Case Study: Tata Motors JLR - a two-edged sword.

History was made in March 2008 when one of India’s top corporate entities, Tata Motors
acquired luxury auto brands -- Jaguar and Land Rover (JLR) from Ford Motor for $2.3 billion,
imprinting their specialty as a takeover magnate.
Beating Mahindra and Mahindra for the prestigious brands, just a year after acquiring steel giant
Corus for $12.1 billion, the Tata signed the deal with Ford, which on its part chipped in with
$600 million towards JLR’s pension plan.
Acquisition of JLR by Tata was one of the rarest cases of an Indian Company acquiring luxury
brands. It was a very risky acquisition since JLR had been wobbling in the market and surviving
on the edge. Tata had to invest a lot in the brand to make it stand out once again. The biggest
reason behind Tata acquiring JLR was that it wanted to decrease their dependency on the Indian
market which accounted for more than 90 % of its sales.
Tata raised USD 3 billion (Rs 12000 crores) through bridge loans for 15 months from different
banks including JP Morgan and SBI as they were facing a cash crisis due to Corus deal and
heavy investments in TATA NANO Project back home.

What led to FORD selling off JLR?

Ford bought Jaguar from British Leyland Ltd. in 1989 for USD 2.5 billion and Land Rover for
USD 2.7 billion in May 2000. As market conditions toughened in the 90s and people stopped
buying luxury cars, they went through a rough phase. However, in 1999, Ford established a
PAG (Premier Automotive Group) which included Jaguar, Aston Martin and Lincoln. Volvo
soon entered this PAG. But they had to dismantle the PAG in 2006 and sell Aston Martin for
USD 931 million. JLR was next in the line and they showed all their intentions to put JLR on
the market.

Benefits to TATA
1. Less dependency on the Indian Market and an increased share in the Global Market.
2. Their range diversifying from India’s cheapest car to luxury brands.
3. Access to latest technology which came along with JLR.
4. Cost Competitive Advantage as Corus supplied steel to JLR as TATA had already clocked a
deal with them.

TATA- JLR deal--- Profit or Loss?

As per Morgan Stanley’s report, this deal was a loss for TATA. They had to put in extra USD 1
billion as capital expenditure in JLR to go with USD 2.3 billion they had already given. Since
they were investing a huge amount in TATA NANO project too, it was adding up to their costs
as well. Their worldwide car sales also took a hit and decreased by 5 %. TATA lost USD 517
million in their Indian operations in March 2009 and lost additional USD 510 million on JLR.
However, if TATA had not acquired JLR, they would not have been able to enter the luxury cars
segment and they would have lost on amazing technology of JLR too. Moreover, sooner or later,
global market would have risen from recession and value of JLR would have increased.

Current situation
Initially JLR has performed strongly after the merger and was slowly and steadily repaying
TATA’s immense faith in its name and reputation.

On June 15, 2020 JLR reported a drop in its sale figure for fourth quarter and financial year
ended March 31st, 2020 due to corona virus pandemic. The luxury carmaker said the pandemic
"significantly impacted" its projections for 2019-20, with fourth quarter retail sales down 30.9
per cent and full year sale lower 12.1 percent. Since year 2014-15, JLR is facing problems and
its sales is reducing throughout the globe.

Tata Motors suffered consolidated fourth quarter net loss of 98.94 billion rupees, as coronavirus
lockdown across its markets weakened sales, including at JLR. Its total sales of passenger
vehicles for financial year 2019-20 is 38% less than financial year 2018-19 and total sales of
commercial vehicles is 34% less in comparison to financial year 2018-19. Tata Motors’ losses
mount, with sluggish sales in China and Brexit adding to its woes.
Tata Motors is reviewing all its businesses, revising its investments and working capital and the
company has also launched inventory correction programme. During the time of corona virus
pandemic, company has laid off 1100 employees as it is focusing on cost cutting. JLR deal is not
proving to be very good for the company in year 2020. JLR is like two-edged sword for Tata
Motors. If JLR performs well, Tata Motors earn its profit nearer to 80% from JLR. When JLR
doesn’t perform well, in that situation most of the loss of Tata Motors is from JLR.
In the past, the company has launched few vehicles, but they did not perform well. Due to this
Tata Motor’s survival is getting difficult. The company is struggling for profits in the last few
years, in fact the company suffered huge losses of 28,826 crores in year 2019. Apart from losses,
the company has taken huge debt nearing one lakh crore. The situation of the company is grim in
2020.
Let’s foresee, what strong decisions Tata Motors would take in the next couple of years
especially related to JLR so that it stays strong.
Case Questions

Q1. Why did Ford Motors fail to keep JLR afloat?

Q2. How did acquisition of JLR provide TATA with cost competitive advantage?
Q3. Do you think Tata motors extended restructuring program, will lead to an improvement in
its performance?