It sure does add to the already growing stature of India and Indian businessmen across the globe. From writing great software, we have moved on and on, to the extent that now we will own two iconic automotive brands that the world swears by. But is a sum of $2.3 billion for two struggling luxury brands a great bargain? Well, according to industry experts, the Tata Motors’ pledge for Jaguar & Land Rover (jlr) deal sure is!
An exhuberant Ratan Tata commented that Tata Motors “will endeavour to preserve and build on their (jlr’s) heritage and competitiveness, keeping their identities intact.” The acquisition, which was finally announced on March 26 has not inspired that much confidence at the stock markets. Tata Motors’ shares fell by more than 7% on the day of the deal announcement, which is ample indication of concerns shared by investors.
In terms of volumes, Jaguar and Land Rover are niche brands. In the year 2007, the entities manufactured a combined 300,000 units, a figure that is not sustainable, considering three factories in ‘expensive’ Britain. Since Tata has pledged that it would neither close plants nor transfer production to a cheaper alternative; volumes will be the only option to offset the labour-product ratio. Tata Motors plans to invest an additional $1 billion to reinvigorate the brands without interfering in the jlr management.
According to some reports, the Tatas may divest more stake in some group companies to finance the acquisition and future endeavors in the direction. Ford has already promised to infuse $600 million towards its share of pension liabilities and Tata is expected to bear its part. However, there are new opportunities, too. As per Overdrive’s Bertrand D’souza, “The company is already selling its Safari and Xenon suvs as part of its assembling operations in Europe and jlr will give Tata more mileage to establish itself as a highly competent automaker in Europe, especially as Tata wants to sell Nano in Europe as well.” Additionally, the strategic importance of the jlr brand platform, technology expertise & sales network will have far reaching advantages. As per news reports, Land Rover has already turned profitable with profits crossing $1 billion in 2007. And it’s anticipated that Jaguar will get rid of the red once its high aspiration xf hits the roads.
Clearly, the deal is an aspirational one to ultimately place the Tatas firmly on the global auto map. But the first challenge for the Tatas is to successfully manage two brands that belong to a genre unknown to it, add to that the fact that it has had to opt out of the lucrative outsourcing model. Once that can be done, the rest will automatically fall in place.
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Source : IIPM Editorial, 2008
An IIPM and Professor Arindam Chaudhuri (Renowned Management Guru and Economist) Initiative
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