Altruistic Limited Table Of Contents

Category: Accounting

Jaguar Cars Limited which is based in the UK is one of the worlds premier manufacturers of sports saloons and sports cars.It was originally founded in 1922 by Sir William Lyon as Swallow Sidecar Company but following a merger with British Motor Corporation in 1968, it was subsequently acquired by Ford in 1989.Land Rover is currently a luxury type 4-wheeled drive, all terrain vehicle manufacturer based out of Gayden, Warwickshire England.Land Rover was acquired by Ford from BMW in 2000.After its acquisition of both Jaguar and Land Rover, Ford setup Jaguar Land Rover to manage the operations of both Jaguar and Land Rover as a single entity.Both Jaguar and Land Rover are wholly owned subsidiaries of Tata Motors Ltd. and are operated as part of the Jaguar Land Rover business.

Ford bought Jaguar for $2.5 bn in 1989 and Land Rover for $2.7bn in 2000 but received only $1.7bn from the sale of the two brands.The main reason for seling off Jaguar was that Ford incurred losses of around $700mn in the recent years prior to selling it off and according to some estimates cumulative losses of $10bn during the 19 years that it owned Jaguar.One of the main reasons for this was the increasing competition it faced from luxury carmakers like BMW and Mercedes Benz which had wider product portfolios as compared to Jaguar.Due to this, while BMW and Mercedes Benz sold around 1.6mn and 1.3mn units a year respectively, Jaguar's sales dropped from a peak of 130,334 in 2002 to 60485 in 2007.This prevented it from achieving economies of scale and put it at a severe cost disadvantage as compared its competitors. The high manufacturing costs in the United Kingdom was also contributing to its losses.Jaguar had been the main source of losses among the company's PAG brands.In2004, Ford restructured Jaguar in 2004 which consisted of closing down a U.K. plant, firing 1,150 employees, scrapping a target to build 200,000 vehicles a year and exiting Formula One auto racing.It also invested $2.1bn in Jaguar in 2005 which was almost as much as it paid for it in 1989.

Land Rover was much better off compared to Jaguar and is renowned as one of the best four-wheel drive vehicles in the world.Its new products like Range Rover sport had also achieved considerable success. But the new and successful Range Rover Sport TVD8 emitted around 294g/km of CO2 even while Europe was moving towards tighter emission norms which would have required vehicles to cut down their emissions to 130g/km of CO2 by 2012.According to some experts companies might have to spend as much as $3000 per vehicle to meet these emission targets. Apart from all this, Land Rover also needed substantial investment in its R&D efforts in spite of pumping in $400mn the year previous to the deal.Ford suffered losses worth $12.6bn in 2006 and $2.7bn in 2007 and did not have the cash reserves required to revive the two brands.In order to revive the Jaguar brand Ford needed to broaden its product portfolio which would have required it to pump in big money in new product development. This as well as the requirement for cash by Land Rover caused Ford to sell off its two premier brands.

Ford's North American automotive operations were the main sources of the record 2006 losses registered by the company.This was due to the declining sales and profitability of its pickup trucks and sports utility vehicles which were the main source of revenues for the company.Also the company's own Lincoln unit which was No.1 in luxury sales in the US in 1998 dropped to No.7 in sales in 2006 since it purchased Volvo and Land Rover.Therefore in order to focus more on its core operations and concentrate its management resources on its core activities, Ford decided to do away with its Jaguar and Land Rover brands.Ford might also have sold the two brands since they are not at the core of the company's overall automotive business and the cash that they received from the deal could have been used to restructure its North American operations.

Some details about the acquisition

Ford agreed to supply Jaguar and Land Rover with poertrains, stampings and other vehicle components along with a variety of other technologies.

Ford also agreed to provide, as part of the deal, engineering support, research and development information technology, accounting and other services

Ford Motor Credit Company will also provide financing for Jaguar and Land Rover dealers and customers during a transitional period which may be up to 12 months

Tata also agreed not to make any changes to the terms of employment of the existing employees thereby guaranteeing them their jobs and pension schemes.

Motives behind the acquisition

Ford had acquired Jaguar and Land Rover for $2.5bn and $2.7bn respectively in addition to pumping in an additional $10bn into Jaguar during its 19 year history while Tata was securing the deal for only $2.3bn.Therefore the deal was particularly lucrative from Tata's point of view.Given the fact that Tata Motors is mainly a mass player, its acquisition of JLR will signal its entry into the league of luxury car makers and also give its access to the luxury European and US car markets and customers.This will also enable it to spread to new markets and geographies where the Tata brand was till now unknown.Also the transfer of engineering and R&D support and technology can give Tata a strong edge over its domestic competitors as it uses the technology to improve the performance of its domestic line of cars.Also Tata has great cost reduction skills as they have demonstrated with the manufacture of Indica and Nano.If they can apply their cost reduction techniques to Jaguar and Land Rover even though it is in the luxury segment, which Ford could nit achieve,they can achieve significant cost savings.

But one of the primary reasons for selling Jaguar and Land Rover by Ford was that Ford did not have the cash reserves necessary to make the investments in order to take the Jaguar brand out of its troubled times as well as making the R&D investments in Land Rover.Therefore the responsibility now lies on Tata Motors to pump in huge investments in the two brands.In order to revitalize Jaguar sales, Tata Motors will need to expand its current product portfolio and also enter new geographies like Asia and the US where its sales are comparatively less a s compared to Europe.It also needs to comply with the new tighter emission norms and make its Land Rover model more environmental friendly.Tata being a well diversified global conglomerate does not have any shortage of cash necessary to bring about the required turnaround.

http://en.wikipedia.org/wiki/Jaguar_Cars http://www.chiefofficers.net/888333888/cms/index.php/news/industries/automotive/automotive_ford_says_tata_to_jaguar_and_range_rover http://www.bloomberg.com/apps/news?pid=newsarchive&sid=a.aqHebDbcgY http://business.outlookindia.com/article.aspx?100818 http://www.rediff.com/money/2008/mar/26tata.htm