The Hindu Business Line : Uphill road

The Tatas, who made headlines last year with the multi-billion-dollar acquisition of Corus, the Anglo-Dutch steel company, have sealed another landmark deal, this time involving the Jaguar-Land Rover assets of Ford Motor Company. Despite its relatively small deal size compared to the Corus acquisition, the challenge here is in many ways more daunting. In a commodity such as steel, a change in ownership does not affect customer perceptions about quality or performance, give n its predominantly industrial consumer base. But for owners of luxury automobiles, it is not so much about moving from one place to another as about making a lifestyle statement. The Tatas will not only have to ensure that existing customers keep coming back to it but also persuade others to repose faith in its offerings.

The task is not impossible, however. The Japanese, for instance, did not have a great reputation for quality in automobiles back in the 1970s. Over time, a combination of price and reliability in performance has made them such an unbeatable force that people have begun to write the obituary of the native US automobile industry. Japanese car majors, of course, were aided by a concerted push towards quality and cost-efficiencies by players across many industry segments, from ship-building to consumer electronics. Unfortunately, India does not as yet have many champions pushing it as a centre of manufacturing and service excellence, its success in pharmaceuticals and software services notwithstanding. The acquisition also comes at a time when the US economy is showing signs of fatigue, even if is not quite into a recession, and Europe is in no great shape either. However, the Tatas’ business relationship with Italian automaker Fiat is a big plus. This will strengthen the group’s ability to introduce cars and utility vehicles that combine the best of technology and design capabilities of the Tata-Fiat duo to capture a reasonable chunk of the global auto market.

Tata’s ownership and overall stewardship of the JLR combine could benefit the former in other ways as well. Getting a foothold into the luxury car market, which would have taken the Tatas many difficult years, is the obvious one. The group can also profit from manufacturing know-how, acquired from JLR’s experience in making cars for over six decades. For instance, Land Rover’s knowledge of off-road vehicles could be beneficially combined with Tata’s own expertise in design and manufacture of general purpose vehicles to introduce entry-level, off-roaders that are reliable but also affordable. But how the deal can be leveraged for the greater benefit of Tata Motors shareholders would depend a great deal on the fine-print in the agreement. In the interest of transparency and higher standards of corporate governance, the Tatas should share with the investing public a lot more about the deal than they have chosen to disclose thus far.

Related Stories:
Tatas bag Ford marques
Jaguar, Land Rover: From utilitarian to premium
The brands should remain British: Tata

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

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