Ford plans to sell Jaguar, Land Rover to Tata Motors

Ford Motor f is about to hand the keys for Jaguar and Land Rover to India-based Tata Motors.

The sale is expected to be announced Wednesday, according to a source briefed on the negotiations who did not want to be named because the deal had not yet been made public. Tata is to pay about $2 billion and has agreed to continue to build the vehicles in their British plants. The complicated deal will also cover continued supply of Ford-made components and deal with labor issues. Ford has been working with Tata on details of the sale for several months.

"This represents a first, with an Indian company really stepping outside as an investor with a significant couple of brands," says David Cole, chairman of the Center for Automotive Research. "And it enables Ford to convert what has been a pretty extensive part of the company into some needed cash. This is really a pretty big step."

Tata Motors, a maker of light and heavy trucks and family cars, is attempting to broaden its global automotive presence.

For struggling Ford, the move sheds two more European luxury brands that had become a drag on cash. Particularly draining was Jaguar, in which Ford sank nearly $10 billion trying to revive the brand after spending $2.5 billion to buy it in a deal that closed in 1990.

The sale to Tata is central to Ford CEO Alan Mulally's strategy to turn the company around by refocusing on its core brands, which include the Ford blue-oval brand, Lincoln and Mercury.

Ford also needs cash. It lost $2.7 billion in 2007, $12.7 billion in 2006. Mulally is aiming to reach profitability in 2009, a tough goal with U.S. sales shrinking in 2008.

Once Tata takes over Jaguar and Land Rover, only Volvo remains from Ford's decade-long European buying spree.

To raise money, Ford in March 2007 said it would sell about 92% of British superpremium brand Aston Martin for $848 million to a consortium made up of David Richards, founder and chairman of motorsport and auto technology company Prodrive; John Sinders, an avid Aston Martin collector and a backer of Aston Martin Racing; and two investment companies based in Kuwait. Ford had bought 75% of Aston Martin in 1987 and the rest in 1994.

Although there has been speculation that Ford will sell Volvo as well, Mulally has said he intends to hang on to Volvo, at least for now.

For Tata Motors, the deal catapults its profile in the global car marketplace. The automaker is controlled by Tata Group, a privately held Indian industrial conglomerate with 98 operating companies in industries such as heavy trucks, energy, chemicals, communications and engineering, but the Tata brand is not well-known worldwide. It made a splash in January, however, when it announced it would make a $2,500 car as a replacement for mopeds, which are commonly used in developing countries to cart around entire families.

Tata earned $420 million in fiscal 2007, according to filings with the Securities and Exchange Commission, and sold 588,000 trucks and small cars that year.

"They are very serious, very well-funded and not inexperienced in cars," says Tom Purves, CEO of BMW North America. "They are probably the best possible owner for Jaguar and Land Rover. Actually, they are probably the only company that could come in and do this."

Skeptical at first

Few Americans know of Tata, and dealers initially expressed skepticism over the deal when rumors began floating around in July that it was interested in Jaguar and Land Rover. But after learning more, some say they now are looking forward to the new owners.

"I didn't know anything about Tata, but I do now, and I'm very excited about it," says Blair Sharpe, owner of a Jaguar dealership in Grand Rapids, Mich. "It's a new chapter for Jaguar and Land Rover. (Tata) is a big company. They have lots of resources and the money to invest in new products."

Bert Boeckmann, owner of Galpin Jaguar in Los Angeles' San Fernando Valley, says he's encouraged by the sale. Chairman Ratan Tata has shown enthusiasm for the product. "I think they see this as a unique opportunity to gain some real recognition in the auto industry," Boeckmann says.

Mike O'Driscoll, managing director of Jaguar Cars, says he's met with Ratan Tata and is encouraged that the new owners will let the Jaguar staff run the company with little interference. Tata "will give us some space. They want us to run our business, be a premium British car company," he says.

Ford spent a fortune acquiring Jaguar and, a decade later, Land Rover — enough that the sale to Tata will end up a money-loser. Ford spent $2.5 billion on Jaguar in 1990 after getting into a bidding war of sorts with General Motors. Industry experts estimated that was about $1.2 billion more than Jaguar was worth. Land Rover cost $2.8 billion in March 2000, when Ford bought the brand from BMW.

