Tata is right for Jaguar and Land Rover
Ford's imminent announcement of a sale of Jaguar and Land Rover (expected next week) to Tata is welcome news and comes as no surprise.
Tata is a huge Indian conglomerate with a turnover getting on for $22 billion. Its deep pockets have allowed it to outbid rivals constrained by the recent credit crunch.
Ford are flogging off some prize assets after a record $12 billion loss in 2006 and a downward spiral of sales of gas guzzling SUVs and pick-up trucks in the US prompted by the high price of oil.
Indeed, Ford's US sales were down by some 12% last year and Toyota has just replaced it as the number 2 producer in the US for the first time.
To its credit, Ford has invested heavily in both Jaguar and Land Rover. Yet it lost lots of money.
Partly this is down to exchange rates, with sterling at a twenty five year high against the dollar of over $2. This has made selling to the key US market very difficult and has impacted badly on Jaguar sales there.
This wasn't helped by Ford's inability to understand the European luxury car market.
Witness its unwillingness to put diesel engines in Jaguars until very recently. This was nothing less than a commercial disaster and whilst Jaguar stalled, other prestige producers like BMW and Saab cashed in.
Ford belatedly got it right and did finally get diesels into Jags back a couple of years ago. But fussy, old-fashioned styling still dampened sales. Add in some too obvious links with the Ford platforms underpinning recent Jags, like the disappointing Mondeo-based x-type, and things simply weren't going in the right direction.
This has finally changed with the stunning XK sports car which is selling well, and the dramatic new XF. The latter replaces the dull and conservative S type (the kind of car your Uncle Geoff would drive).
The pipeline of future models, including a new XJ, looks very promising indeed. And Jaguar's losses are coming down and profits are finally within reach.
Meanwhile, Land Rover is hitting record sales with a range of popular and profitable new models, although quality still needs to improve further.
Overall, then, Tata is coming in as owner at just the right time. But what will it do?
It is will probably continue the recent strategy of selling fewer, more exclusive Jaguars at a higher premium, and to extend Land Rover's successful model range, for example with a new compact and trendy Land Rover.
Given this, Tata probably offers the best bet hope for British workers. Given the heavy investment needs for new model development, a long-term perspective is required, and a private equity purchase of Jaguar/Land Rover could well have lead to the closure of one plant in Britain and significant job losses.
In contrast, a long-term perspective from Tata could allow new models to be developed which could offer the prospect of keeping open the three UK plants. Tata's extensive links with Fiat may also open the way for a joint venture to develop new models based on shared platforms with Alfa Romeo.
It won't all be good news for British workers, though. There is likely to be more sourcing of components from abroad, including India, and assembly in the US (perhaps even in conjunction with Fiat and Alfa) is a genuine possibility given the weakness of the dollar which is set to continue.
A few US dealers have been less than positive about an Indian firm buying such prestigious brands as Jaguar and Land Rover.
This is an out-dated view of the world and fails to understand how Tata and indeed the Indian economy generally have developed over recent years. Anyone sharing this view would do well to stay at a Tata-owned Taj hotel. Tata can clearly manage luxury brands, and it has plenty of car industry experience to back this up.
Overall, a Tata purchase of Jaguar and Land Rover makes sense on a number of levels. It would enable Ford to withdraw and hand over the firms in good shape and to a responsible owner committed to car production.
And whilst there are no guarantees about production remaining in the UK, a Tata takeover is probably the most positive outcome any of us could have hoped for.
Older/Newer
« Creativity - not counting - is the West Midland's strong point. | Emerging markets are not the answer to our productivity gap »
15 Comments
Business authors
David Bailey - Prof David Bailey, Coventry University Business School
My postings |
My feed
Stuart Pemble - Construction Lawyer, Mills & Reeve
My postings |
My feed
John Clancy - Birmingham City Councillor and director of mediafuturesalert.com and justliteracy.com
My postings |
My feed
John Samuels - Professor of Business Finance, Birmingham Business School
My postings |
My feed
Chris Tomlinson - Chris Tomlinson is the founder of social media and online PR agency Friend (frienddigital.com)
My postings |
My feed
Andrew Whitehead - Senior partner at law firm SGH Martineau, leading the firm's Energy & Climate Change practice.
