Mumbai, March 26: The Tatas have finally acquired the two luxury marques — Jaguar and Land Rover — after a dogged pursuit of about seven months, but now a bigger battle lies ahead.
Its a battle for acceptance in the world of automobiles: Toyota, Honda and Hyundai have all had to break through a wall of prejudices before gaining grudging acceptance.
The big question now is this: will Tata ownership taint the pedigree of these brands?
Both brands have changed hands several times over and the Tatas see no reason why it should hurt their image.
However, the American dealers of Jaguar and Land Rover have expressed deep misgivings about Tata ownership of these brands, arguing that it would hurt the image of these brands.
Ford Motors has promised to hand hold the Tatas through the tough transition phase with the promise to finance both the dealers and customers of Jaguar and Land Rover.
Ford Motor had 1397 dealers who distributed Land Rover vehicles worldwide as of December 31, 2007.
In a Form 10-K filing with the Securities and Exchange Commission in the US dated February 27, the worlds third largest carmaker said there were 859 Jaguar dealerships.
Under the terms of the deal signed with the Tatas, the process of disengagement with these dealers may take as long as 12 months.
Ford Motor Credit Company will provide financing for Jaguar and Land Rover dealers and customers during a transitional period, which can vary by market, of up to 12 months, said a Tata Motor release.
In 2007, Ford Motor had a 5.1 per cent share of the US car market behind General Motors (9.8 per cent) and Toyota (9.2 per cent).
Why did it take close to three months to ink the deal?
The buzz is that the Tatas were clearly uncomfortable with the idea of taking on the pension liability at Jaguar and Land Rover after the immense problems they faced in dealing with all the formalities at Corus.
This was one of the sticking points in the tortuous talks over the past three months after Ford picked the Tatas as the preferred bidder. In the end, Ford agreed to pay the $600 million in the pension fund at the two carmakers.
Union sources said if Ford hadnt papered over the pension liability, the two brands would have been valued only at $1.3 billion and Tata Motors would have had to foot the pension deficit.
Dave Osborne, national officer of Unite, the British trade union, said the pension deficit had been deducted from the company's price during the valuation.
If Ford had not agreed to pay the $600 million deficit, we'd have been talking of a valuation of $1.3 billion and not $2.3 billion as we're doing now. In any case, we would not have agreed or supported the agreement with the Tatas if Ford hadn't agreed to fund the pension deficit. It's Ford which had to fulfil this responsibility, said Osborne.
The Union said it had wanted Ford to retain a stake in the company to protect the suppliers agreement between Ford and the two brands as well as to average out the vehicle emissions under the stringent EU emission norms.
Were happy that a suppliers agreement with Ford has been reached. As for retaining stake, if it hadn't been for Ford's financial difficulties in the US, I don't think the company would have sold its stake in the two brands at all," said Osborne.
The pension fund will be reviewed every three years and any subsequent deficits will have to be borne by the Tatas, Osborne added.