Tata Group buys Jaguar Land Rover

The Tata acquisition of Jaguar Land Rover is a superb example to include in research notes on takeovers and mergers. At the time (early 2008), Tatas investment in JLR seemed to be poorly timed and there were many critics who questioned the strategic logic of the move as well as its timing. Shortly after the takeover, demand in the global market for luxury cars collapsed as a result of the financial crisis and Tata was forced to refinance to support its investment. Several years later, however, the takeover appears to be a compelling example of a successful acquisition which is generating substantial shareholder value for Tata as well as continued support from JLRs many stakeholder groups in the UK. Background Jaguar Land Rover (JLR):

Jaguar Cars since December 2012 officially incorporated as Jaguar Land Rover Ltd, is a British multinational car manufacturer headquartered in Whitley, Coventry, England, owned by Jaguar Land Rover Automotive PLC, a subsidiary of Indian automaker, the Tata Motors company. Jaguar was founded as the Swallow Sidecar Company by Sir William Lyons in 1922, originally making motorcycle sidecars before developing passenger cars. The name was changed to Jaguar after World War II to avoid the unfavourable connotations of the SS initials. Following sale to The British Motor Corporation in 1968which merged with Leyland Motor Corporation and was later nationalised as British LeylandJaguar was listed on the London Stock Exchange in 1984, and became a constituent of the FTSE 100 Index until it was acquired by Ford in 1990. Jaguar has, in recent years, manufactured cars for the British Prime Minister, the most recent delivery being an XJ in May 2010. The company also holds royal warrants from HM Queen Elizabeth II and HRH Prince Charles.

Jaguar cars today are designed in Jaguar Land Rover's engineering centres at the Whitley plant in Coventry and at their Gaydon site in Warwickshire, and are manufactured in Jaguar's Castle Bromwich assembly plant near Birmingham.

- Jaguar Cars bought by Ford in 1989 - Land Rover bought by Ford from BMW for $1.4bn in 1989 - A difficult relationship between the UK firm and its US owners - Jaguar fell into heavy losses whilst owned by Ford (reaching up to $600million per year) - However, Ford invested heavily in new model development Tata Group: Tata Group is an Indian multinational conglomerate company headquartered in Mumbai, Maharashtra, India. It encompasses seven business sectors: communications and information technology, engineering, materials, services, energy, consumer products and chemicals. Tata Group was founded in 1868 by Jamsetji Tata as a trading company. It has operations in more than 80 countries across six continents. Tata Group has over 100 operating companies each of them operates independently out of them 32 are publicly listed. The major Tata companies are Tata Steel, Tata Motors, Tata Consultancy Services (TCS), Tata Power, Tata Chemicals, Tata Global Beverages, Tata Teleservices, Titan Industries, Tata Communications and Taj Hotels. The combined market capitalisation of all the 32 listed Tata companies was $89.88 billion as of March 2012. Tata receives more than 58% of its revenue from outside India.

Tata Motors Limited (formerly TELCO) is an Indian multinational automotive manufacturing company headquartered in Mumbai, Maharashtra, India and a subsidiary of the Tata Group. Its products include passenger cars, trucks, vans, coaches, buses and military vehicles. It is the world's eighteenth-largest motor vehicle manufacturing company, fourthlargest truck manufacturer and second-largest bus manufacturer by volume. Tata Motors has auto manufacturing and assembly plants in Jamshedpur, Pantnagar, Lucknow, Sanand, Dharwad and Pune, India, and in Argentina, South Africa, Thailand and the United Kingdom. It has research and development centres in Pune, Jamshedpur, Lucknow

and Dharwad, India, and in South Korea, Spain, and the United Kingdom. It has a bus manufacturing joint venture with Marcopolo S.A., Tata Marcopolo, and a construction equipment manufacturing joint venture with Hitachi, Telcon Construction Solutions. Founded in 1945 as a manufacturer of locomotives, the company manufactured its first commercial vehicle in 1954 in a collaboration with Daimler-Benz AG, which ended in 1969.
[4]

Tata Motors entered the passenger vehicle market in 1991 with the launch of the Tata

Sierra and in 1998 launched the first fully indigenous Indian passenger car, the Indica. Tata Motors acquired the South Korean truck manufacturer Daewoo Commercial Vehicles Company in 2004 and the British premium car maker Jaguar Land Rover in 2008. Tata Motors is listed on the Bombay Stock Exchange, where it is a constituent of the BSE SENSEX index, the National Stock Exchange of India and the New York Stock Exchange. Tata Motors is ranked 314th in the 2012 Fortune Global 500 ranking of the world's biggest corporations.

