India Abroad

After steel, Tata wheels in another deal

Tata’s expected purchase of Jaguar and Land Rover from Ford could well be the deal of the century launching India into the very top tier of the global industrial league, comments    Andrew Small

  Will it be the deal of the century launching India into the very top tier of the global industrial league? Or will Tata’s expected purchase of Jaguar and Land Rover be a step too far?
   If the deal goes through it will be the first purchase by an Indian firm of a major world car manufacturer and might well be the swansong of 70-year-old Ratan Tata’s extraordinary career.
Are we about to witness the birth of an Indian challenger that could take its place alongside the great world car brands? If Tata gets his way the company could cover all the automotive bases all the way from the ‘people’s car’ — the $2500 or 100,000 rupee Nano — the Ford Model T of the twenty-first century — up to luxury Jaguars and Land Rovers. And from its strong position in the less developed world it should be placing itself for first-world success with its new acquisitions.
   The Nano has huge potential in the third and less developed world not least because it is aimed at those who have never owned a car. So those graduating from motor-cycles or humbler modes of transport will miss none of the add-ons such as a radio that most car owners now take for granted. The key for Tata is to what extent it will be allowed to export the car across Asia and Africa.
   There is no doubt that India should get recognition for what it is — a world-class car manufacturer which has overtaken Britain in gross numbers built — 1.7 million last year — and has doubled its output since 2002. Over the same period the Chinese industry, which will surely be the Indians’ main competitor, tripled its output but then the two industries are developing along entirely different lines.
   It must be understood that the Chinese industry is now a mirror image of the car industries of Britain and America in their early days, taking the ‘hard capitalist’ road of allowing thousands of firms to try their luck and watching to see who makes it. India, meanwhile, has followed its classical controlled model under the licence raj but that model itself is gradually changing.   
   Even for Tata, with its global reach, the acquisition of the iconic British brand must be a daunting prospect, especially since it has had its fair share of losing concerns. But this is planned to be much more than a vanity purchase; much more than the empire taking the opportunity to strike back. True, over the last few years the performance of Jaguar has been less than stellar even though Land Rover rejoiced in its first annual sales of 200,000 units last year. Jaguar sales have fallen from a peak of 120,000 to just 60,000 last year but Tata is coming in at the right moment to reap the benefits of Ford’s efforts to rectify that situation. The new Jaguar XF saloon car is getting rave reviews from the industry and has already been placed in the hands of high-profile potential customers such as the family of former British prime minister Tony Blair. There are a string of other new models to follow the XF, which should ensure that the fortunes of the marque (correct) are revived.
   A central element of Tata’s interest in its prospective new brands is the potential to jack up the company’s manufacturing capacity. That is important in taking on its other Indian rivals, such as Mahindra, with whom it will have the capacity to compete directly on the 4x4 front with the Landrover Defender, which some analysts think will in future be built in India. The British production lines of Jaguar and Land Rover have a theoretical maximum capacity of 350,000 vehicles a year. That, allied with the greater value of the vehicles they produce, will give Tata great leverage. Nano, meanwhile, will be produced through a joint venture with Fiat, itself enjoying a revival of fortunes, that is expected to turn out 250,000 cars a year.
   It is Tata’s gain and Ford’s loss that this ‘fire sale’ has been forced on the American manufacturer. From the mid-1990s it has recorded a series of almost unrelieved losses, starting with what was briefly a record loss of $7.4 billion in 1993. That sort of deficit has become almost routine as the Ford group struggled first with falling sales in Europe and thereafter an increasingly fragile position in America as it relied too heavily on its gas-guzzling truck and four-wheel-drive ranges such as the Explorer, which have become less attractive to buyers as the price of oil has risen. The purchase of Jaguar, Land Rover and Volvo only added to Ford’s problems. Volvo will not be sold.
   Even now Ford will make heavy losses on the sale of the two cars. It bought Jaguar in 1989 for $1.6 billion and Land Rover for $1.7 billion the following year. Ford will not realise anything like those figures from Tata. Indeed, the two sides are reported to be deeply involved in exactly what constitutes the British parts of these companies. It is expected that the sale price will be something in excess of £1 billion. Tata will remain dependent on Ford for many key components of Jaguar, especially the engine and transmission, unless it elects to source them from elsewhere, something unlikely at least for some years. But it will gain access to extremely capable research and development resources.
   World-wide reaction to news of the deal has been little short of extra-ordinary. In Britain it got a swift welcome from the trade unions and a government well used to the high levels of Indian investment in Britain and the ever-closer relationship on the science and technology fronts. But in North America the reaction has been little short of racist, with several commentators saying that Jaguar would be committing commercial suicide were it to fall into Indian hands.
  ‘People didn’t stop buying steel from Corus (the British steel maker) just because it was Indian-owned’, said Garel Rhys of Cardiff Business School, a recognised authority on the world motor industry. ‘People quite happily buy BMWs and Mercedes made in South Africa, what difference does it make?’
   There is no doubting Tata’s ability to move in on this particular sector: the firm illustrated its international competence when it bought Corus, formerly British Steel, last year for £6.7 billion. That acquisition gave the firm a serious European platform. It has moved seamlessly into what had previously been a troubled area of British labour relations and maintained British jobs in the bargain. Corus is several times the size of Tata’s own steel firm. Together with Tetley Tea and a range of other activities the firm now generates $48 billion of revenues annually in the UK and employs 30,000 people there.
   But the British end of Tata is only a fraction of the whole. After 16 years of transforming one of the most diverse companies on the planet Tata now has some 98 concerns under its wing, from Morocco to South Korea. They include the Moroccan chemical company Imacid, Daewoo Commercial Vehicles and Tyco Global Network which controls more than 30,000 miles of submarine telecommunications cable.
   The group’s 27 listed companies have a market capitalisation of more than $70 billion. The group reported after-tax profits of $2.8 billion for the last financial year, a 33 per cent improve-ment on the previous year, assisted by the Corus purchase. More than half the company’s revenues now come from outside India.


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