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Done - Ford unloads Jaguar, Land Rover to Tata

From the Detrot Insider:

Thursday, March 27, 2008
Ford unloads Jaguar, Land Rover to Tata
Dearborn carmaker sells luxury brands to foc
us on core operations
Bryce G. Hoffman / The Detroit News

Ford Motor Co.'s agreement to sell Jaguar and Land Rover to India's Tata Motors Ltd. marks the end of its Premier Automotive Group -- the international luxury collection that was the centerpiece of former CEO Jacques Nasser's failed attempt to transform the Dearborn automaker from an American icon into a truly global automotive empire.

Under the terms of the deal, which was announced Wednesday, Ford will receive about $2.3 billion for the two British brands. That money will do little to offset the billions Ford has poured into the marques over the past two decades, but will bring the automaker one step closer to realizing CEO Alan Mulally's new vision of "One Ford" focused on fixing its Blue Oval brand.

"We are confident that they are leaving our fold with the products, plan and team to continue to thrive under Tata's stewardship," Mulally said in a statement. "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 Co. that delivers profitable growth for all."

Mulally's plan represents a major reversal of the strategy Nasser outlined in 1999 when he created the Premier Automotive Group out of Aston Martin, Jaguar and Lincoln, later adding Volvo and Land Rover. At the time, he predicted the luxury group would become a major contributor to Ford's bottom line.

Instead, it became a major drag on it.

The house that Jac built
Ford bought Jaguar in 1989 for $2.5 billion. It was widely viewed as a vanity purchase for which Ford overpaid. Since then, Ford has invested about $10 billion in the brand, including a $1.2 billion bailout in 2005. Despite the cash infusions, Jaguar continues to lose money -- about $715 million in 2006 alone.
Nasser added Land Rover to the stable in 2000, paying BMW AG $2.75 billion for the brand.

All told, Jaguar and Land Rover have cost Ford somewhere between $11 billion and $13 billion when the financial losses they generated are added to Ford's investments in the marques.

Ford has dramatically improved Jaguar's quality, but damaged the brand's image by trying to make it more mainstream with cars like the X-Type that drew heavily from Ford's parts bin. New products including the XK and XF promise to restore much of Jaguar's lost luster, and its balance sheet is improving.

Despite quality issues, Land Rover has become quite profitable, earning enough last year to offset Jaguar's still-sizable annual losses. But Ford sources say the automaker would have had to invest substantially in new products to keep both brands moving in the right direction.

That is money Ford cannot afford to spend. The automaker lost $2.7 billion last year and is struggling to make good on a promise to return to profitability next year.

Ford sold off Aston Martin in 2007, and sources say the company is keeping Volvo only because it cannot find a buyer amid a global credit crunch that is making it difficult to arrange financing. However, it is taking steps to separate Volvo's finances from its own in order to make it easier to sell the Swedish brand as conditions change. Mulally has made it clear that he does not believe Ford needs a global luxury brand to compete.

"That's his blind spot," said Garel Rhys, director of the Centre for Automotive Industry at Cardiff University in Wales. "This is the end of their attempt to make sure that they covered all segments of the world car market. It's a failed strategy. (But) Ford cannot afford to turn its back on the global luxury segment."

That is why Ford needs to keep Volvo, Rhys said. Ford's interim plan for Volvo involves taking the brand up-market. He said that tactic could work and Ford needs to give it time to succeed before making a final decision on selling Volvo.

Focusing on Ford
Ford has mortgaged all of its U.S. assets for the broadest restructuring in its 104-year history.

As The Detroit News first reported Tuesday, the deal requires Ford to pay about $600 million into the Jaguar and Land Rover pension funds once the sale is concluded. That is expected to happen by the end of June, pending regulatory approval.

The approximately $1.7 billion that Ford will net from the sale of Jaguar and Land Rover will help, but is not enough to make a significant difference to its operations. Analysts say the real value of the sale comes from eliminating the drag the two brands exerted on Ford's bottom line.

"It's basically found money," said Bradley Rubin of BNP Paribas. "It's one less problem they have to deal with. It allows Ford to focus on fixing North America."

In the Britain, news of the deal was generally greeted positively.
"(The) deal is really good news for the U.K. automotive industry and the thousands of people who work for Land Rover-Jaguar and its supply chain," said Roger Maddison, head of the automotive section of Unite, Britain's largest labor union. "Unite has secured written guarantees for all five U.K. plants on staffing levels, employee terms and conditions, including pensions, and sourcing agreements. The sale ensures our members' futures, and we look forward to working with Tata."

That is important, because Britain is one of the few markets in the world where Ford is still No. 1. It could not afford to alienate the British buying public, which is why it put so many conditions on the sale of the two British brands, including requiring commitments to keep their plants open.

"We are very pleased at the prospect of Jaguar and Land Rover being a significant part of our automotive business," said Ratan Tata, chairman of Tata Motors.

Tata, which is better known for making the three-wheeled vehicles that are popular in India than anything remotely upscale, recently made headlines by announcing plans to build a $2,500 automobile.

It will need Ford's help to keep producing world-class luxury vehicles.
Under the terms of the agreement, Ford will continue to supply Tata with powertrains, stampings and other vehicle components, in addition to environmental and platform technologies. Ford also will provide engineering support, including research and development, plus information technology, accounting and other services.

Moreover, Ford Credit will continue to provide financing for Jaguar and Land Rover dealers and customers during the transition, which will vary by market and last up to 12 months.
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