Tata Motors to buy Jaguar, Land Rover for $2.3B

In one of the most significant shifts of clout in the auto industry, Ford Motor f is handing the keys to its high-class British Jaguar and Land Rover brands to an Indian company perhaps best known for its heavy trucks.

Ford and Tata Motors on Wednesday announced the anticipated deal for Tata (pronounced TAH-tah) to pay $2.3 billion for the two brands that cost Ford $5.3 billion. Tata says the deal obligates Ford to pay about $600 million into the Jaguar-Land Rover pension fund on closing, so Ford will net only about $1.7 billion.

Tata says it will continue to build the vehicles in the U.K. It said Wednesday that it doesn't expect any significant changes for the workforce of about 16,000 and the transfer will come at the end of the second quarter.

While Tata was named the lead bidder for the brands in January, it remains stunning to think of Ford selling its premium British brands to an Indian company whose car experience has been mostly inexpensive, small cars. The industry, particularly in North America and Europe, has until now been focused on China as the next big world player.

"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 said in its statement that Ford will continue to supply engines, transmissions and other components, as well as environmental and engineering support.

Mike O'Driscoll, managing director of Jaguar Cars under Ford, says he met with top executives, including Ratan Tata, chairman of the parent Tata Group, as the deal was being hammered out 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."

For struggling Ford, the move sheds two European luxury brands that had become a drag on cash. Particularly draining was Jaguar, into 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.

Tata Motors in spotlight

Wedneday's announcement catapults Tata Motors into a high-profile position in the global auto industry. The brand also made a splash in January with its announcement that it would build a $2,500 car that could replace the motor scooters commonly used in developing countries to cart around whole families.

Tata Motors is a public company controlled by Mumbai-based Tata Group, a huge, private conglomerate with 98 operating companies in industries such as power generation, chemicals, telecommunications and engineering.

Tata Motors 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."

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