My postings |
My feed
Keith Gabriel - A Birmingham-based PR Account Manager
My postings |
My feed
Beverley Nielsen - Lecturer, Design Management, at the Birmingham Institute of Art & Design, BCU
My postings |
My feed
Mike Loftus - Director of News from the Future Ltd. Writing on the trials of setting up your own business
My postings | My feed
Richard Halstead - Midlands region director for EEF, the manufacturers organisation.
My postings | My feed
Karl Edge - partner at KPMG in Birmingham, specialising in automotive, manufacturing and house building sectors.
My postings | My feed
Peter Owen - Managing director for construction firm Willmott Dixon Midlands.
My postings | My feed
Doug Mahoney - International Trade Director at UK Trade & Investment in the West Midlands.
My postings | My feed
Dr Steven McCabe - director of research degrees for Birmingham City Business School.
My postings | My feed
Francis Greene - Professor of Small Business and Entrepreneurship, at the University of Birmingham.
My postings
Alan Gilmour - Director at Cogent Elliott, experienced in marketing, brand development and customer relationship management.
My postings
Latest Birmingham Post News blog
Birmingham Post staff and guest bloggers from the midlands give you their opinions on local and national news.
Latest Birmingham Post Lifestyle blog
Birmingham Post staff and guest bloggers from the midlands give you the lowdown on what's happening in your region and some musings on culture in the UK and beyond.
Latest Birmingham Post Science blog
Birmingham Post staff and guest bloggers from Birmingham and the midlands inform and entertain on all science matters.
Latest Birmingham Post Sport blog
Birmingham Post staff and guest bloggers from Birmingham and the midlands inform and entertain on all sporting matters.
As the writer points out, a sale of Jaguar and Land Rover to Tata would make sense; given that it appears to be a well-financed company capable of withstanding the current credit crunch.
While the likely outcomes for workers are not ideal; they would have to be better than the current situation whereby many of those made redundant from plant closures (eg Longbridge) face dramatically reduced earnings with spells of unemployment and working in junk jobs ("McJobs").
If the sale is such a good deal for Tata, (who will clearly make money out of this) why haven't other investors seen it as so as well? Is it just that it coincidentally suits Tata at this moment in time? Are they the best bet bid (at the highest price) for Ford, or was there no other serious buyer?
Do we have any inkling of who else, if any, was interested? If there was no other serious buyer, will Tata be getting it at a knock-down price?
Obviously I welcome the fact that a serious buyer has emerged to provide at least some short term security for the local workforce and suppliers.
I would, though, have liked to have seen some serious attempt to invest from the state or local government (or perhaps the less politically contentious 'regional investment agencies') as part of a syndicated deal, perhaps.
If we can pump many billions into Northern Rock (and Gordon Brown actually indicated that the state could exit from the Rock with a profit - I think they will) why could we not have taken such an approach to a key manufacturing industry segment in the region in this case? We should take shares (a minority shareholding) in return for the investment like a venture capital firm does.
This would be not be with a view to propping up an ailing industry, but investing for long-term return by way of profit through redemption of shares and the taking of preferential dividends on those shares by the state/local government/local investment agency.
I've no problem with a new 'picking winners' approach by the state/local government.
Let's bring back the Birmingham Bank (there used to be one!), get it to issue realistic Bonds for long term profitable investment in local businesses (large and small) where there is a gap in the market left by the too cautious, too short-termist institutional investors: 'Brummie Bonds', if you will!
