The Hindu Business Line : Challenges await the bidder

Mumbai, Dec. 19 The Tata Group may have emerged as the preferred bidder for Ford’s luxury brands Jaguar and the Land Rover. But the deal comes bundled with challenges for the Mumbai-based conglomerate, if it does indeed manage to clinch it, say industry-watchers.

Tata’s prospects had brightened, with overseas unconfirmed reports suggesting that the other Indian bidder, Mahindra & Mahindra, was out of the race. Ford’s reported disenchantment towards a non-auto company, further tipped the scale in favour of the Tata’s, over the third bidder OneEquity. But whoever wins the bid, the deal is not going to be very positive in the short term, says auto-analyst MsVaishali Jajoo of Angel Broking Ltd.

What’s in store?

“Tata plans a capital expenditure of Rs 12,000 crore in the next three-four years and their cash flows would come under pressure as far as the huge outflow of money is concerned,” she points out. “Tata has no experience in selling luxury brands and that is another challenge. How well the potential customers in the US and Europe receive the change of ownership to Indian hands is already a talking point,” she said.

One of the brands is loss making and the new owners ability to turnaround its performance will be tested. Also, the winner will have to make a huge investment in research as emission norms in US and Europe are getting more stringent, she added.

To convert the brand into profit making car models, the new owner has to bring down the cost of production. But overseas media reports say that the winning bidder cannot shift production outside the UK to low-cost manufacturing centres for a few years. So reducing production cost is a challenge, she said.

“If Tata can retain Jaguar and Land Rover’s brand position at least for the next few years and turn them to a positive operating venture, which will be a big achievement. The long term future of these brands depends on Tata’s production and marketing strategy for them,” she said.

Big league

Notwithstanding the initial difficulties and short-term brand issues in the US, the high-profile acquisition of the luxury brands, if it is sealed by the new-year, would catapult the Tatas into the big league of the international auto market, said an auto-analyst with a Mumbai-based brokerage firm. It would pave the way for Tatas to introduce more products in the US market, he added.

Though the financial details of the bid and how the final agreement will shape-up are not known, India could figure in the new owner’s expansion plans for both the luxury brands, he said.

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Tata Motors seen as front runner for Ford’s Rover, Jaguar

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