The Hindu Business Line : ‘Reviving sales of the 2 brands will be a challenge’

New Delhi, March 26 Tata Motor’s acquisition of the marques Land Rover and Jaguar owned by Ford Motor Company has aroused both pride and apprehension among industry watchers.

While they feel that it is a feather in the country’s cap that a domestic auto major will now own the two brands and that the deal would undoubtedly allow Tata Motors to leap frog into the premium segment, they are worried about the challenges that the ownership of the brands pose.

Auto analysts are equally concerned about the high valuation of the deal, the baggage of pension liabilities and even the US recession which is likely to impact the efforts at turning around the two brands.

“It is a great deal. It takes a lot of money. But the pension liabilities remain under funded. In the future Tata Motors will have to consistently fund the pension and the medical benefit of the employees,” said Mr Mahantesh Sabarad, Senior Research Analyst, Centrum Broking India Pvt Ltd.

Another uphill task for Tata Motors would be to revive sales of the two iconic brands which currently registering sagging sales in their most important markets – the US and the Europe.

“Ford spent two decades on the two brands. In light of global recession, it is a tough challenge for Tata Motors to make any upswing in sales,” added Mr Sabarad. In UK, the sales of the two brands have dipped by around 12-13 per cent and in the US, the world’s largest auto market, sales shrunk about 25 per cent.

The fact that the deal would provide Tata Motors access to the next level of technology is seen as a positive sign. However, Ford supplying powertrains, stamping and other vehicle components to the domestic company would add to Tata Motors’ costs.

“Tata Motors would get access to the next level of technology, superior products and global brands. Something that would have taken years for them to build,” said Mr Ajay Arora, Partner, Ernst & Young.

“The money Tata Motors’ would have to invest as a working capital on a continuous basis and to grow the business to stay ahead in technology and product development like other premium car makers BMW, Mercedes and Audi will be huge,” said a sceptical Mumbai based auto analyst.

However, one thing that all industry watchers admitted was that Tata Motors would now be singled out as the company that has in its portfolio the world’s cheapest car and a premium brand.

More Stories on : Cars | Mergers & Acquisitions | Overseas Investments | Tata Motors Ltd

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