Since 1999, Land Rover's U.S. sales have gone from 29,000 to a projected 46,000 by the end of 2008, according to Rebecca Lindland, an analyst at Global Insight. Jaguar's U.S. sales fell from 35,000 to 17,000 by the end of the year, she says.

Despite current sales figures, Lindland says, both brands have strong images with consumers.

"It's the brands that make it worth the money," she says. "They're iconic brands with really storied histories."

Still, she's not entirely sure the Tata acquisition makes sense.

"It's a little bit like Wal-Mart buying Prada," she says. "Jaguar and Land Rover need a buyer that appreciates their heritage and can restore their glory, especially to Jaguar. … It's hard to say whether Tata is that company."

But some say Ford was lucky to find a buyer at all.

"Ford is quite fortunate that it found a strategic buyer in this very difficult market environment, because the credit crisis and general pessimistic outlook on the auto industry make it very difficult for another auto company to close the deal," says John Casesa, managing partner of Casesa Shapiro group.

The acquisition of Jaguar in 1990 came at a time when the U.S. auto industry was looking for upscale brands to help expand into global markets. Ford and GM both went after Jaguar, sending the price skyrocketing over its true value.

Years after the acquisition, Ford executives were able to joke — if a bit tight-jawed — that they spent $2 billion for sizzle and $500,000 for steak.

The automaker was successful at helping Jaguar improve quality. Another running joke at Jaguar's expense was that drivers needed two Jags — one to drive when the other was in the shop. Ford installed William Hayden, longtime Ford of Europe vice president, as chairman to oversee the quality overhaul.

After his first tour through a Jaguar plant, he told British magazine Car: "Apart from some Russian factories in Gorky, Jaguar's factory was the worst I had ever seen."

Ford CEO Jacques Nasser oversaw the purchase of Land Rover in 2000 and was enthusiastic about the fit of Jaguar and Land Rover, two premium British brands.

"Internally, we've always called (Land Rover) the Jaguar of off-road vehicles," he said. "Now, we can say that publicly." At the time, the luxury SUV market was the most profitable in the USA and among the fastest-growing.

Nasser, a 33-year Ford veteran, was forced out in October 2001 after a series of hot-potato issues, culminating in $3 billion spent for two recalls involving potentially faulty Firestone tires on Ford Explorers. That, atop the cost of the British acquisitions and $6.5 billion for Sweden's Volvo in 1999, put Ford into a financial pinch from which is has yet to get loose.

Rough patch not unusual

Ford's rough patch with acquisitions is not unusual among Detroit automakers.

Chrysler, for instance, bought Italian supercarmaker Lamborghini in 1987 for what was estimated at the time as $25 million, hoping to draw on its high-performance heritage and expertise to jazz up Chrysler vehicles. But the automaker sold it in 1993 to a Bermuda holding company.

GM gm has embedded itself in foreign alliances so often that even a satellite navigation system can't plot a course through them.

Most disastrous was agreeing to buy 20% of Italy's Fiat Auto Holdings for $2.4 billion in 2000. The agreement gave Fiat Auto the right to require GM to buy the remaining 80% of Fiat Auto at fair market value by 2009, an option GM quickly realized it didn't want to see the financially struggling Fiat exercise.

GM got out of the deal in 2005 by paying Fiat $2 billion.

Gerald Meyers, a consultant who was once chairman of American Motors, says he thought Ford never should have purchased Jaguar. And he's equally puzzled by Tata's acquisition. "It's one of the most illogical buys I could imagine," Meyers says. "If they've got lots of patience and lots of money, and they're willing to hire some very good people, over time they probably could make a thing out of it. … But I don't expect it anytime soon."

But Meyers says he's not sure Tata knows what it's gotten itself into. He estimates it could take $10 billion to straighten out the product lineup and then a few billion more to expand distribution globally.

But buyers in the USA may be willing to embrace the new owners. Dennis Eynon, president of the 6,000-member Jaguar Clubs of North America, says American drivers just want a company that will do right by the brand: "I hope they have the dollars to support a luxury automobile."