Fords hurt= Tata Motors gain
Ford Motors has been going down the tubes only to benefit Tata motors, the equivalent of Toyota to developing nations. The American automakers struggle with Unions and pension plans has forced Ford to sell the Jaguar brand and Land Rover to Tata motors for just $2.3 Billion, less than half the $5.2 Billion that Ford paid for both brands.
$600 Million of the sales price will go directly to the pensions of Jaguar and Land Rover pension plans which have been underfunded as Ford faces huge losses. The actual price that Tata will pay is $1.7 Billion, with the $600 Million going to pensions.
This gives Tata Motors great branding in worldwide automaking. The firm also makes the Tata Nano; the first $2500 car geared toward developing nations such as China or India. Developing nations want personal transportation for an affordable price, no doubt the Nano will fill that void.
Jaguar was never able to turn a profit under the administration of Ford but should turn to profitability under Tata Motors. The firm is known for amazing cost cutting while keeping quality. Tata Motors may be able to escape the pension programs that have been hurting American automakers by sending production overseas. This was not planned, but is certainly something that Tata motors can do to cut costs.
Tata Motors received a $3 Billion loan to float the arrangement from a number of banks. The company said that it will replace financing by issuing debt and “unlocking” value from its investments. This gives investors a reason to believe that Tata might flip their investment in Jaguar once it returns to profitability.
This gives Tata a look into the luxury car market through Jaguar which produces cars in the $50,000+ price range while maintaining its stranglehold on the affordable car market with its own production. This is a huge win for Tata Motors.
Tata traded down today to $16 per share, which puts it at a PE ratio of 11 and a PEG of .7. The stock looks like a great buy here. All in right here.
