Can Tata live with costs of Jaguar?

Mar 5 2008 by Alistair Houghton, Liverpool Daily Post

AS THE motor industry gathers for another of its showcase festivals – this week in Geneva – the motoring press is again buzzing with stories about Indian industrial giant Tata and its imminent takeover of Jaguar and Land Rover (JLR).

The Indian car and truck manufacturer was named in January as Ford’s preferred bidder for the two prestigious brands and their UK factories, including the plant at Halewood that employs more than 2,000 people.

News that Ford had put the brands up for sale immediately sparked fears for the future of Halewood and the other Jaguar Land Rover (JLR) plants at Solihull and Castle Bromwich, but Tata has reassured unions by committing to preserve those factories.

The final memorandum of understanding is due to be signed this month, though the Daily Post understands it could still be just days away as Tata and Ford hammer out detailed agreements.

While the short-term future of Jaguar’s UK plants looks secure, Tata will undoubtedly face huge cost pressures after its acquisition as it bids to turn around the loss-making Jaguar arm of the business.

So does that mean that in the long-term Jaguar’s UK manufacturing base, with its associated high costs, could be unsustainable? Analysts and unions seem to think not, although they say JLR’s reliance on UK components may have to change if Tata wants to slash costs.

Jaguar and Land Rover are brands marketed on their “Britishness” and the fact they are made in Britain, leading some to suggest that they will be built in this country indefinitely.

But Aston Martin, another former Ford-owned British brand, yesterday announced it was to build one of its models outside the UK for the first time.

The circumstances may be different – the Aston Martin will be built in Austria, hardly a low-wage economy – but it shows that even being an iconic British brand will not automatically preserve manufacturing here.

Senior officials from trade union Unite, including its Merseyside-born joint general secretary Tony Woodley, have held several meetings with Tata and Ford to discuss the progress of the deal.

The union’s national secretary for the motor trade Dave Osborne said they were pleased Tata has reaffirmed its commitment to JLR and its UK plants.

Mr Osborne said Ford had also agree to put a “substantial amount of money” into the pension funds at JLR to eliminate pension deficits.

He said JLR wanted to move some work pressing body panels for their vehicles, which is currently done in Dagenham, to its own plants. That could increase staffing at Jaguar Land Rover.

He said: “Tata, like the other bidders, has given a commitment to the manufacturing footprint remaining certainly through the duration of the current business plan which runs to 2011.

“The business plan post-2011 actually assumes higher employment levels than there currently is.

“On that basis we see no reason post-2011 why there shouldn’t be three manufacturing plants going forward, particularly if plant utilisation has been increased in the meantime. Part of bringing the pressings in-house is to assist that.”

FOR Unite, the issue is not just about JLR plants – the union also represents workers at Ford plants that supply engines to the brands and at Getrag plants, including that in Halewood, that supply gearboxes. Any plans by Tata to change those supply chains will be watched closely by Mr Osborne and union officials.

Professor Karel Williams, a motor industry specialist at Manchester Business School, says Tata’s first priority will be sorting out JLR’s existing businesses rather than outsourcing work.

He said: “Their immediate set of issues will be trying to sort out the market failure of Jaguar – ie, they have all these models but nothing is selling – and reinventing Land Rover in a market with strong demand for hybrid diesels and small 4x4s, because otherwise it will look a bit like Land Rover is a dinosaur product.

“Unless they get on with those two things, the business has no long-term future, period, whatever guarantees are given about jobs.

“I think Ford has been extraordinarily patient with the business and let’s hope Tata is equally patient.”

Prof Williams said he did not believe Tata would consider outsourcing in the short-term as the most expensive components for the vehicles would still come from the UK. Engines will still be supplied by Ford’s UK plants while gearboxes will be supplied by Getrag, which has a plant near Jaguar in Halewood.

But, he said, Tata will decide its long-term marketing plans before it makes long-term commitments.

He said: “We can assume one of their objectives would be to get heavily into the Chinese and Indian markets for premium products. If they’re selling there, given the component infrastructure that China has and India will have in five years then obviously they wouldn’t export from the UK.”

Ian Fletcher, automobile industry analyst at Global Insight in London, is warning that the Jaguar Land Rover deal could prove to be a drag on Tata thanks in part to its commitments to UK manufacturing and component supply.

But he says Tata will eventually want to cut costs in other ways that could affect JLR suppliers.

“Obviously, once they’ve bought Jaguar and Land Rover, they’d like to reduce their overheads,” he said.

“What’s likely to happen in four or five years is that they’ll not necessarily move manufacturing itself but they’ll start sourcing components from overseas markets.”

alistairhoughton