Can Tata heal the Jaguar?s wounds?

It seems Tata Motors has set out to achieve goals that are diametrically opposed to each other. A million-dollar question is whether the company will be able to successfully market recently acquired British luxury brands Jaguar and Land Rover on one hand and do brisk business with the Rs 1-lakh car on the other.

Industry experts and analysts believe that the Nano and the upscale brands can co-exist in a single product portfolio as they cater for different segments. But what probably may stretch the Tatas is the challenge to turn the bleeding Jaguar and Land Rover (JLR) brands profitable.

?The Nano and the JLR can co-exist. The Tatas are going to integrate the two,? feels Pankaj Chaubey, practice head, financial deals, Excellence Data Research Pvt Ltd, a division of Datamonitor Ltd.

Agrees Abdul Majeed, who leads the auto practice at PricewaterhouseCoopers. ?Today, it is about expertise in all segments and the Tatas have the expertise in handling different brands under a portfolio very efficiently,? he says.

All said and done, keeping these two luxury brands on the fast track is a tough ask. ?Tata Motors will have to turn JLR around in terms of cost reduction through better business process management, incorporation of worldwide best practices, better marketing through targeting the right consumer segment, and achieving higher sales through cross-selling,? says Mudit Gupta, a project manager at Excellence Data Research.

?Keeping everything else constant with the JLR acquisition, the Tatas could leverage sales and their distribution network to cross-sell existing and other products in both developing and developed markets, thereby achieving higher sales for JLR and boosting the overall profits,? says Gupta.

?When Ford had acquired the two brands, the US market was different. Although the two brands are good, they don’t have volumes. They have not done well in North America,? says Majeed, adding that the company may look at selling the two brands as completely built units (CBUs) in Asia, South America and Africa. Only then it might look at the completely knocked down (CKD) route.

In the immediate future, Tata Motors would be looking at tapping the high-growth luxury car and SUV segments in India through Jaguar and Land Rover, respectively, says Chaubey.

The top five markets for Land Rover are the UK, the US, Italy, Russia and Spain. For Jaguar, the UK, the US, Germany, Japan and Italy remain the top five. Last year, 226,395 Land Rovers and 60,485 Jaguars were sold. India?s share is in single digit.

Ford had acquired Jaguar in 1989 for $2.5 billion and later, in 2000, bought Land Rover for $2.75 billion. The company last year started exploring strategic options for the Jaguar Land Rover business, as it planned to focus on its core Ford brand and the ?One Ford? global transformation strategy. In January, Ford had named Tata Motors as the front-runner to buy the luxury brands. Among the other bidders in the fray was Mahindra (M&M) with Apollo and One Equity, a private equity firm led by former Ford CEO Jacques Nasser.

The sale is expected to be completed by the end of the next quarter and is subject to customary closing conditions, including the receipt of applicable regulatory approvals. Once the sale is closed, Tata Motors will end up paying $2.3 billion in cash for Jaguar Land Rover, while Ford will contribute up to approximately $600 million to the Jaguar Land Rover pension plans.

But will the Tatas shift the JLR base to India? Say Chaubey, ?Customers in the US or in Europe would not buy a luxury car whose parts have been manufactured in India or any other low-cost destination. I think the Tatas would avoid shifting the manufacturing base to India or any other low-cost destination at least in the near-term.?

Since the JLR enjoys very high brand equity, the Tatas will not and cannot afford to dilute it. The company will have to work under the existing resource constraints and bring about a change in the way business is being done, which includes ?un-alteration of management and part production? in the short-term, explains Gupta. But one may expect a management rejig, job cuts and changes in production of these two brands in a year or two once the Tatas have understood the management and the market of the two brands.

?The strategy of Tata Motors in the medium- to long-term will be to position itself as a technologically competitive company. The challenge before the company is to maintain and, in fact, improve the technology of JLR further to boost its competitiveness,? says Chaubey.

As part of the agreement singed by Tata Motors and Ford Motor Company, the latter will supply the Jaguar and the Land Rover for varying periods with powertrains, stampings and other vehicle components, in addition to a variety of technologies, such as the environment and platform technologies. It has also committed to providing engineering support, including research and development, plus information technology, and accounting.

Ford Motor Credit Company will finance the Jaguar and Land Rover dealers and customers during the transitional period, which can vary by up to 12 months, depending on market merits. ?But Ford will not do this for ever. Tata Motors will have to develop it on its own,? explain analysts, adding that it is a good sign for the company?s component business, which will gain access to improved technology.

In 2006, the UK was the second overseas market for the group after the US. The combined revenue in the UK exceeded $1 billion. The Tatas? association with the UK started when Tata Ltd was set up in London, in 1907, to represent the group in Europe. It was from the UK again that the group kicked off its new drive for globalisation seven years ago with the acquisition of Tetley and Europe?s largest steel maker, Corus.