- One of Indias largest private conglomerates - used to investing in the UK - Bought Tetley Tea in 2000 - Bought Corus Steel - a big supplier to JLR - in 2007 - Tata Motors - was already Indias third largest car-maker, but struggling with a poor image and hampered by rising raw material costs

The Deal - Ford sells JLR to Tata for in March 2008 just over 1bn - just a few months before a collapse in global demand in the international car market - Tata financed the takeover with $3bn of new long-term loans - The price paid by Tata was approximately half of what Ford paid to buy Jaguar and Land Rover.; + Ford had continued to incur heavy losses in Jaguar as it failed to turn the business around.

- The deal took over a year to agree - which may have helped with the post-merger integration. Tata recognised that it would continue to need support from Ford who are a main supplier of car components to the two brands. - No significant change proposed to the businesses by Tata. They claimed that staff, trade unions and the UK government had been kept informed about the proposed takeover and supported the move. - The deal has been endorsed by trade unions, which secured a commitment from Tata to continue with JLRs production plans until the end of 2011. This includes development of new models. SWOT ANALYSIS - TATA MOTORS LIMITED The company began in 1945 and has produced more than 4 million vehicles. Tata Motors Limited is the largest car producer in India. It manufactures commercial and passenger vehicles, and employs in excess of 23,000 people. This SWOT analysis is about Tata Motors. STRENGTHS The internationalisation strategy so far has been to keep local managers in new acquisitions, and to only transplant a couple of senior managers from India into the new market. The benefit is that Tata has been able to exchange expertise. For example after the Daewoo acquisition the Indian company leaned work discipline and how to get the final product 'right first time.' The company has a strategy in place for the next stage of its expansion. Not only is it focusing upon new products and acquisitions, but it also has a programme of intensive management development in place in order to establish its leaders for tomorrow.

The company has had a successful alliance with Italian mass producer Fiat since 2006. This has enhanced the product portfolio for Tata and Fiat in terms of production and knowledge exchange. For example, the Fiat Palio Style was launched by Tata in 2007, and the companies have an agreement to build a pick-up targeted at Central and South America.

WEAKNESSES The company's passenger car products are based upon 3rd and 4th generation platforms, which put Tata Motors Limited at a disadvantage with competing car manufacturers. Despite buying the Jaguar and Land Rover brands (see opportunities below); Tata has not got a foothold in the luxury car segment in its domestic, Indian market. Is the brand associated with commercial vehicles and low-cost passenger cars to the extent that it has isolated itself from lucrative segments in a more aspiring India?

One weakness which is often not recognised is that in English the word 'tat' means rubbish. Would the brand sensitive British consumer ever buy into such a brand? Maybe not, but they would buy into Fiat, Jaguar and Land Rover (see opportunities and strengths).

OPPORTUNITIES In the summer of 2008 Tata Motor's announced that it had successfully purchased the Land Rover and Jaguar brands from Ford Motors for UK 2.3 million. Two of the World's luxury car brand have been added to its portfolio of brands, and will undoubtedly off the company the chance to market vehicles in the luxury segments. Tata Motors Limited acquired Daewoo Motor's Commercial vehicle business in 2004 for around USD $16 million.

