Ford Says “Tata” to Jaguar, Land Rover

March 26, 2008

Ford’s grand experiment has come to an end. With the sale of its Jaguar and Land Rover brands to the Indian automotive upstart, Tata Motors, the struggling U.S. automaker has effectively abandoned its grand goal of becoming one of the world’s leading luxury car manufacturers.

Ford’s release was terse, and notably, no senior officials were available, on the record to discuss the $2.3 billion deal, which is expected to run into little trouble winning regulatory approval,

"Jaguar and Land Rover are terrific brands," declared Alan Mulally, Ford’s president and CEO, in a prepared release. "We are confident that they are leaving our fold with the products, plan and team to continue to thrive under Tata’s stewardship.”

Thrive is not necessarily a word one heard often, however, inside the Ford empire, and particularly at Jaguar. Ford acquired the British marque in 1989, for a hefty $2.5 billion, outbidding American rival General Motors and winning the appreciation of the British government, which had effectively nationalized most of its collapsing auto industry in the decades before.

Ford officials quickly discovered they had a mess on their hands, a brand that had been starved of capital, as well as effective leadership, by its government-appointed overseers. Products were horribly outdated, assembly lines were frighteningly inefficient, and quality only underscored the conventional wisdom about British products.

Pumping money and management talent into the new subsidiary, Ford began to believe it could turn Jaguar into a truly global brand, and a competitor to the likes of Germany’s BMW and Mercedes-Benz. Ford ordered a rapid expansion of the Jaguar line-up, adding the midsize S-Type “saloon” and the compact X-Type. Former CEO Jacques Nasser, began boasting that Jaguar could push sales up to 200,000 units annually, and perhaps double that again. But at the same time, Jaguar became a political football within the Ford system. To keep its British unions happy, following the closing of the huge Ford Dagenham plant, Jaguar was ordered to take control of yet another underutilized U.K. factory. So, suddenly, the luxury maker was operating three inefficient plants, while producing less cars, in total, than just one of those would normally produce if run well.

But Nasser was on a mission, and in 2000, he acquired Land Rover for $2.7 billion. (That deal followed another high-profile purchase, the $6.45 billion takeover of Swedish manufacturer Volvo AB’s automotive operations.) Like Jaguar, Land Rover was a mess, and a particularly complicated one. In this case, the seller was BMW, which had bought both Rover’s cars and light truck business, a few years earlier. But despite its own grand strategy, Rover continued losing sales and racking up billions in losses. Ford took the SUV operations, Rover’s car group went to a British start-up company that quickly failed.

As with Jaguar, Ford pumped a hefty sum into Land Rover, hoping to shore up its position as the ultimate luxury sport-utility brand. Though Land Rover continues to face problems – notably lagging on the quality charts – it has done markedly better in the market, repeatedly setting new sales records, both in the key U.S., and global markets.

Nasser’s strategy was to combine Jaguar and Land Rover, as well as Volvo, and the tiny Aston Martin, into a new, semi-autonomous operation, dubbed the Premier Automotive Group. Initially, PAG even absorbed Ford’s American-based Lincoln and Mercury brands, though they were quickly spun back out, putting the focus on overseas – and mostly British – brands.

To mangle a popular song lyric, the future looked so bright, one needed sunglasses. According to Mark Fields, now Ford’s President of the Americas, but then head of the PAG, the luxury arm would provide a third or more of Ford’s global earnings, by 2006. It fell far short of the goal, and few insiders expected things to get much better. And so, when Allan Mulally, the former Boeing executive, was named Ford Motor Co. CEO, late in 2006, he began thinking twice about the PAG strategy.

Mulally quickly put Aston on the block, and early last year, a group of Kuwaiti investors snapped up the resurgent supercar brand for $925 million.

Desperate for money, even after mortgaging most of Ford’s assets, Mulally decided to pare back the PAG even further, and announced that Jaguar and Land Rover would also be auctioned off – in this case, as a pair, since they had largely integrated their operations, anyway. The announcement drew a slew of bidders, confident they could do a better job than Ford had. Among those eyeing the two British brands was none other than former Ford CEO Jacques Nasser, but by late 2007, Ford made it clear that it had all but settled on Tata as the buyer of choice.

In recent weeks, details of the negotiations had been kept unexpectedly close-to-vest, leading many inside the two British brands to worry about their future. But it’s significant to note that a sizable number of Jaguar and Land Rover executives, former Ford employees, were making it clear that whatever happened, they intended to stay with the British marques – or retire – rather than return to the U.S. company’s fold. “I have no interest at all in going back,” said a senior product executive, asking not to be identified by name. “I’m confident things will get a lot better once we’re out from under Ford,” added another, top-level Jaguar executive.

What happens next is anything but certain, however.

On the Ford side, the PAG has effectively ceased to exist, except as a pseudonym for Volvo. There had been talk, inside Ford, of selling the Swedish brand, as well, but particularly in today’s market, it’s considered highly unlikely there’d be a buyer willing to pay anywhere near the original $6.5 billion. And so, in some ways, the Jaguar/Land Rover deal is good news. It’s likely to mean more resources and, according to Volvo CEO Frederik Arp, his company will work even more closely and directly with Ford, going forward.

As for Jaguar and Land Rover, there’s an unavoidable irony to the idea that two jewels of the British automotive empire are now the property of an Indian manufacturer. But times have changed since the days of the Raj. While poverty and economic inequality are crippling problems, India’s middle class is growing exponentially, and like those in that other fast-emerging market, China, they are hungry for mobility.

Tata is anxious to feed that hunger. Already the subcontinent’s largest automotive manufacturer, it recently introduced the Nano, a stripped-down car for the masses, which will go for a modest $2500. Ratan Tata, the self-made billionaire owner of the Tata Group, has made it clear he’s not going to be happy just focusing on basic transportation. With Jaguar and Land Rover, he’s hoping to gain a level of instant credibility among the automotive world’s leading players. And, in a brief interview at the Geneva Motor Show, earlier this month, Tata hinted that the acquisition will help set in pay another key goal: getting the Tata brand into the tough but still-critical U.S. “It’s important,” he emphasized, “because it’s the world’s largest market.” With the potential size of India’s auto buying public, never mind China, one might question that statement, though it’s certainly true for now, and on the luxury side, the U.S. will almost certainly dominate for decades to come.

To make sense of its new acquisitions, Tata will need to pump plenty of resources into Jaguar and Land Rover. There’s no question the company has money, lots of it, though it is little more than a wannabe when it comes to engineering and design assets. The good news is that the British brands have developed plenty of skills that they’ll take with them. Meanwhile, Ford has agreed to continue providing powertrains and other support, once the sale is formalized. And in today’s globalized auto industry, still more know-how is available from suppliers, if you have the financial resources of a Tata.

That leaves Ford. Though its remaining Volvo brand plays into the lower end of the luxury market, Ford is no longer a serious player, at least on a worldwide level. Its high-line Lincoln brand is struggling to make a comeback in the U.S., but it is an unknown outside North America. New Ford marketing czar Jim Farley has suggested Lincoln might extend its reach – but only after it can rebound in the States, a process that could take years. So, with today’s announcement, Ford has effectively retrenched still further, abandoning the grand vision of becoming a global player covering every segment of the world market.

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