Jclancy makes some good points about the lack of support for manufacturing in general in the UK, in sharp contrast with the continent. I would of course have much preferred to see the crown jewels of Britain's motor industry in British,local hands. Given, though, the pro-market stance of successive governments (both conservative and labour), any sort of interventionist industrial policy seems off the radar. In this circumstances, I think Tata was the best bid in town for British workers given Tata's deep pockets and the chance to invest long-term in new product development.
jclancy also raises the possibility of using bond issues to finance industrial development. On the venture capital front, how do the UK regions now fare? Is there still a âÂÂfinance gapâ at the smaller end of the market and what has happened to the regional venture capital funds set up under Labour? The differences with elsewhere are still striking. Whilst competing in globalising industries, many continental manufacturers still have local roots, protection from takeover and the availability of local finance through regional development banks or in some cases the state through semi-public ownership. Whilst welcoming investment from abroad, we can at the same time note that the playing field still isnâÂÂt level.
Am I being prejudiced in stating that the impression I get is that fellow EU states (especially France) seem to have no problems in the area of quite overt support for regional business investment (and investment in manufacturing, in particular)? They seem either not to play by the EU rules or have found a neat way of getting round them. What do you think, David?
The approach the conformist British seem to take is that we can't intervene to support that key local industry because EU rules would prevent it. It's against the Law. So we just let the market decide the future no matter what the consequences.
We seem not to want to be bothered with anything where there is a hurdle apparently presented by the EU or anyone else to 'state' or regional level support. The continentals seem to have a more 'can-do' approach. Either that, or they're wantonly breaking the rules or cleverly subverting them, and the EU looks the other way.
It seems to me that other continental nations are more successful in supporting key local industries precisely because they have an investment and banking set-up which is actually regional.
We seem to have to go cap in hand to London (either at governmental or financial engineering level) to move forward on anything.
John, another good point... I do suspect that the regional tier of finance is linked to a degree of political federalism as well. This links back to your earlier point about local financial systems ('there used to be a Birmingham Bank') as you put it. When and how did that disappear?
Maybe brummie bonds as you call them could help us invest in infrastructure, hosuing and maybe businesses as well. It's not such a mad idea - they are used extensively in the US to raise finance for hosuing and infrastructure.
On the history of the Birmingham Bank, try clicking on
this and
this.
And the Americans do this, too! Try
here.
Unfortunately I state with confidence that the present UK GovernmentâÂÂs Strategy and Thinking will eventually lead Britain to Industrial & Technological oblivion.
The sale of Jaguar and Land Rover et al to TATA Industries of India (they already own CORUS-ex. British Steel and other British household names) is a further sign of things to come and which in the long-term will not be good for UK plc or indeed USA plc. In 1997 when labour came to power, twenty-six of the worldâÂÂs most eminent scientists and engineers (including eight Nobel laureates) advised the British government to adopt a strategy of building the future UK economy on the foundations of new technological products that no other nation had in its possession. This world-leading technological strategy fell on deaf ears as service industries were thought of as the UK's ultimate saviour and where new leading-edge technology and manufacturing was only considered as a second division player. Now we see over 30% of the UK economy is totally dependent upon the financial sector alone and where we all know too well now how this strategy is so volatile and where banks can move to a great extent to anywhere in the world if they wish to do so. Indeed, as time goes on there is no doubt that London will lose out to other financial centres of the world and where in time, service industries will not support the nation as once thought. Today, China has the first âÂÂtrillionâ dollar company, over twice as large as our largest western corporations. Tomorrow Asia and particularly China will have many more trillion-dollar entities but where they will not be the service industries that Britain is so dependent upon, but scientific/technological manufacturing concerns that will dominate the world through their sheer technological prowess. The British government and unions say that jobs are now secure, but for how many years I would ask. Therefore this folly has got to stop and we in the West have to change to the high-tech strategy that was put forward to the UK administration some 11-years ago and before we all become beholden to the might of the South-East Asia technological juggernaut that simple will not stop. This is another warning of several that has been given over the last 10-years to our western governments and where this once proud economic block now runs the very high risk of technological and industrial extinction if there is not a âÂÂuâ turn quickly. For overall in the West, we need an economic strategy based upon new technological industries and not unadventurous and conformist service industries that never really had the strength in depth to provide the West with a long-term stable and dynamic future. Time has now therefore come to change our âÂÂspotsâ before our economies totally evaporates and predominantly into the hands of others. For the war of the 21st century will be economic and not military and where this will be a far more devastating war than conventional warfare, as it is relentless, unremitting and continues indefinitely. Therefore let us see if our politicians in the West take note this time around for eventually the penny or the dollar hopefully will drop with them sometime soon !
