Ford Selling Jaguar, Land Rover to India’s Tata

While the financing still needs to be arranged, Ford has agreed to sell its Jaguar and Land Rover units to India’ Tata Motors for US$2.3 billion, netting it $1.7 billion. That’s about a third of what Ford paid for them, but sometimes, stopping the bleeding is costly. The questions for Tata are whether it can do better and whether it has bought at too high a price.

The biggest problem for Ford has been the decline in demand for luxury gas guzzling cars. Jaguar’s sales in the first two months of this year fell by 30% in both the US and Europe. Land Rover did a bit better (or more accurately, less badly) with sales falling 13% in the US and 8% in Europe. Its own Ford line has been faltering, and the company has lost money hand over fist. The money from the sale offers a chance to fix what is has left, although few would expect it to manage this feat anytime soon.

For Tata, the same problem exists. Changing ownership doesn’t change the problem of lower demand. Moreover, there is an image problem in the sense that one doesn’t think of India as the land of luxury car makers. The Indian stock market didn’t think much of the deal. The stock dropped around 5% after the sale was announced.

That said, Tata has a history of turning things around at companies it buys. When it bought European steelmaker Corus, the target company was hardly doing well. Earlier this month, though, it won an 80,000 ton order from the Royal Navy to two new aircraft carriers – a vote of confidence if ever there was one.

The only remaining question, and it cannot be answered, is whether Tata paid too much. Given Ford’s legion of problems and given the nervousness on Wall Street, there is a case for saying a three- to six-month wait would have put such pressure on Ford that a bid of far less than $2.3 billion would have been accepted with gratitude.

© Copyright 2008 by The Kensington Review, Jeff Myhre, PhD, Editor. No part of this publication may be reproduced without written consent. Produced using Fedora Linux.

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