Pune: British auto manufacturer Jaguar Land Rover (JLR), acquired by India’s Tata Motors Ltd plans to leverage its new parentage to source parts from Indian suppliers even as it struggles to cope with a sharp slump in demand for luxury cars and sport utility vehicles.
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A JLR team is expected to visit factories of suppliers over the next few weeks to initially conduct audits of the quality and production systems and processes. “Since the company is likely to eventually want to even develop a few components from India, given its reputation as a high quality, low-price destination for auto components, the JLR team will also inspect the vendors’ engineering and product development capabilities,” this person added.
“Jaguar Land Rover is a subsidiary of Tata Motors. Should Jaguar Land Rover seek to expand its sourcing base from India, Tata Motors would provide it with necessary support,” said Debasis Ray, head, corporate communications, Tata Motors, in an email. He added that JLR “has been historically sourcing some components from India.”
“As is the case with all global manufacturers, Jaguar Land Rover sources product from all over the world, including India, and we are in constant discussion with all of those supplier partners. This process continues, but we do not go into specific details on any of our daily operations or travel activity”, a JLR spokesperson said in an email.
JLR’s move to source parts from India is an expected one. In an analyst presentation in June 2008, soon after the acquisition had been finalized for $2.3 billion, Tata Motors had listed long-term benefits from component sourcing and low-cost engineering and design services as one of the reasons for acquiring JLR.
Slump strategy: Jaguar cars at a dealership in Cambridge, the UK. Executives from Jaguar Land Rover are expected to meet suppliers in India over the next few weeks. Bloomberg
Meanwhile, Tata Motors continues to try and raise funds to refinance the $2 billion portion of the bridge loan it took to fund the acquisition and which comes due 2 June. A 5 March report from Kotak Institutional Equities said “Tata Motors and Jaguar Land Rover have enough borrowing capacity to refinance most of its bridge loan.”
On Monday, Standard and Poor’s Ratings Services maintained its December 2008 “BB-” long-term corporate credit rating with negative implications for Tata Motors. “We believe Tata Motors’ cash flows—particularly from Jaguar and Land Rover (JLR)—and related metrics may materially deteriorate on a consolidated basis. That’s because, in our view, the operating environment continues to be extremely adverse for JLR and, to a decreasing extent, Tata Motors’ India operations,” said Manuel Guerena, an S&P credit analyst. “In addition, the company has high debt, including a big proportion of short-term debt.”
Shares of Tata Motors, which have fallen 70.2% since June 2008, closed 2.97% higher at Rs166.40 each on Monday, a day when the Bombay Stock Exchange’s benchmark Sensex index rose 2.13% to 8,943.54.
In recent years, global auto makers have turned to India for their component sourcing needs, driven by the need to cut costs and improve efficiencies.