The Hindu Business Line : Tatas move closer to driving Ford’s Jaguar, Land Rover

Mumbai, Jan. 3 US carmaker Ford on Thursday said that it will have more ‘focused’ and ‘detailed’ discussions with Tata Motors for the sale of its two European luxury brands, Jaguar and Land Rover.

With this, the Tatas appeared to have moved a significant step closer in its negotiations with Ford to acquire the two iconic brands.

The Tata Group also said in a release to the press on Thursday that it had “positive discussions so far with Ford concerning the possible purchase of Jaguar and Land Rover.”

The company said that it was “very positive” about the prospects of this business going forward.

“We hope both parties can reach an agreement in the forthcoming weeks, through these are complex discussions and there is still much work that needs to be done before that position is reached. We are pleased by the progress in the discussions to date,” Tata Motors said.

Ford also echoed similar sentiment on the negotiations between both the companies so far.

“Ford is now committed to a more focused negotiations at a more detailed level with Tata Motors concerning the potential sale of the Jaguar and Land Rover business,” Mr. John Gardiner, Ford’s spokesman in London, told Business Line.

He said there were some complex issues to be ironed out and Ford would be proceeding with the negotiations, before tabling a final decision over the coming few weeks. “We had earlier said that we will be coming out with a final decision in early 2008. We still stand by this schedule,” he said.

Price tag

Although Mr Gardiner was not willing to disclose the acquisition price, reports indicate that the Tatas are willing to pay close to $ 2.05 billion for the two brands. The others in the race were domestic rival Mahindra & Mahindra and the American buyout group OneEquity.

Asked whether the vehicle aggregates going into the two luxury brands were the proprietary designs of Ford and whether transfer of such technology would be covered in the agreement, Mr Gardiner was not willing to share any details, stating that such issues would be negotiated in the forthcoming weeks.

On the pension deficit, he said when it was last announced in 2006, it was about £200 million. But with sales of the two brands having significantly improved since then, the pension deficit should be substantially reduced, he said, adding that it was “no major issue.”

Outsourcing of parts

Sources following the development say that the Tatas could be interested more in outsourcing of components for the two brands into India. On the other hand, it would be in the interest of Ford as well as the labour, if the former continues to supply critical parts to both these brands. This is also what the labour leaders would prefer as they have to contend with the threat of lay-offs and retrenchment if those jobs move to India.

But for Tatas to continue sourcing components from Ford would mean that they go against the established industry practice where no car company sources components from another car manufacturer, said one industry source. Moreover, the deal would look more attractive if cost synergies could be achieved by moving production to India at the cost of capacity utilisation at Ford’s plants in the UK. Some hard bargaining would be needed on this point if Tatas are to win the bid.

Tata Motors’ acquisition of Jaguar and Land Rover will give it a wide spectrum of product portfolio within the automotive space.

While at one end it will have the Rs 1-lakh car, which may become the world’s cheapest car in this category when it rolls out of the factory in 2008; at the other end it will have the two iconic brands from the Ford stable.

Tata Motors revenues touched $ 7.2 billion in 2006-07, with an estimated four million Tata vehicles plying across India. Tata Motors and Fiat Auto have formed an industrial joint venture in India to manufacture passenger cars, engines and transmissions for the Indian and overseas markets.