The cost for Tata Motors to enter the worldwide auto game was $2.3 billion, as the deal between Ford (NYSE: F) and the auto company based in India was confirmed today.
While the deal cost Tata $2.3 billion, Ford will pay somewhere around $600 million into the pension fund for Jaguar-Land Rover workers at the closing of the deal.
Ford will be glad to get rid of this luxury division, as it never panned out for them, and they just needed to eat the cost of the two companies which they paid about $5.2 billion for.
Erich Merkle, vice president of auto industry forecasting for the consulting company IRN Inc. in Grand Rapids, underscored the fiasco this has been for Ford, saying, "Jaguar never has made a profit under Ford.
"How can you call it anything else? You have to cut your losses at some point. It's been draining them of cash and resources."
Ford CEO Alan Mulally said, "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."
Mulally added that the cash from the sale will be directed toward product development and improving the quality of their vehicles.
For Tata, it will give them the long-desired foothold into the global market, as well as the recognition that comes with it.
The lead analyst for the auto industry for the consulting firm Frost and Sullivan India, V.G. Ramakrishnan, said about the deal that "It gives them a much better branding image in the global market. 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 has a good reputation, and is said to be the "oldest and largest conglomerate" in India. They also use a lot of their funds for philanthropies, and are known for being ahead of the curve in India for helping its workers.
After the deal clears, Ford will benefit from an extra influx of capital, along with being able to focus on their better selling vehicles. Tata Motors will become a larger player in the global auto industry, and will be able to provide more capital to the Jaguar and Land Rover brands to give them what they need to generate growth.
It's a good deal for everyone involved, including the workers.
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Ford's rating unaffected by sale of Jaguar and Land Rover - S&P
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