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Will Tata do what Ford could not?
December 22, 2007
After that combined investment of over $5 billion, and having sunk another $10 billion into Jaguar over the years, Ford is now happy to sell both to the Tata group for barely $2 billion - with perhaps more bills to come since there is a billion-sized hole in the pension account.
The two brands together barely break even. Both are part of Ford's premier auto division, which sold a third brand (Aston Martin) earlier in the year, leaving just Volvo behind. Rover is profitable, but Jaguar reportedly lost over $700 million in 2006 and perhaps over $550 million in 2007; it is expected to lose $300 million more in 2008.
Rover sells close to 200,000 vehicles a year, but Jaguar sales have been falling quite sharply in its main market, the United States. Ford's strategy of using Ford platforms to build more volume-market Jaguars failed, and the focus now is back on selling luxury cars that score on styling, status and technology.
That potted history should underline the risks involved in Tata Motors [Get Quote] taking charge of two of the car world's most iconic brands.
Cost-cutting is essential but may be ruled out since Tata has promised the workers' union that there will be no job losses. The union has therefore endorsed the Tata bid, but that could be the kiss of death.
It is of course wonderful and exciting and a boost for Indian enterprise that a well-regarded Indian group should acquire such iconic car badges, whose brand legends have been built over generations and are almost impossible to replicate (ask Lexus).
Meanwhile, the Indian experience with overseas acquisitions contrasts with those by other countries in the neighbourhood - Abu Dhabi has invested recently in Citigroup and a sovereign Chinese fund in Morgan Stanley.
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