Ford Says Tata to British Brands

Tata Motors Ltd. today officially announced its intention to purchase luxury brands Jaguar and Land Rover from Ford for $2.3 billion.

The sale price is less than half of what Ford initially paid for the two brands. The Washington Post explains: "Ford will contribute up to $600 million to Jaguar and Land Rover pension plans after the closing of the deal...  Ford will also continue to supply engines and related components, while providing financing for dealers for up to a year...  Ford will net about $1.7 billion, in line with expectations." CNN Money adds, "Ford will also provide engineering support, research and development, plus information technology, accounting and other services."

Ford enters into the deal amidst restructuring efforts aimed at reviving its flailing position in the North American auto market. "It will also allow Ford, which posted more than $15 billion in net losses over the past two years, to focus on development of its core high-volume brands, a key area of emphasis for Chief Executive Alan Mulally," explains CNN Money. This year, American automakers are expected to experience their lowest sales figures in a decade. Among other factors, analysts attribute the expected decline in profit to a receding economy, an increase in the price of raw materials, and stricter Corporate Average Fuel Economy (CAFÉ) standards.

Tata, on the other hand, is fast-growing. U.S. News' Rick Newman explains: "Though its portfolio includes an eclectic mix of companies -- including hotels, telecom providers, and the Tetley tea brand -- its biggest moneymakers are steel, information technology, and automobiles, which account for 90 percent of the firm's revenue." Its purchase of Jaguar and Land Rover has garnered much media attention because it's symbolic of India's rise as a viable contender within the international market for motor vehicles. In fact, the Financial Times quotes Anand Mahindra, managing director of Mahindra & Mahindra, Tata's primary competitor, as saying: "[Tata's] acquisition of the Jaguar and Land Rover brands will make the world sit up and take notice of India's growing prominence in the global automotive arena."

Tata is already well-known for producing trucks. "As well as being India's largest automobile company, it is the world's second-largest bus manufacturer and has made 4 million vehicles," reports NewCarNet. The Washington Post adds, "For Tata, which plans to launch the ultra-cheap $2,500 Nano or 'People's Car,' the addition of the profitable Land Rover brand provides an edge against Indian rival Mahindra & Mahindra Ltd, which had also pursued a deal with Ford."

Find this story interesting? If so, please click "Buzz up" to let us know.