DETROIT (USA) — Ford Motor Co. is selling its storied Jaguar and Land Rover brands to India's Tata Motors Ltd. in a deal that will net the U.S. automaker $1.7 billion — roughly a third of the price it paid for the two luxury brands.
The deal announced Wednesday will expand the Indian carmaker's reach around the globe and give Jaguar and Land Rover badly needed capital to update and expand their product lines.
The agreement had been in the works for months as cash-strapped Ford sought money to fund its turnaround plan.
Tata will pay $2.3 billion for the British brands, but Ford will pay about $600 million into the Jaguar-Land Rover pension fund when the deal closes, Tata's statement said.
Ford bought Jaguar for $2.5 billion in 1989 and Land Rover for $2.7 billion in 2000. But the Dearborn-based automaker has been struggling and wants to focus on its main brands.
Selling the companies at such a loss clearly shows buying them was a mistake for Ford, said Erich Merkle, vice president of auto industry forecasting for the consulting company IRN Inc. in Grand Rapids.
"How can you call it anything else?" he asked. "You have to cut your losses at some point. It's been draining them of cash and resources."
The net proceeds aren't enough to rescue Ford's finances, but the sale will allow the company to focus on its core Ford brands, Merkle said.
Tata should have the cash to rescue the brands and develop new products to better compete with luxury automakers such as BMW AG, Merkle said.
Tata said it expects no significant changes in the terms of employment for Jaguar and Land Rover's 16,000 workers. It said the transfer of the brands would take place at the end of the second quarter.
The sale raises the Tata conglomerate's profile on the world stage, said V.G. Ramakrishnan, the lead auto analyst with the consulting firm Frost and Sullivan India.
"It gives them a much better branding image in the global market," Ramakrishnan said. "This is another important landmark step of showcasing that Indian companies are arriving on the global landscape. Many people will see this deal as the future of things to come — you will see more companies out of India acquiring global companies. They want to be seen as major global players."
Tata Motors built the first fully Indian-designed car. In contrast to the high prices that Jaguars and Land Rovers sell for, Tata recently announced plans to build a $2,500 car later this year.
Ford CEO Alan Mulally said in a statement that the British brands are leaving Ford in good shape.
"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 Company that delivers profitable growth for all."
Tata said in its statement Ford will continue to supply engines, transmissions and other components "for differing periods." Ford also will continue to provide environmental and other technologies as well as engineering support.
Tata Chairman Ratan N. Tata said his company will try to build on the brands' heritage, keeping their identities intact.
"We aim to support their growth, while holding true to our principles of allowing the management and employees to bring their experience and expertise to bear on the growth of the business," he said in a statement.
Roger Maddison, an official with Unite, Jaguar and Land Rover's main labor union, said the deal is good news for the automakers' employees as well as those who work for parts suppliers.
"Unite has secured written guarantees for all five UK 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," Maddison said in a statement.
Mulally has said the company would invest the proceeds from the sale in quality and product development at Ford.
Ford named Tata as the preferred bidder for the British automakers in January, essentially dismissing two other bids.
Cash-hungry Ford, which lost $12.6 billion in 2006 and $2.7 billion last year, has been looking to sell Jaguar and Land Rover for months.
It has mortgaged assets to continue operations and expects to burn up $12 billion to $14 billion until 2009, when it plans to return to sustained profitability.
Jaguar and Land Rover are strained by unfavorable exchange rates and high production costs in Britain.
Tata Motors is part of Tata Group, India's oldest and largest conglomerate. The family business is owned mostly by Tata-funded charitable trusts. A substantial portion of the group's income is channeled into various philanthropies that have helped build some of the country's finest institutions, including India's first cancer hospital.
Tata companies are known for offering worker benefits that are rare in India, including pension and child care allowances.
Some experts believe the group still is too bloated. Ratan Tata concedes he has "not been very successful" at pruning the number of companies and downsizing staff, which currently totals about 290,000.
Among Tata's holdings are steel makers and a consulting service that does software engineering and other work for western firms.
Ford shares edged up a penny to $6.01 in morning trading Wednesday. They have traded in a 52-week range of $4.95 to $9.70.