Nano is the cheapest car in the World - retailing at little more than a motorbike. Whilst the World is getting ready for greener alternatives to gas-guzzlers, is the Nano the answer in terms of concept or brand? Incidentally, the new Land Rover and Jaguar models will cost up to 85 times more than a standard Nano! The new global track platform is about to be launched from its Korean (previously Daewoo) plant. Again, at a time when the World is looking for environmentally friendly transport alternatives, is now the right time to move into this segment? The answer to this question (and the one above) is that new and emerging industrial nations such as India, South Korea and China will have a thirst for low-cost passenger and commercial vehicles. These are the opportunities. However the company has put in place a very proactive Corporate Social Responsibility (CSR) committee to address potential strategies that will make is operations more sustainable. The range of Super Milo fuel efficient buses are powered by super-efficient, ecofriendly engines. The bus has optional organic clutch with booster assist and better air intakes that will reduce fuel consumption by up to 10%.

THREATS Other competing car manufacturers have been in the passenger car business for 40, 50 or more years. Therefore Tata Motors Limited has to catch up in terms of quality and lean production. Sustainability and environmentalism could mean extra costs for this low-cost producer. This could impact its underpinning competitive advantage. Obviously, as Tata globalises and buys into other brands this problem could be alleviated.

Since the company has focused upon the commercial and small vehicle segments, it has left itself open to competition from overseas companies for the emerging Indian luxury segments. For example ICICI bank and DaimlerChrysler have invested in a new Pune-based plant which will build 5000 new Mercedes-Benz per annum. Other players developing luxury cars targeted at the Indian market include Ford, Honda and

Toyota. In fact the entire Indian market has become a target for other global competitors including Maruti Udyog, General Motors, Ford and others.

Rising prices in the global economy could pose a threat to Tata Motors Limited on a couple of fronts. The price of steel and aluminium is increasing putting pressure on the costs of production. Many of Tata's products run on Diesel fuel which is becoming expensive globally and within its traditional home market.

SWOT :JAGUAR < Isuzu Motors.. Jaguar Parent Company Category Sector Tata Motors Premium Luxury Cars Automobiles

Jaguar XF.. >

Born to perform; Unleash a Jaguar; Don't dream it. Drive it; Tagline/ Slogan USP STP Segment Target Group Positioning Product Portfolio 1. Jaguar XJ Brands 3. Jaguar XK 2.Jaguar XF Ultra premium luxury automobile segment Rich businessmen and Royal families A car full of performance, grace and luxury Jaguar-The art of performance; Grace. Space. Pace. Premium luxury car with sport features and high performance

SWOT Analysis 1. High product Quality, rich culture identity and strong global brand 2. Popular Image of luxury value brand

3. Upgraded distribution channels specially in the emerging economies 4. 5.Increase Strength Good, in crisp Research and quality development advertising spending

6.Improvement in global sales after Tata Motors acquisition 1. Lack a variety product range as compared to competitors 2. Despite having high performance cars, car design is criticized

Weakness

3. After Tata acquisition cost cutting lead to labor union issues 1. Emerging economies like India, China, Russia apart from USA and Europe

Opportunity

2. Hybrid models of luxury cars is an untapped market 1. Strong competition from international automobile brands 2. Dependence on government policies and rising fuel prices 3. Financial instability causes steep downfall in premium car

Threats Competition

segment

1. 2.Mercedes 3.Audi 4. Competitors 5.Bentley Aston

Porsche Benz Martin

Key drivers of / motives for the takeover - Acquiring JLR would provide significant potential for revenue synergies, including giving Tata greater international distribution, broader product range and better customer service skills - Tata gains access to world-class engineering capability - Strengthens relationship between Tatas steel and motoring businesses What happened next? Significant slump in new car sales in late 2008 as a result of the credit crunch; Tata had to refinance in order to keep JLR solvent. UK government considered a financial aid package, indicating the strategic importance of JLR to the UK economy February 2010: Tata secures a 340million loan from the European Investment Bank to support JLR through recession May 2011: Tata announces 5b five year investment programme in JLR - focused on new product development & new equipment at JLR three UK plants + investment in a planned factory in China. JLR also to link closer with Tata Steel to provide new lightweight steel alloys for new car models. November 2011: JLR announces 1,000 new jobs a Land Rover plant in Solihull boosted by rising demand for SUVs in China, Russia, India and Brazil. February 2012: Soaring sales of Jaguar and Land Rover cars have helped Indian firm Tata Motors to a huge rise in profits (up 41% on 2010). JLR arm saw sales rise 37%, helped by selling 32,000 of its new Range Rover Evoque. China overtakes the UK as JLRs biggest market. March 2012: JLR and Chery Automobile agree a joint venture that should pave the way for production of Jaguar and Land Rover cars in China. April 2012: JLR announces that it will build a successor to its previous sports cars called the F-type at its factory in Birmingham.