Dr David Hill
World Innovation Foundation Charity
Bern, Switzerland
I very much take your point, David Hill. I think that your recipe could very well form the basis of a new Brownite shift/relaunch to distinguish him from Blair! Perhaps the same team from 1997 could be invited to put their points again. Unlocking long-term potential and post-credit crunch, an idea whose time has come again.
Unfortunately John, the world eminent scientists said at the time that after their advice was not taken at all seriously, they came to the conclusion that they were all wasting their time with the British government and indeed would never offer their world leading edge knowledge ever again.
A sad situation but true and where politicians and senior civil servbants live totally in their littlew orld, but a little world taht affects you and me and all generations to come. Stupidity really !
David, you make a number of crucial points and I'm grateful for your contribution here.
Of course, I'd prefer to JLR in British hands with a supportive government backing them, as happens in much of continental Europe, through a more active industrial policy.
Given this isn't forthcoming, I think the Tata takeover was probably the best bet for workers in the UK, in the short-term at least. Longer term, of course, strategic decisions will now be made in Mumbai and there is no guarantee that any of these plants will be here in 10-15 years time.
Given both exchange rate volatility, and the lack of a supportive industrial policy, Britain has seen a more rapid manufacturing run-down than any other European economy, with well over a million manufacturing job losses since Labour came to power in 1997.
Even economists who were previously sanguine about such trends in Britain are now starting to question whether it has gone too far. Too much manufacturing capacity may have been shed, and the failure to develop the new, dynamic manufacturing industries of the future (as David notes) may well come back to haunt us in terms of lowered prosperity and balance of payments problems.
In 2006, for example (with parallels to today), with consumer confidence running low, the government hoped in vain for an export led recovery which failed to materialise. De-industrialisation may have effectively closed off such an export-led growth option, with manufacturing now accounting for just one-sixth of BritainâÂÂs GDP (but let's not forget a remarkable 75% of all business R&D).
The differences with elsewhere are indeed striking. Whilst competing in globalising industries, many continental manufacturers still have local roots, protection from takeover and the availability of local finance through regional development banks or in some cases the state through semi-public ownership. The playing field isnâÂÂt anywhere near level.
So what is to be done? Firstly, a macro-economic rebalancing is required towards investment in business and away from consumer-led growth. We have stayed out the Euro in order to retain our monetary sovereignty. LetâÂÂs use it.
A key aspect of this has to be a depreciation of the pound which would help exporters and encourage more manufacturing investment. This has already happened to some extent vis-a-vis the Euro. This would also help reduce BritainâÂÂs deficit on the balance of trade in goods and services which now adds up to four per cent of GDP.
Such macro-rebalancing is crucial but not enough. Britain urgently needs a more pro-active industrial policy that fosters a more dynamic entrepreneurial sector. This does not mean a return to protectionism and âÂÂnational championsâ - quite the opposite in fact. Rather, policy needs to be based on fostering webs of high-tech small firms linked with innovations and ideas coming out of revamped universities.
As John also notes in his comments, having a suitable financial system to back long term investment in manufacturing is also vital; his idea for 'Brummie bonds' is something we could usefully explore.
This new industrial policy needs to be forward-looking, to plan for future technologies and to back them. And it needs to be âÂÂholisticâ â manufacturing and services are often inter-linked and simply letting manufacturing sink can also pull down the service activities linked to it (think about the loss of R&D, marketing and consultancy jobs linked to Rover and Marconi).
What can be achieved is shown by the work of the regional development agency Advantage West Midlands. In the five years up to the collapse of Rover. AWM worked with suppliers to diversify firms away from Rover, helping them to supply other car firms and to move into new growth sectors such as medical technologies. Around 10 - 12,000 jobs and critical engineering skills were saved in the process before Rover went bust.
