Ford is selling its storied Jaguar and Land Rover businesses to India's Tata Motors in a deal that will net the U.S. automaker $1.7 billion — roughly a...
DETROIT — Ford is selling its storied Jaguar and Land Rover businesses to India’s Tata Motors in a deal that will net the U.S. automaker $1.7 billion — roughly a third of the price it paid for the two luxury brands.
The deal announced Wednesday will expand the Indian carmaker’s reach around the globe and give Jaguar and Land Rover sorely needed capital to update and expand their product lines.
The sale had been in the works for months as cash-strapped Ford sought money to fund its turnaround plan.
Tata will pay $2.3 billion for the British brands, but Ford will pay about $600 million into the Jaguar-Land Rover pension fund when the deal closes, Tata’s statement said.
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Ford bought Jaguar for $2.5 billion in 1989 and Land Rover for $2.7 billion in 2000. But the Dearborn, Mich., automaker wants to focus on its main brands.
Selling the companies at such a loss shows buying them was a mistake for Ford, said Erich Merkle, vice president of auto-industry forecasting for the consulting company IRN.
Jaguar never has made a profit under Ford, Merkle said.
“How can you call it anything else?” he asked. “You have to cut your losses at some point. It’s been draining them of cash and resources.”
The net proceeds aren’t enough to rescue Ford’s finances, but the sale will allow the company to focus on its core Ford brands, Merkle said.
Tata should have the cash to rescue the brands and develop new products to better compete with luxury automakers such as BMW, Merkle said.
Tata said it expects no significant changes in the terms of employment for Jaguar and Land Rover’s 16,000 workers. It said the transfer of the brands would take place at the end of the second quarter.
The sale raises the Tata conglomerate’s profile on the world stage, said V.G. Ramakrishnan, the lead auto analyst with the consulting firm Frost and Sullivan India.
“It gives them a much better branding image in the global market,” Ramakrishnan said. “This is another important landmark step of showcasing that Indian companies are arriving on the global landscape.”
Tata Motors built the first fully Indian-designed car. It recently announced plans to build a $2,500 car later this year. Jaguars in the U.S. have sticker prices starting around $50,000 and can cost nearly twice that amount.
Ford CEO Alan Mulally said that the British brands are leaving Ford in good shape.
“Now, it is time for Ford to concentrate on integrating the Ford brand globally, as we implement our plan to create a strong Ford Motor Company that delivers profitable growth for all.”
Mulally, a former top Boeing executive, has said Ford would invest the proceeds from the sale in quality and product development.
Tata said Ford will continue to supply engines, transmissions and other components “for differing periods.” Ford also will continue to provide environmental and other technologies as well as engineering support.
Tata Chairman Ratan Tata said his company will try to build on the brands’ heritage, keeping their identities intact. “We aim to support their growth, while holding true to our principles of allowing the management and employees to bring their experience and expertise to bear on the growth of the business,” he said in a statement.
C. Ramakrishnan, Tata’s chief financial officer, acknowledged Jaguar’s financial difficulties but said the brand is turning around and he expects it to be profitable within two years.
“Land Rover is a highly profitable company … and Jaguar is well on its way,” he said in a conference call with reporters Wednesday.
Ramakrishnan said the brands’ existing management will continue.
Cash-hungry Ford, which lost $12.6 billion in 2006 and $2.7 billion last year, has been looking to sell Jaguar and Land Rover for months.
It has mortgaged assets to continue operations and expects to burn up $12 billion to $14 billion until 2009, when it plans to return to sustained profitability.
Jaguar and Land Rover are strained by unfavorable exchange rates and high production costs in Britain.
Ford had hoped to turn Jaguar into a high-volume brand that could compete with BMW and Mercedes-Benz.
But its X-Type sedan, introduced in 2001 to lure younger buyers, sold poorly and was slammed for its conservative styling. Jaguar’s U.S. sales were down 24 percent last year.
Tata Motors is part of Tata Group, India’s oldest and largest conglomerate. The family business is owned mostly by Tata-funded charitable trusts. A substantial portion of the group’s income is channeled into various philanthropies that have helped build some of the country’s finest institutions, including India’s first cancer hospital.
Tata companies offer worker benefits that are rare in India, including pension and child-care allowances.
Associated Press reporters Sam Dolnick in New Delhi and Dee-Ann Durbin in Detroit contributed to this story.