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Just How Much DID Ford Lose on Jaguar and Land Rover?


And you thought the sale of Bear Stearns was a bargain?

Some Friday-morning quarterbacking shows that Indian automaker Tata Motors clearly landed one of the automotive deals of the century in its acquisition of British marques Jaguar and Land Rover, earlier this week.

Right off the bat, the numbers appeared quite lopsided in Tata’s favor. Yes, the Indian maker agreed to pay $2.3 billion to Ford for the two brands, but as soon as the deal formally closes, the American maker pumps a hefty $600 million back into the Jaguar and Land Rover pension program.

Now, recall that Ford originally paid $2.5 billion for Jaguar, in 1989, and $3.3 billion for Land Rover, in 1999. Work out even a modest rate of return if the U.S. company had simply banked that cash in a money market account and you don’t need to be a math wiz to figure out who came out on the bottom of the deal.

But when you dig even deeper, the numbers look even worse – a lot worse. By our calculations, Jag and LR added up to one of the costliest chapters in Ford Motor Co.’s long history, having very likely drained away between $35 billion and $50 billion based on the best estimates gleaned from the carmaker's financial records.

Ford hasn't always broken out Jaguar's losses. However, the red ink needs be added to the ongoing capital investment in the English luxury marquee. Using even conservative industry estimates, Ford has been pumping an average $1 billion to $1.5 billion annually into Jaguar, over the last 18 years. The return? Nil.

At least Land Rover did appear to produce some nominal profits at times. But it clearly never earned back the cost of the capital investment Ford poured into the half dozen new models it has introduced since Jacque Nasser agreed to take the struggling venture off BMW’s hands. Ford's net subsidy of Land Rover also likely totaled more than $1 billion annually.

Ford did purchase some extra prestige with the two acquisitions, particularly in Great Britain and among some segments of the motoring press. But prestige and goodwill don't pay cash dividends and Ford certainly could have used the money in other ways.

Former GM chairman Roger Smith briefly entered the bidding for Jaguar back in 1989 but dropped out after helping drive up the sale price. Most observers believe Smith never had any intention of buying Jaguar; Smith said privately he believed it would become a huge burden for Ford - one that would hobble what was then GM's chief competitor for years to come. It certainly looks as if Smith, who died last December, was correct.

Thus it was no surprise that Ford's current chief executive Alan Mulally, a complete outsider, started looking for a way to dump the "English Patient" almost from the first day he arrived at Ford's Dearborn headquarters in the fall of 2006. The bill for the life support system was way too high.

So, what has Tata bought itself? That remains to be seen, though the Indian company’s management is pretty shrewd and if they can run Jaguar and Land Rover at roughly break even, they will probably consider themselves lucky. —Joseph Szczesny with TCC Team

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Comments (7)
  1. You fail to mention that Ford poured in another $10 billion to improve jaguar after it bought it, and an unknown (to me) amount in land Rover.

    It was clearly a Horror story for Ford, and it is unclear what. if anything, the sale will do for "Tata".. except provide it with a few slow-selling halo cars to improve its low-rent Yugo-Hyundai-Kia image.

    Far better brands such as Packard were left to die in the 50s (although it is still very much alive among collectors today). jaguar should have been told to sink or swim as well...
     
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  2. "But when you dig even deeper, the numbers look even worse – a lot worse. By our calculations, Jag and LR added up to one of the costliest chapters in Ford Motor Co.’s long history, having very likely drained away between $35 billion and $50 billion based on the best estimates gleaned from the carmaker’s financial records."

    Oops...Sorry, Paul, I failed to notice this, which makes my prior estimate far, far less tragic than the $35 to $50 BILLION you cite.

    What a tragedy, and what a damned foolish way for Ford to waste all the $ the excellent First gen TAurus gave it in the 80s..What a bunch of arrogant fools...
     
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  3. Clearly they lost their focus. (no pun intended). Hopefully they'll get rid of Mark Fields, and use this cash injection to develop some good platforms. If not, Ford could go the way of Packard......
     
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  4. The story of how Ford blew it in the 80's and early 90's would make a good read. Ford's chief competitor, GM, was producing absolutely dismal cars (hello, Lumina) and was completely dysfunctional. Ford failed to seize the opportunity to cement itself as the only domestic maker to consider if you want a solid family car. If they would have focused on producing quality cars instead of attempting business wizardry who knows what would have been.
     
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  5. What Ford did with Jag and Land Rover is the same exact thing that Tata is doing. They are looking for a halo brand and an outlet for other vehicles......Looking back on it today, yes, it was a mistake to buy Jag and LR, but at the times, they were considered fairly wise moves. I believe that they should have looked to off load the 2 Brits years ago, but who am I......

    Better late than never they always say!

    But I still think that they should have kept Aston Martin......talk about halo and sex appeal!!! Oh well.
     
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  6. The real tradegy of the Jaguar and Land Rover purchase and subsequent loss of Billions of Dollars by Ford, is that that investment capital was not available to improve Ford, Lincoln, and Mercury models.
    ANY due dilligence before purchasing Jaguar should have shown that much more capital investment was required in the brand than Jaguar Sales could ever hope to pay back. The manufacturing facilities were obsolete trash-this could have been determined by a mere visit by a Ford executive.
    As is said openly now at Ford, The 2 and a half billion paid for Jaguar was 500 million for steak and 2 Billion for sizzle.
     
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  7. I hope the sale helps to funnel more money into improving existing product. People wonder why the Ford Explorer isn't selling anywhere near as well as it used to. I ask, who would want to buy a mid-size SUV where every time you get in and shift from Park to Drive you must grab a round silver 'knob' that has a similar look and feel to a beer can. Come on Ford, you can make your vehicles far more visually and tactfully interesting, and desirable than what you've currently got! If selling the British brands helps to replace that beer can shifter with something much nicer, then I'm very happy Tata was there to buy 'em! Long live Ford!
     
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