Thursday, March 27, 2008

Jaguar, Land Rover deal not without challenges: experts

With the acquisition of Jaguar and Land Rover, does the Tata group have the two big cats of the British automobile industry by the tail? Analysts are posing this question given the implications of the future emission norms in Europe. But Tata Motors are confident of addressing the challenge.
According to analysts and automobile engineers, Tatas Motors may get choked with fines on Jaguar and Land Rover - the brands acquired for $2.3 billion from Ford Motors Wednesday - when the proposed emission norms come into force by 2012.
"The maximum permissible emission limit will be 130 grams per km per model. The manufacturers may be fined if their models emit more," said Krishnasami Rajagopalan, senior analyst with Frost and Sullivan and a qualified automobile engineer.

Vehicle makers have an escape route if they average out their emissions over the entire fleet and set off the excess in some against lower emissions in others, he said.
"But for Tata Motors, having just two models in Britain could pose challenges," Rajagopalan, who heads the consultancy's Automotive and Transportation Unit, told IANS.
Nevertheless, C. Ramakrishnan, president and chief financial officer for Tata Motors, was confident of addressing the challenges. "The two models will meet the emission norms. Necessary agreements have been signed with Ford for sourcing engine technology."
The engine supply agreement signed with Ford Motor is mutually satisfactory and will be for a period of 5-9 years depending on the model. "There are some normal technologies that come along with an acquisition. Some other technologies do come under licensing agreement," said Ramakrishnan.
Car manufacturers, including premium and sports car makers, generally work on alternative powertrains such as hydrogen, fuel cells, electric vehicles and hybrid vehicles, then plug-in hybrids.
"Though Ford is already developing alternative powertrains, will it be ready to share its technology with Jaguar and Land Rover owing to its engine supply pact with the Tatas?" queried Rajagopalan.
"This could eventually result in the technology being accessed by Tatas and indirectly by Fiat through Tata," he said, while adding that car makers may be allowed to trade on emission certificates as in the case of carbon trading.
The other challenge for Tata Motors is the flexibility available to cut costs at the production sites in Britain, the process of integration and the challenges posed by the market, said Piyush Parag.
Tatas have decided to retain manufacturing of Jaguar and Land Rover in their home country, it will have also have to contend with higher cost of production and rising material prices in Western Europe, said Rajagopalan.
"The biggest challenge for Tata Motors is to balance the increase in costs with tradition, quality and performance of Jaguar and Land Rover. It remains to be seen if this will push Tata to look at low cost manufacturing in the near future."

This apart, since Tatas Motors will have separate supplier base for their India operations and that in Britain, the benefit synergies of scale may not be available - at least for the first five years.

But Ramakrishnan said the group could look at the possibility of sourcing some components from India. "Both the companies have competent high quality vendors. Nevertheless we will explore the possibilities to synergise all our operations."

Indo-Asian News Service

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