backs on large luxury cars. In spite of government and environmentalists’ attempts to stigmatize large engine cars, they remain highly popular amongst those that can afford them. Contract hire companies report little change in the public’s buying habits.
Tata’s takeover of Jaguar has coincided with the launch of the elegant XF model; contract hire and leasing companies are seeing a strong demand for the car. The XF should do well in the US, once the Dollar starts to regain its strength. Jaguar has inevitably suffered in America as the weak Dollar has increased the cost of its cars to the American buyer. The takeover of Land Rover and Jaguar should prove beneficial to both companies in the long term. Ratan Tata has made it clear that he does not intend to meddle with the companies, as he wants them to retain their individual character. Some complained that Jaguar and Land Rover would no longer be British, forgetting of course that there is nothing British about Ford, their previous owner. Most people probably think that Tetley Tea is very British but Tata also owns Tetley Tea.
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Tags: acquisition, jaguar, land rover
