Formal Announcement of Tata's Jaguar and Land Rover Purchase Expected Next Week

Confirmation of Sale... At Last

The sale of Ford's two U.K.-based premium brands of Jaguar and Land Rover to Tata Motors of India is expected to be formally announced, at last, next week. Automotive News Europe reports that the date for the announcement has been set for either 5 or 6 March. Ford is said to be anxious that this news does not overshadow the world premiere of one of its most important cars in Europe, the all-new Ford Fiesta, which will be unveiled to the world's media at the Geneva Motor Show in Switzerland on 4 March, which is why an announcement will not be made until after that date.

This decision was made following Tata's talks with U.K. trade unions last week (see United Kingdom: 25 February 2008: Tata Regains Support of Ford's U.K. Trade Unions). Because the deal has been so long and protracted—Ford had initially wished to close the sale by the end of 2007—trade unions are said to be becoming anxious, even though their unwavering demands have been unofficially cited as one of the reasons behind the delays. A trade union leader told Automotive News Europe that "everything seems fine [with the deal] as far as we are concerned—it's just the lawyers working on it now."

Meanwhile, a separate trade union official told the Associated Press: "We do believe that Tata Motors, in the event of a sale... offers the best alternative for our people in the U.K. It's a cash-rich company. It's got experience in manufacturing in the automotive industry. It's got a substantial presence in other industries in the U.K." The official added: "The manufacturing footprint will remain unaltered. The engineering and design studios will remain. There's no plans outside of the business plan to source any more components from low-cost economies."

There have been many other sticking points to the sale. However, Tata and Ford are said to have now come to an agreement on a number of crucial points. These are rumoured to include:

• Tata will keep Jaguar and Land Rover employment in the United Kingdom at around the current 15,300 mark.
• Tata has no plans to offload the loss-making Jaguar brand.
• Tata will not transfer Land Rover production to India.
• Tata will stick with the current Jaguar and Land Rover business plans until 2011.
• Tata will continue to source components from Ford in the United Kingdom, which would prevent job losses from the supply chain. This includes engine procurement from Ford's manufacturing sites in Bridgend, Wales and Dagenham in the south-east of England.
• Tata will take on the pension liabilities of the two brands.

But Tata Must Raise Cash First

The Indian conglomerate is now said to be in the process of raising cash for the deal. Dow Jones, quoting a report from India's Economic Times newspaper, reports that Tata has hired a number of local and foreign banks, including the State Bank of India, Citigroup and JP Morgan to raise almost US$2.5 million, mostly from outside India. Over US$2 billion of this is expected to be used for the purchase of Jaguar and Land Rover, and the remainder for the financing of capital expenditure of the two brands, following the acquisition and for the production of the Tata Nano low-cost car, ahead of its commercial launch later this year.

Outlook and Implications

That an end to this deal is near is good news for all involved. Ford, which lost US$2.7 billion in 2007 and a record US$12.6 billion in 2006, first announced its intention to sell Jaguar and Land Rover last summer and hoped that the sale would be finalised by the end of 2007. The intricacies of the deal between the two companies are numerous, however, and include whether Ford will retain a stake and if so, how much. Jaguar and Land Rover's trade unions have also been playing hardball, which has caused further delays in the deal's completion. This is in stark contrast to the speed with which Ford's other U.K. premium brand, Aston Martin, was snapped up a year ago.

For Ford, the closure of the sale will be bittersweet. Ford desperately needs the cash and desperately needs to rid itself of some of the considerable R&D expenditure it would otherwise have had to pump into the two brands, not least as the European Union (EU)'s future emission caps loom. Neither Jaguar or Land Rover is very well placed in the race to significantly lower the average emissions of their respective ranges. On the other hand, Ford paid £2.5 billion (US$4.9 million in today's prices) for Jaguar in 1989 and £2.7 billion for Land Rover in 2000. It is since believed to have invested at least another £7 billion in Jaguar alone, but has never managed to extract a profit from it. Ironically for Ford, Jaguar and Land Rover are now looking in better shape than ever before—Jaguar recently launched the S-Type replacement, the XF to rave reviews, and there is much optimism surrounding the recently revealed Land Rover LRX concept, which will almost certainly make it into production by the end of the decade.

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