Ford hands off two hot potatoes
Ford announced this week that it has completed the deal to sell their Jaguar and Land Rover divisions to India's Tata Motors, that country's largest car and truck maker. The deal was for $1.7 billion.
What a turnaround! Ford's purchase of Jaguar in 1989 and cost $2.6 billion. The 1999 purchase of Land Rover from BMW cost $2.75 billion. Both divisions have been steady money losers, an anchor. Land Rover was a hot potato, as BMW had apparently lost millions on the company after buying it 1994.
So Ford sold Tat the two groups for less than a third of what it paid, over and above the year-to-year losses.
For Tata, this is a risky move. According to a Wall Street Journal story("Tata and Ford Reach Deal For Land Rover, Jaguar", 3/27/08) "For Tata, the deal extends the company's global reach in the auto sector and shores up its competitive standing against Indian rival Mahindra & Mahindra Ltd., which already had plans to enter the U.S. market in 2009. Mahindra had also vied for Jaguar and Land Rover."
For Ford, it's another sign of desperation as it jettisons the properties it bought up when times were good. And another indication of the faltering US economy and its shrinking buying power.
The problem is that these brands may never be salvageable, no matter how little Tata pays for them. These brands may be famous, but they are also infamous for expensive service and poor reliability, in a market where there are already many competitors. Both brands sales are steadily dropping. And, with awakening global economy, there will be even fewer buyers who can afford them.
They are also not really complementary to Tata's own low-cost machines. Tata specializes in small, subcompact cars. It's hard to imagine a dealership that sells the luxury cars along with the inexpensive no-frills and underpowered Tata Indigos and Safaris.
