In 1989, Ford purchased Jaguar, based in the U.K., for $2.5 billion and Land Rover for $2.75 billion in 2000. Ford’s vision, promoted by then chief executive Jacques Nasser to build a collection of luxury brands, included Austin Martin, Volvo, Jaguar, and Land Rover. Industry analysts have estimated that Ford has invested nearly $15 billion in the last fifteen years in Jaguar but has only seen widening losses and persistent quality problems. Because of this, Jaguar, under Ford, has seen a decline in market share in the U.S. and around the world. In addition, Ford purchased Volvo in 1999 and Aston Martin in 1987.

The Premier Automotive Group was formed to manage these brands of luxury cars. Ford, at the time of Jaguar purchase, aimed to sell 200,000 units worldwide; unfortunately, this never happened. Moreover, sales under Ford have only declined.

General Motors and BMW pursued similar paths with varying degrees of success. Similarly, Daimler attempted to expand in the U.S. by purchasing Chrysler; however, this ended miserably in 2007.

Jaguar 2007 sales have declined to 60,000 from 130,000 in 2002, while Land Rover sales in 2007 were 227,000. In relation, U.S. sales of Land Rover have increased from 26,000 in 2000 to an estimate of 46,000 in 2008.

Ford, in the last five years, had invested at least $3 billion in Land Rover to improve quality of cars; however, the Jaguar brand has consistently lagged in the marketplace. In addition, Jaguar suffered from decisions to change its style and use Ford parts from other cheaper cars at the company. Unfortunately, the Ford image of mass marketer has not helped the Jaguar brand either.

Land Rover has been successful as consumers increasingly embraced sports utility vehicles in the U.S. This may be offset by rising fuel costs and a regulatory demand to lower vehicle weight and improve fuel efficiency.

The U.K. labor force of 16,000 at Jaguar and Land Rover, by international standards, appears to be overstaffed and may have to be trimmed by half if sales do not improve in the next three years.

Jaguar, one of the most coveted brands by Ford management, has drained capital and distracted management for years. Moreover, the losses at Ford North American operations only added pressure to under invest in the brand that is losing money. Additionally, the declining sales reflect the market’s displeasure with the brand.

The Chrysler fate

Chrysler, the third largest U.S. automaker when purchased by Daimler Benz, suffered a similar fate after a severe miscalculation by Daimler management. Daimler perceived several synergies between its Mercedes Benz luxury car and Chrysler division, which never materialized. Further, two different management cultures in Germany and Detroit failed to work together as their different priorities either attempted to cut costs or improve quality.

Daimler was lucky and finally sold an 80% stake in Chrysler for $7.4 billion to a private equity group Cerberus, which was originally purchased only nine years ago at $37 billion.

What the future may bring for Tata and Jaguar

Two questions that should be asked are: Does Tata know the root cause of lacking profits at Jaguar is and does it have a financial wherewithal to fund a string of losses? Likewise, Tata either has to find ways to lower operating costs by 30% or increase sales by 50% to turn Jaguar around. Unfortunately, neither goal is achievable in the next three years. How Tata is going to make Jaguar purchase work? This is a question that needs serious consideration.

Yes, there is talk of ‘Tata Way’, which simply means Tata can run this operation without cutting staff while learning what Jaguar and Land Rover does well then applying this to operations in India. However, there are other ways to accomplish this without spending $3 billion of borrowed money.

The fact is that Tata has been making mediocre trucks for more than five decades in India and never managed sell them outside India in substantial volume. A review of history will show that Tata, Toyota, and Honda started making vehicles around the same time after World War II; however, no one needs a reminder where Toyota and Honda are on the global stage today. After five decades, Tata does not sell 10% of volume that Honda and Toyota each sell in the global markets.

Tata Group has been selling ‘software services’ through Tata Consultancy, a highly profitable company in the group. Interestingly, the profits of this company are funding the losses at many of the 98 companies of the group. Tata Motors, one of the group’s companies that will integrate its domestic operations with the UK operations, is a laggard not only on the global stage but in the domestic market; additionally, it had a brush with bankruptcy in the early nineties.

Honda and Toyota have reached at global dominance not by purchasing other failing companies, but through continuous learning, innovation, and constantly raising a bar on quality. Tata Group has never achieved global quality excellence in any business that they have been operating in the last one century, except in hotel services and perhaps in software manpower management.

Shareholders of Tata Group will be better served if that $3 billion of the Jaguar and Land Rover purchase was put to better use. What's more, one can earn 6% a year with little financial risk and no operating headaches in the bond market. Jaguar and Land Rover will not generate this level of return in the next five years and will have to fight with labor when the going gets inevitably rough; Ford knew this only too well when it sold both brands.

In conclusion, it seems that Tata’s purchase of Jaguar and Land Rover is a vanity purchase shareholders of Tata Group can live without.