Autos

Shelly Banjo is a Bloomberg Gadfly columnist covering industrial companies and conglomerates. She previously was a reporter at Quartz and the Wall Street Journal.

The thing about good marketing is that sometimes it actually works. That's why people pay hundreds of dollars for ripped jeans and why Brits still swear by Tetley tea despite the "English" brand being owned by India's Tata Group.

Now, the conglomerate's trying to brew the same magic with Jaguar Land Rover, the luxury unit of Tata Motors Ltd. JLR is considering its first acquisitions since Tata bought the brands from Ford Motor Co. in 2008, Bloomberg reported Tuesday.

Possible targets are trophy assets like Fiat Chrysler Automobiles NV's Maserati, Volkswagen AG's Ducati, or tech brands that can help bolster Tata's efforts in electric cars and autonomous driving.

At first glance, niche brands like Maserati and Ducati look like they'd make little impact on Tata's top or bottom line.

With $3.8 billion in revenue last year, Maserati made up just 3 percent of Fiat Chrysler's sales and 5 percent of its operating income. Likewise, Ducati's 57,000 motorcycles are a fraction of the 10.3 million vehicles VW produced last year.

The addition of a marquee brand like Maserati could add firepower to JLR's quest to position itself as a luxury player along the lines of BMW AG or Daimler AG, which became two of the most successful carmakers by concentrating on profitable, higher-end customers rather than chasing the mass market.

If Tata can use Maserati to bolster its brand image, the halo effect could potentially improve sales of Jaguar and Land Rover, which account for almost 80 percent of Tata Motors' sales.

Driving Downhill
Jaguar Land Rover's sales have dropped for three straight quarters
Source: Bloomberg

The automaker certainly has the money: Tata Motors had more than $6 billion in cash and equivalents at the end of June, up 87 percent from a year ago. And after three straight quarters of sales declines, it could certainly do with the help.

But Maserati would provide only a temporary fix to a larger malady plaguing Tata Motors.

A good deal isn't characterized by the initial purchase, but what a company does with the asset afterward. Sure, buying JLR looks like a win for Tata's dealmakers because of its outsized contribution to the carmaker's annual revenue. But that also has a lot to do with how badly Tata Motors' domestic business has been doing.

Tough Brake
Jaguar Land Rover makes up 80 percent of Tata Motors' annual revenue but sales at the luxury brands have dipped in recent years
Source: Bloomberg

Since the acquisition, the Indian company has failed to bring the kind of cost savings, synergies or global exposure to JLR that Geely Automobile Holdings Ltd. was able to derive from Volvo AG, another Ford cast-off.

Slowdown in the Carpool Lane
After an initial boost from buying Jaguar Land Rover, Tata's ROIC has fallen by half in the last five years
Source: Bloomberg

While the U.K. unit raced to match BMW and Mercedes with similar higher-end sedans, competitors pushed ahead with development of the SUVs and electric cars to which buyers were gravitating. After a good run in the last decade, Jaguar and Land Rover sales are now waning.

JLR's Indian owner, although it's coming out with some new models, is shortsightedly trying to combat the slowdown with ever-increasing discounts and buyer incentives. That will only end up injuring its luxury image further.

Using its cash pile to buy its way to growth with a brand like Maserati isn't necessarily a bad idea for Tata Motors, especially as the rest of the auto industry heads to greater consolidation.

It just has to realize that spending the money is the easy part.

This column does not necessarily reflect the opinion of Bloomberg LP and its owners.

To contact the author of this story:
Shelly Banjo in Hong Kong at sbanjo@bloomberg.net

To contact the editor responsible for this story:
Matthew Brooker at mbrooker1@bloomberg.net