Related news:forbes
For Tata Motors, Jaguar A Gold Mine A Jaguar XF from Tata Motors. The world is still getting used to the fact that Jaguar is now an Indian brand. And thanks to the luxury car market, Tata Motors' shares are up over 70%

year to date, making it one of the best performing large cap stocks in the world. (Photo credit: Wikipedia) Little did Tata Motors (TTM) know that when it bought Jaguar in 2009 for a few billion dollars it would eventually help the India auto maker become one of the worlds hottest performing auto stocks. Actually, make that one of the hottest performing stocks, period. Tata Motors is by far the-best performing major auto maker stock this year. Its up a whopping 76% compared to second placed Toyota (TM) at 23% and third placed General Motors (GM) which is up around 19% year to date ending April 18. Bloomberg newswires noted on Wednesday that the stock extended its gains after Jaguar and Land Rover, both acquired by Tata from their Anglo-American roots back in 09, recorded their highest ever monthly sales in March. The luxury brands have plugged the holes in Tatas core business, the passenger vehicles it sells in India, where interest rates and fuel prices have dented consumer confidence, Bloomberg noted. Tata has since introduced new Jag models including the new XJ sedan, the Land Rover Evoque compact SUV and the Jaguar XF, and is beginning development of a new Jaguar sports car for later next year, the company said. Moreover, the business plan has decidedly searched for new markets in oligarch rich Russia and, of course, China, where the GM brand still reigns supreme. Jaguar and Land Rover are worth $14 billion, according to the average estimate of three analysts surveyed by Bloomberg; making the names worth more than Fiat and Suzuki Motors, both developed market power house brands.

Key quotes about the deal Investment analyst (FT)

This deal not only gives Tata Motors a complete design portfolio in terms of having luxury and value-for-money cars. It also brings them up to a completely different level in terms of being a global passenger car company. Ian Callum (Director of Design, Jaguar): 2008

We have shown Tata our new model lines and the planned product cycle. The two national cultures appear to fit together very well and Tata is being very respectful about what we are doing. Peter Marsh (FT)

The integration between the UK vehicle brands and Tata Motors, the Indian companys

automotive division, will be marked by a softly, softly approach characterised by Tatas interest in maintaining the goodwill of existing managers and keeping most working practices intact. Ratan Tata (Chairman of Tata)

We are very pleased at the prospect of Jaguar and Land Rover being a significant part of our automotive business. We have enormous respect for the two brands, and we will endeavour to preserve and build on their heritage and competitiveness, keeping their identities intact. We aim to support their growth, while holding true to our principles of allowing the management and employees to bring their experience and expertise to bear on the growth of the business. Alan Mulally (President and CEO of Ford)

Jaguar and Land Rover are terrific brands. We are confident that they are leaving our fold with the products, plans and team to continue to thrive under Tatas stewardship. As part of the transaction, Ford will continue to supply Jaguar Land Rover with key components. Ford has also committed to provide engineering support, including research and development, plus information technology, accounting and other services.