This approach must be right, and the lessons learned here will need to be applied elsewhere as other industries globalise. But this needs to go much further.
Government needs to do all it can to retain manufacturing such capacity whilst also helping to retain the key competencies (for example in in the car industry) and to apply them in new ways. These will have to be in higher value added activities such as engines and drivetrains, R&D, consultancy and in other sectors such as the growing aeronautics industry.
But transferring skills and knowledge into new growth industries (whether aerospace, nanontechnology or medical technologies...) isnâÂÂt always easy; policy can go a long way to help this process along. Much more needs to be done, and I'd be keen to explore this more with David and John.
Been away to Germany and Switzerland for charity meetings.
Good points David B.
The main thing is that this country has to look totally at a new economic policy/strategy and quickly. I say quickly as it takes at least 15 years and more to bring to market in any meaningful way a new technology. Briatin has most probably the best innovative reservoir in the world but it is not exploited. When I was involved with the DTI some 11 years ago it became clear to me that the people there at assistant director level (the ones who undertake the strategy papers or doers in other words) were totally oblivious to what to do. As an example some had just left Cambridge with a masters degree in manufacturing (I did not even know that such a degree existed at that time), but did not understand the realities of life at their tender age. When I asked for ã2 million to start an innovation resource centre to concentrate innovative thinking in the United Kingdom(the starting point of any worthwhile endeavor in the 21st century), they thought that I was completely mad. You see these people do not understand the power of innovation and what it means to economies even though they control the DTI mechanism to a great extent.
Therefore the problem lies at the door of the DTI for not having the right people and consultants in place. I came away from this department with the horrible understanding that these people were there, not for the interest of the future of UK plc, but only for their own personal interests and what they personally could derive from the system itself. There advisers were no better in this respect and that is why we have now a country totally dependent upon service industries and where as we know, the financial sector alone which now accounts for around 30% of GDP, is in a terrible state. Therefore our once impregnable financial sector is now being seen for what it really is, an institutional system that is built on rocky foundations, totally susceptible to constant global turmoil of their own making.
On the other hand if Britain had a constant flow of new technologies that no other country had, even China would be buying from us and where this strategy is a far safer bet in the long term.
But, to get the DTI and government to understand this is an impossibility in my estimation as they still do not understand the power of innovation and what it does for economies. On the other hand China does, and we shall see in a mere 20 years time from now the decimation that this country will inflict on the West. In this respect the one thing that the Chinese know is that to win the economic war is to win everything, for all matters stem from economic power (even military and social). Indeed, they are now building what they themselves call the first truly innovative nation in the world. Look out I say, for the future looks very grim for us in Britain with an economic strategy that is based upon outdated thinking. It's about time that the UK got real !
Dr David Hill
World Innovation Foundation Charity
Bern, Switzerland
David you make some strong points. What I think is coming out of this very frutful discussion is the need for a more proactive industrial / economic strategy that joins up a number of policies to point in the right direction overall; i.e. nurturing the high-tech growth industries of the future and equipping people, firms and other organsisations with the skills and competencies they need to exploit new idea in such industries.
Indeed, this isn't about going back to protectionism and national champions but about a more effective technology policy, training and education policy, enterprise policy, industrial policy, use of procurement policy and changes to the financial system to back long term investment in British business.
I also think the old debate we sometiems hear over 'horizontal' versus 'selective' industrial policy is a false one. Successful economies elsewhere, such as Japan and the US, do both.
Thanks for your comments on this.
Both companies will move production out of the EU shortly thanks to new EU regulations currently winging their way through the rubber-stamping process in Brussels which will see Jaguar X-Types subject to a ã1,600 "green" tax and a Range Rover to a ã16k "green" tax. If they can't turn a profit - thanks to your beloved EU as usual, Professor - they'll move somewhere they can.
I think tata's plant should situate in U.K and tata should provide new jobs of tatas those employees who are working in tata motor pantnagar.
I've just stumbled across this, looking for Tata/JLR stories. well, over two years later you've been proved right, Professor B. what a good buy JLR has been for Tata. and what a good wener Tata has been.well done.
Fred