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

DETROIT -- 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."

Blair Sharpe, owner of a Jaguar dealership in Grand Rapids, Mich., says, "I didn't know anything about Tata, but I do now, and I'm very excited about it. 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 and that 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."

Refocusing Ford

The sale to Tata is central to Ford CEO Alan Mulally's strategy to turn the company around by refocusing the automaker on its core brands: Ford, Mercury and Lincoln.

Ford also needs cash. The automaker lost $2.7 billion in 2007 and posted a $12.7 billion loss for 2006. Mulally is aiming to reach profitability in 2009, which could be tough in a time of declining sales and tight credit.

Once the Tata deal closes, only Volvo will remain from Ford's decade-long European buying spree. Mulally has says he intends to hang on to Volvo, at least for now.

Ford said in March 2007 that it would sell about 92% of its 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 Aston Martin collector and backer of Aston racing; and two investment companies based in Kuwait. Ford had bought 75% of Aston Martin in 1987 and the rest in 1994.

Ford spent a fortune acquiring Jaguar and, a decade later, Land Rover. It paid $2.5 billion for Jaguar in 1990 after a bidding war of sorts with General Motors. Industry experts at the time estimated that was about $1.2 billion more than Jaguar was worth. Ford has since said the deal was worse than that.

Land Rover cost $2.8 billion in March 2000, when Ford bought the brand from BMW, and was the better deal. Since 1999, its 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.

Meanwhile, Jaguar's U.S. sales fell from 35,000 to a forecast 17,000 by the end of the year, she says.

Despite current sales, Lindland says, both brands have strong images. "It's the brands that make it worth the money. They're iconic brands with really storied histories." Still, she says, "It's a little bit like Wal-Mart buying Prada."

Lindland 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."

Ford might be lucky to have found any buyer.

"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 came during a Detroit spending spree after profitable years in the mid-'80s.

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

Ford was successful at improving Jaguar. A running joke at Jaguar's expense had been 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, who oversaw the Land Rover deal, was enthusiastic about the fit of the two premium brands, saying, "Internally, we've always called (Land Rover) the Jaguar of off-road vehicles. 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 it has yet to recover.

Other foreign alliances

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

Chrysler 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 has embedded itself in foreign alliances so long and so often that one of its GPS navigation systems might be required to 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 (GM) quickly realized it didn't want financially struggling Fiat to exercise. GM bought its way out of the option 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 bought Jaguar. But he's equally puzzled by Tata's move.

"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."

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

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 Jaguar brand: "I hope they have the dollars to support a luxury automobile."

Contributing: James R. Healey in McLean, Va., Chris Woodyard in Los Angeles, The Associated Press.