TATA

HELPS JAGUAR

LAND ROVER

RESTORE ITS LOST GLORY

ITGD Bureau

New Delhi Last Updated: February 21, 2011 | 12:23 IST

In just over two years, Tata, the Mumbai-based conglomerate that also owns Tetley Tea and steelmaker Corus (now Tata Steel Europe), has transformed Britain's most iconic luxury car brand ,theJaguar, from a loss-maker to a winner. This success is an emphatic answer to the critics who accused Tata, under chairman Ratan Tata, of an act of vanity when he bought JLR for 1.5 billion pounds in 2008. Here was a successful Indian company, they said, buying an expensive toy - a world-renowned product that was long past its glory days. For the first ten months it seemed as though the critics were right. The company had made just 167,000 cars and had lost 280 million pounds. But in the last three months of 2010 it made a profit of 275 million pounds. This was the fifth consecutive quarter of profits. And most analysts believe that in three months' time JLR will be in a position to report a record one billion pounds profit. The turnaround is astonishing and is a welcome change to the 18 months of economic misery up to the end of 2009 when JLR announced 2,500 redundancies and closure of one plant - a decision rescinded last November. The Birminghambased luxury car maker is once again what it was decades ago - a triumph of British engineering and entrepreneurship. So how did this happen? Leading motor industry analyst Rob Golding said: "Three years ago Jaguar was unloved. Ford owned the company but they wanted

to get rid of it. Ford boss Alan Mulally wanted to concentrate on Ford and to get rid of the luxury cars. But now they have been given a sense of direction and management and designers have been allowed to get on with it." While Ford may not have given its time to JLR, at least it did not turn off the investment tap, and work on new models went ahead. Now JLR is churning out a new range of highly popular Range Rovers, Freelanders and Jaguars such as the XF and XJ. Inevitably it has taken top management changes to bring the company back to life. Industry veteran and former boss of Opel Vauxhall, Carl-Peter Forster, was recruited at the beginning of 2010 as group chief executive at Tata Motors. Former BMW executive Ralf Speth was taken on as chief executive of JLR. Production has also started on a futuristic 'baby' Land Rover, the Evoque, partly designed by Victoria Beckham. Even more importantly, the company has taken the decision to build a 'green' baby Jaguar. Adrian Mardell, JLR's deputy chief finance officer, said, "We are still a small firm compared with our rivals like Mercedes and BMW. We make just over 200,000 cars, but they make over a million each." Mardell is not keen to make predictions but it is safe to assume the company would like to be turning out more than 300,000 units in a couple of years. Tata has a reputation for good industrial relations. Massive changes have been made and jobs have gone, but the gamble by the unions to back Tata has paid off and JLR is hiring again. Mardell said, "We are taking on workers now - 1,500 workers at Halewood in Liverpool and 1,000 engineers. Our workforce may yet get to 20,000." But the move that will cement JLR's fortunes is the new focus on China. Last year, sales to China increased by a staggering 95 per cent to 26,000 cars. Forster is in China this week, talking to potential partners for JLR and the favourite is Chery Automobile, a company with strong connections to the Chinese government. Forster has made it clear that JLR will remain in UK, but there is no denying the fact that China is creating millions of rich middle class potential buyers of luxury brands. It is understood that two models will be built in the China and the sales, which are expected to hit 40,000 two years after the deal, would satisfy demand in China.

Post merger analysis of TATA and Jaguar

After eight months of negotiations Ford Motor Company and Tata Group have agreed on the sale of Jaguar and Land Rover brands. Deal terms

Tata will pay $2.3 billion to Ford and Ford will contribute $600 million to the pension fund for the employees of Jaguar and Land Rover. However, Ford will not have any equity stake in the deal. Moreover, several private equity funds in partnerships with various auto makers have attempted to purchase these brands but none was willing to keep the U.K. labor force intact. Much of the deal is funded with short term debt of $3 billion from Citigroup, JP Morgan, and a consortium of other banks. Unsurprisingly, Tata will have to quickly identify cost savings or increase sales in Europe and the U.S., which looks increasingly difficult. Supply agreements

