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Tatas seek long-term pact with Ford for Jaguar-Land Rover engines

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Old 03-16-2008 | 02:39 PM
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Tatas seek long-term pact with Ford for Jaguar-Land Rover engines

Tatas seek long-term pact with Ford for Jaguar-Land Rover engines

In what could help Tata Motors to rein in its cost, the company is close to convincing Ford to supply engines of Jaguar and Land Rover at a pre-agreed price under a long-term contract. This is the last issue that Tata Motors has to resolve with Ford before acquiring the two marquee brands. The deal would be signed sometime early second quarter.

Sources familiar with the negotiations told ET that the Tatas want to ensure that the prices of the high-end technology engines don’t fluctuate with raw material costs. “The Tatas don’t want a fixed-price supply agreement with Ford as it is not possible in a long-term contract. But they want to sign a deal with a fixed price range so that any rise in raw material costs would not impact the prices of the engines and in turn, that of the luxury brands,” they said.

According to sources, the Tatas have managed to convey the underling message to Ford. The chances that both the parties will sign an agreement on this line are bright. “For an agreement like this where the seller (Ford) enjoys the sole right to supply a particular product for a long period, a price guarantee is a common demand of the buyer (Tata Motors),” said a banker.

A Ford spokesperson said: “The discussions are going smoothly and I don’t foresee any roadblocks. The deal is expected to be completed in early second quarter.”

According to the Tata Motors spokesperson, “The discussions are going on, and we are pleased with the progress. We cannot provide you with any other guidance, because the discussions and related initiatives are confidential.”

The Tatas are likely to fork out over $2 billion for the acquisition of these marquee brands which Ford has put on the bloc to improve its balance-sheet and prune debts. Tata Motors had kick-started the process of raising nearly $3 billion, mostly from the overseas markets, by giving the mandate to banks including Citi and JP Morgan, Standard Chartered, BNP Paribas and SBI. It is learnt that the entire fund is being raised against the balance sheet of Tata Motors.

Sources said the Tatas may find it difficult to raise funds at a cheap rate, given the tightness in the global money markets. Tata Motors also announced plans to raise Rs 4,000 crore through sale of securities in the domestic and global markets. A part of the proposed fund raising will also be used for production of Nano, the world’s cheapest car which is expected to hit the Indian markets by October.

Ford has designed and manufactured the engines specifically for Jaguars and Land Rovers. “The engines have a long life span and so there has to be a long-term commitment between Tatas and Ford,” said a source. Ford makes produces these at two factories in Britain, one each in Wales and Essex, and a factory in Germany. Tata Motors currently does not have the powertrain technology needed for such luxury automobiles.

Ford had announced Tata Motors as a preferred buyer in January. “Ford is committed to focused negotiations at a more detailed level with Tata Motors concerning the potential sale of the combined Jaguar/Land Rover business,” Lewis Booth, Ford executive vice-president with responsibility for Europe, said on January 3.
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