Is Tata Motors buying into trouble or a transformational deal?

26 March 2008

By buying Jaguar and Land Rover for $2.3 billion, is Tata Motors taking on more than it can manage? Will the $3 billion debt be a big burden in future? By Vivek Sharma

'Tata buys into 40 years of trouble' is how a blog on the website of Fortune magazine described Tata Motors' acquisition of Jaguar and Land Rover (JLR). Ever since Ford put JLR on the block and Tata Motors emerged as the preferred bidder last year, commentators and analysts have categorised the deal as audacious, ill-advised, risky, and overambitious. Very few have been willing to give much of a chance to Tata Motors in reviving the iconic auto brands, something which Ford failed but not for lack of trying.

Then came the furious reactions from many domestic commentators on the perceived insults by westerners who feared the devaluation of these brands under Indian ownership.(See:Takeovers and racial prejudice)

Speculation about re-branding, from Tata Jaguar to Tata Land Rover to just Tata Rover, was rife. Someone in London even demanded the British government take control of the Jaguar brand, as it symbolised the best of British traditions!

The rough road ahead
Challenges, real and perceived, surrounding the just announced $2.3-billion deal are many. The Fortune blogger was not completely off the mark when he talked about '40 years of trouble'.

Jaguar, for all its aristocratic and elegant, but understated brand appeal,   has indeed been the most troubled of luxury car makers for many decades now. Land Rover has been far healthier by virtue of its products that were segment leaders and benchmarks in the SUV market. But, the worldwide shift from fuel-guzzling SUV's to more efficient cars has clouded the brand's outlook.

Luxury cars may be highly profitable, but the segment is very competitive with several well-entrenched players and prestigious brands. Most luxury car brands are backed by very large auto companies. The Porsche-Volkswagen combine controlling brands like Porsche and Audi, Daimler with its Mercedes range, BMW, Toyota with its Lexus and Fiat with its wide range that includes Ferrari and Alfa Romeo. Tata Motors will really be the pygmy in this group with the least financial and technology resources and experience in managing luxury brands.