Ford and Tata will work together for years to come. Tata needs Fords support for parts and technologies; moreover, Ford will provide financing for car sales at lease for a year. Ford in a press release said, As part of the transaction, Ford will continue to supply Jaguar Land Rover for differing periods with power trains, stampings and other vehicle components, in addition to a variety of technologies, such as environmental and platform technologies. Ford also has committed to provide engineering support, including research and development, plus information technology, accounting and other services. In addition, Ford Motor Credit Company will provide financing for Jaguar and Land Rover dealers and customers during a transitional period, which can vary by market, of up to 12 months. Tata appears to have secured technologies that it needs to improve its product line up in India. Hopefully, these technologies will help Tata to prepare its Indian operation as a global hub to sell cars to Europe, Africa, the Middle East, and then later expand it to the U.S. High employee costs

UK wages at Jaguar and Land Rover are one of the highest in the world, topping annual wages of more than $100,000 on the factory floor. Apparently, Tata, in a bid to acquire luxury brands, has agreed to keep the current employees and wages. Naturally, Unite, the union representing factory workers in the U.K., was pleased to work with Tata and not with any other private equity fund controlled group. On this point Roger Maddison said, Unite has secured written guarantees for all five UK plants on staffing levels, employee terms and conditions, including pensions, and sourcing agreements. The sale ensures our members futures and we look forward to working with Tata. Does Tata know what is the root cause of lack of profits at Jaguar and does it have financial wherewithal to fund a string of losses is a question that should be asked. Interestingly, Tata has either to lower operating cost by 30% to 40% or increase sales by

50% to 70% to turn Jaguar around. Since neither goal is achievable in the next three years, how is Tata going to make Jaguar work? This question needs serious pondering. The high labor, operating cost, and persistent quality lag have been key reasons why Ford has done poorly in the last ten years. Moreover, Tata may find that keeping most of the production in U.K. difficult in a weakening economic environment. More important, the luxury market is competitive, volatile, and driven by new products; however, Tata lacks experience and financial wherewithal in designing new products. Long term challenges

If Tata fails to improve productivity in the long term within the U.K., which significantly lags to workers in Japan and Germany, the consequences may be dire. For instance, global markets for luxury cars are already crowded because of the current slowdown in international economic growth, and this will strain that already difficult situation further. Tata Group has recently launched its plan to sell worlds cheapest car for $2,500 in India; moreover, Tata has been producing trucks in India for decades but its track record with cars has been spotty. Unfortunately, Tata is known for its mediocre trucks and came close to near bankruptcy in the early nineties. These quality problems have dodged Tata and the company is perceived in the local market as bureaucratic. More troubling, Tata has failed to use its India hub to challenge Japanese or Korean companies in the global markets. This has resulted in the company trailing its Chinese competitors in technology and automotive knowhow. Tata expects that Jaguar and Land Rover brand purchases will help to catapult it on the technology curve and gain prestige in the marketplace that it lacks. However, a debtfunded purchase and high labor costs may take decades for the deal to work, which Ford previously learned painfully. Ford sale provides a cushion

Ford Motor Company has declared a string of losses in recent years and the financial situation has become precarious. Now, Ford has targeted to become profitable in its North American division in 2009 and expects to lower costs by $5 billion in that division in 2008. Ford, after losing market share in the face of stiff competition from Asian and European manufacturers, is forced to lower its operating cost and sell assets.

In 1989, Ford purchased Jaguar, based in the U.K., for $2.5 billion and Land Rover for $2.75 billion in 2000. Fords vision, promoted by then chief executive Jacques Nasser to build a collection of luxury brands, included Austin Martin, Volvo, Jaguar, and Land Rover. Industry analysts have estimated that Ford has invested nearly $15 billion in the last fifteen years in Jaguar but has only seen widening losses and persistent quality problems. Because of this, Jaguar, under Ford, has seen a decline in market share in the U.S. and around the world. In addition, Ford purchased Volvo in 1999 and Aston Martin in 1987.

