Tata Motors’ $2.3 billion purchase of Jaguar and Land Rover is an important step for the company. The history of the auto industry shows that premium brands help companies break out of the trap of being seen as makers of shoddy goods. Toyota did it with the Lexus, Nissan with the Infiniti and Honda with the Accura. So, Tata Motors has bought its way out of the image trap.
How it will rustle up the money to pay the bill will be an immediate worry for shareholders. It has already mopped up $3 billion as one-year bridge loans from global banks. It will be worth watching what the long-term funding plan is. The price of Tata Motors’ credit default swaps has shot up since it was named as a preferred buyer for the two marquee brands in January. Its credit risk has risen.
The longer term issue is what Tata Motors does with Jaguar and Land Rover, neither of which has been in good health. The key will be launching new cars that sell and managing a portfolio that now stretches from the Tata Nano to the Jaguar.