Reports have been circulating lately that two Indian conglomerates are biding for U.K premium auto brands Jaguar and Land Rover (both owned by Ford (F). Tata Motors (TTM), India's largest private sector group with 98 companies, and Mahindra & Mahindra [M&M] (MAHMF.PK), one of the top manufacturers of farm equipment in the world, have shown interest in biding for the brands. Jaguar and Land Rover labor union leaders in U.K have publicly endorsed the bid by Tata Group. Birmingham Post just ran article declaring that Tata has won the biding at 1 billion pounds ($2 billion).
By most accounts these brands are not exactly selling like Mustangs (2007 data shows that year over year Jaguar sales plunged 27% and Land Rover sales increased 7.6%). Any company that owns just these brands in western markets are going to be under heavy pressure to reduce emissions based on a new European Union regulation in the offing. M&M has no compact or mid size cars in the European and US markets. Tata does sell few compacts in Europe. Having compact and mid size cars in the fleet would help a company meet its average fuel efficiency goals set by US and European regulators.
As Ford promised to the local union leaders and government, any deal would likely include restrictions on job reduction in U.K, preventing Indian owners from moving manufacturing to India in the near future to reduce costs.
So why would an Indian company spend $2 billion on a deal on the surface looks like a loosing proposition? Indian groups are looking for a short route to obtaining three things they need to enter western markets and compete with global brands in the home market: Technology, Brand and Credibility.
For Tata and M&M to be taken seriously in the western market, obtaining latest automotive design and manufacturing technology is a must. Both the companies also need to be able to fend off all the international players entering the home market including Ford. Both of these require their R&D labs to be up to par with the rest of the industry.
Both Indian manufactures have no western presence to speak of. M&M have long been exporting its farm vehicles to the developing world and recently announced plans to ship its SUV to US. Tatas have been exporting to developing countries as well as Europe for some time, but none of their brands are well known. They need the power of well known brand(s) to gain credibility with the consumers.
If the Tata Motors can capitalize on all these factors to enter into western markets and fend of other international players in the home market, this deal will be worth it even if it can't turn around the declining sales of the brands.