The Premier Automotive Group was formed to manage these brands of luxury cars. Ford, at the time of Jaguar purchase, aimed to sell 200,000 units worldwide; unfortunately, this never happened. Moreover, sales under Ford have only declined. General Motors and BMW pursued similar paths with varying degrees of success. Similarly, Daimler attempted to expand in the U.S. by purchasing Chrysler; however, this ended miserably in 2007. Jaguar 2007 sales have declined to 60,000 from 130,000 in 2002, while Land Rover sales in 2007 were 227,000. In relation, U.S. sales of Land Rover have increased from 26,000 in 2000 to an estimate of 46,000 in 2008. Ford, in the last five years, had invested at least $3 billion in Land Rover to improve quality of cars; however, the Jaguar brand has consistently lagged in the marketplace. In addition, Jaguar suffered from decisions to change its style and use Ford parts from other cheaper cars at the company. Unfortunately, the Ford image of mass marketer has not helped the Jaguar brand either. Land Rover has been successful as consumers increasingly embraced sports utility vehicles in the U.S. This may be offset by rising fuel costs and a regulatory demand to lower vehicle weight and improve fuel efficiency. The U.K. labor force of 16,000 at Jaguar and Land Rover, by international standards, appears to be overstaffed and may have to be trimmed by half if sales do not improve in the next three years. Jaguar, one of the most coveted brands by Ford management, has drained capital and distracted management for years. Moreover, the losses at Ford North American operations only added pressure to under invest in the brand that is losing money. Additionally, the declining sales reflect the markets displeasure with the brand. The Chrysler fate

Chrysler, the third largest U.S. automaker when purchased by Daimler Benz, suffered a similar fate after a severe miscalculation by Daimler management. Daimler perceived several synergies between its Mercedes Benz luxury car and Chrysler division, which never materialized. Further, two different management cultures in Germany and Detroit failed to work together as their different priorities either attempted to cut costs or improve quality. Daimler was lucky and finally sold an 80% stake in Chrysler for $7.4 billion to a private equity group Cerberus, which was originally purchased only nine years ago at $37 billion. What the future may bring for Tata and Jaguar

Two questions that should be asked are: Does Tata know the root cause of lacking profits at Jaguar is and does it have a financial wherewithal to fund a string of losses? Likewise, Tata either has to find ways to lower operating costs by 30% or increase sales by 50% to turn Jaguar around. Unfortunately, neither goal is achievable in the next three years. How Tata is going to make Jaguar purchase work? This is a question that needs serious consideration. Yes, there is talk of Tata Way, which simply means Tata can run this operation without cutting staff while learning what Jaguar and Land Rover does well then applying this to operations in India. However, there are other ways to accomplish this without spending $3 billion of borrowed money. The fact is that Tata has been making mediocre trucks for more than five decades in India and never managed sell them outside India in substantial volume. A review of history will show that Tata, Toyota, and Honda started making vehicles around the same time after World War II; however, no one needs a reminder where Toyota and Honda are on the global stage today. After five decades, Tata does not sell 10% of volume that Honda and Toyota each sell in the global markets. Tata Group has been selling software services through Tata Consultancy, a highly profitable company in the group. Interestingly, the profits of this company are funding the losses at many of the 98 companies of the group. Tata Motors, one of the groups companies that will integrate its domestic operations with the UK operations, is a laggard not only on the global stage but in the domestic market; additionally, it had a brush with bankruptcy in the early nineties. Honda and Toyota have reached at global dominance not by purchasing other failing companies, but through continuous learning, innovation, and constantly raising a bar on quality. Tata Group has never achieved global quality excellence in any business that they have been operating in the last one century, except in hotel services and perhaps in software manpower management. Shareholders of Tata Group will be better served if that $3 billion of the Jaguar and Land Rover purchase was put to better use. What's more, one can earn 6% a year with little financial risk and no operating headaches in the bond market. Jaguar and Land Rover will not generate this level of return in the next five years and will have to fight with labor when the going gets inevitably rough; Ford knew this only too well when it sold both brands. In conclusion, it seems that Tatas purchase of Jaguar and Land Rover is a vanity purchase shareholders of Tata Group can live without.

References Magazines News The http://www.slideshare.net/expkarma/tata-j-l-rdealhttp://economictimes.indiatimes.com/news/news-by-company/corporatetrends/Tata-Motors-ride-JLR-to-top-Most-Valuable-Brands/articleshow/6812200.cms Forbes The economist Business standards