For those of you who have followed this blog, you know that I have been very critical of Tata’s acquisition of Jaguar and Land Rover (see Buyer’s Remorse and Tata and Jaguar/Rover Update). As I suggested when the deal was announced:
I think that this deal is destined to fail.
…For Tata, while bold, the deal just doesn’t make much sense. Aside from several luxury brands, an increased global presence, and some notoriety, I’m not sure what Tata gains. For example:
- Where’s the synergy? Can Tata and Jaguar/LR share components, design, production, dealerships, or management? On its face, the synergies are just not there. But perhaps the investment was made for learning purposes, with Tata hoping to use Jaguar/LR capabilities to improve the quality and/or image of their existing automobiles. Possibly.
- Can Tata rationalize Jaguar/LR’s production to make them more profitable? Actually, they cannot. They made pledges not to cut staff or close plants. And it’s unlikely that they would be able to reduce costs substantially by sourcing parts and supplies from India.
- Can Tata right a ship that larger, more experienced, more formidable competitors had been unable to? In Jaguar and Land Rover, Tata is inheriting pieces of the old British Leyland Motors (Jaguar, Rover, Austin, Morris, etc.) that all tolled experienced (and continues to experience) more than 40 years of uncompetitiveness and underperformance. Quite simply, they are inheriting a lot of baggage (see Riding the Elephant for more background on British Leyland). It will be difficult for Tata to overcome this tremendous inertia.
Some analysts have argued that Jaguar and Land Rover were purchased on the cheap (at $2.3B minus $600M that Ford is throwing in to offset pension liabilities), and at the right time – when both Jaguar and Land Rover have a stable of new models about to hit the market (e.g., the Jaguar XF and the Land Rover LRX). These analysts point out that if these new models hit it big, it will make Tata’s acquisition look like a steal. However, this assumes that Tata can revive flagging sales at Jaguar and Land Rover in the middle of a downturn. Likewise, it assumes that Tata, by simply owning the brands, will not dilute their image. Finally, it assumes that the Jaguar and/or Land Rover brands can be revived after years of neglect and consumer dissatisfaction, and that consumers will once again be interested in buying relatively expensive, gas-guzzling cars and SUV’s (especially in the case of LR).
I remain skeptical.
When it became clear later in the year that demand had collapsed in the auto industry I wrote:
And it looks like things will be even tougher [for JLR and Tata] with global demand…slowing quite a bit.
I was therefore not surprised to see an article in this week’s Economist detailing some of the difficulty that Tata has been experiencing with its Jaguar/Rover subsidiary (see Indian Firms’ Foreign Purchases). Although the purpose of the piece was to review (broadly) the history of Indian overseas investment, it provided some perspective into Tata and JLR.
…several of corporate India’s acquisitions now seem ill-advised. The purchase of Jaguar Land Rover (JLR) in 2008, for example, saddled Tata Motors with a prestigious brand, prodigious losses and a $3 billion loan, the last $1 billion of which it managed to refinance on May 27th, days before it fell due. It has had to call on the help of the Tata Group’s holding company, which underwrote its faltering rights issue last year, and the indulgence of India’s biggest state bank, which guaranteed an $840m bond it floated in May. In a recent interview, Ratan Tata, the group’s chairman, admitted that the company bought JLR at an “inopportune time”.
The authors then pose the following questions:
So were these acquisitions fundamentally sound decisions cursed by poor timing?
MY COMMENT: Naw, that doesn’t sound right.
Or were they bad decisions flattered by easy money?
MY COMMENT: Ding, Ding, Ding, Ding – we have a winner.