In March 2008 Jaguar and Land Rover were both sold by Ford, to Tata the Indian motor manufacturer for $2.3 billion. Ford over the years, invested an estimated $10 billion into the two British marques. It is understood that Ford have agreed to make up the shortfall in the employee’s pension funds, which cost the company a further $600 million. A considerable loss indeed until you compare it with Daimler Chrysler selling just over 80% of Chrysler for 7.4 billion having paid $36 billion for the company 9 years earlier. Tata have recently been on an acquisition trail and timed the purchase of the two companies well, considering the weakness of the Dollar at the time of the deal. The takeover seems to make very good financial sense from Tata’s point of view and probably not as some have suggested motivated by a company that is part of what was once a British colony, flexing it’s muscles and buying two prestigious British brands. Nevertheless it must have been a very proud moment for Tata.
It is not expected that much will need to change within Land Rover, as the company is doing very well; contract hire and leasing companies struggle to keep up with the demand for the Range Rover Sport. Both the Freelander and Discovery are very successful models. Land Rover has attracted criticism because the models are not fuel-efficient but it has little effect on sales, the company continues to make good profits. There may well need to be changes within Jaguar, which is not enjoying the same success as Land Rover.
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.
It would certainly appear that Tata are going to benefit from the Land Rover technology with regard to the manufacture of their own vehicles, that currently use very old technology and their cars are very outdated by our standards. They are at the moment manufacturing cars that couldn’t be more different from Land Rover and Jaguar, selling for about 1,250.
Jaguar is going to present Tata with far more of a challenge than Range Rover; it is going to need to find a way to do what Ford failed to do; make the company profitable without interfering too much in its day-to-day affairs. Ford achieved considerable success in improving Jaguar’s technology and general build quality but consistently failed to make money out of the company. Most observers felt they interfered too much, something that over the years Jaguar has always resisted. It is a fine balance that Tata will need to get right, if they are to see a return on their investment.
The ill-conceived X Type Jaguar is a case in question. The model was designed to challenge the BMW 3 Series market, attracting the younger sportier driver. To their dismay it quickly became a favourite with retirees. Many downgrading from their larger Jaguar to a car that was more economical but still a Jaguar, although some observers argued that it was more like a Mondeo than a Jaguar. Jaguar tried hard through advertising to attract the younger driver but soon it became difficult to spot an X Type that didn’t have occupants with white hair and the advertising had little effect. Many thought that the model would be abandoned but it continued in production. N increase in the cost of fuel may help the model.
It is thought that Tata will allow Jaguar to go back to doing what it knows best, producing luxury prestige cars. It would be surprising if The X Type were allowed to continue in production but who knows perhaps Tata will transfer production to India and sell it as a luxury car to wealthy Indians. In any event Tata will have certainly learnt from Ford’s mistake in thinking that Jaguar could be appropriate for mass production models.
The new XF model is a beautifully designed car that should get Tata of to a very good start, particularly in the American market, where Jaguar sales have suffered in recent years. Overall the takeover of the two companies will almost certainly prove to be a good thing. Tata have made it clear that they are not interested in meddling with either Land Rover or Jaguar. Ratan Tata is reported to have said, “We want to retain their image, touch and feel”. Some have commented that it is a shame that the companies have fallen into foreign hands but of course they were already in foreign hands and many people would be surprised to learn that Tata already owns British Steel and Tetley Tea. In any event contract hire companies, which nowadays are by far the biggest buyer of all vehicles, will be watching developments with interest.
Tags: car finance