Should Land Rover and Jaguar be allowed to go bust?

The spin on this story this week included the following headlines:
• Tata buys way into establishment (Sunday Times/NY Times)
• Tata parks a staggering $2.3 billion deal for Ford's classy British brands (City Press/Reuters)
• Ford unloads Jaguar, Land Rover on Tata (Business Day/Bloomberg)
• Ford seals Jaguar deal (Financial Times)

The nub of the story is that the two iconic brands were owned by the Americans at the Ford Motor Company; Jaguar since 1989, and Land Rover since 2000. Whilst both are iconic brands, both were unable to make a profit. The Indian based company, Tata had been negotiating with Ford for around one year and ended up paying $2.3 billion (about R18.5 billion) to acquire the two brands, around half of what Ford had paid originally.

But for Business Day to say Tata gets a bargain is highly debatable. As part of the deal Ford is propping up the pension funds of both companies with an injection of $600m bringing the purchase price down to in effect $1.7bn.

Fact is that arguably Ford not only paid too much in the first place, they have had to keep on paying simply to ensure the survival of these two famous brands, and to save face. Many billions of dollars have been spent, estimated at between $11 - $13 billion, to the total detriment of the whole organisation.

There will be a huge sigh of relief from Ford now that the deal is finally done and the financial haemorrhaging will stop. But it illustrates that just because brands have huge awareness levels that is not enough to ensure financial success. A moral of the story is that as part of any M&A (merger and acquisition) a section of the due diligence should be a marketing feasibility study and definition of all the brands.

Another is to ensure the trademarks are fully protected and in place so that the situation doesn't arise, as with Volkswagen, that they thought they had bought the Rolls Royce brand, but hadn't, and in fact it went to BMW. This story played out n 1998, and my colleague in London, Tom Blackett explains that Rolls-Royce Motor Cars (RRMC) was owned by the engineering firm Vickers (the armaments group). RRMC manufactured Rolls-Royce and Bentley cars. Both Volkswagen and BMW bid for RRMC, and after a protracted battle VW ended up as the winner, paying Vickers close to £500m ($1bn) for the business. However, in a surprise move, BMW bought the Rolls-Royce brand for £40m ($80m) from the aerospace company Rolls Royce plc (RRPLC), who had retained the brand after the two companies separated in the 1970s. RRMC, while owning the Bentley brand, had taken a licence to use the Rolls-Royce brand from RRPLC.

The question over ownership of the brand had always been fraught. VW will have known that RRPLC was the owner and RRMC the licensee and no doubt assumed that RRPLC would continue the arrangement. Whilst BMW had strong links with RRPLC, having formed a joint venture business with them in 1992, and as BMW and VW hate each other with a passion, BMW took advantage of this relationship. However, it allowed VW to use the Rolls-Royce name for five years before assuming full control. This gave it time to work on designs for a new range of models and to plan for the modernisation of the Rolls-Royce factory in Crewe, which is now state of the art.

It is ironic that the highly successful revival of the Mini by BMW is closely linked to maintaining production at Cowley in Oxford, its original home. BMW adopted a similar strategy with Rolls-Royce, keeping the assembly plant at Crewe in the British Midlands, but upgrading the plant and negotiating with the trades unions first, to ensure a state of the art solution. Will Tata follow a similar strategy by maintaining the heritage of Land Rover and Jaguar? They are certainly indicating this will be the case.

However the shrewd 70-year-old head of Tata, Mr. Ratan Tata has over half a century of experience in the motor trade, apart from all his other vast experience, and the group employs 289 500 employees and had revenues last year of $28.8 billion. Another interesting fact to quietly emerge is that Tata Motors is 7% owned by Daimler Benz and their relationship goes back to the 50's.

Tata is a fascinating group to watch. A good old fashioned conglomerate, it has grown dramatically of late acquiring such diverse brands as Tetley Tea and Corus Steel and The Pierre hotel of New York. Not to mention the launch of the cheapest car in the world earlier this year, the Nano.

As City Press summed it up: Tata-machance.