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Saturday, July 21, 2007

Can't Tatas buy Volvo from Ford?

Update: I was wrong in my understanding. Volvo cars and Volvo trucks are different entities and Volvo Trucks is not for sale. This nullifies the very purpose of writing this post but you may read on. Thanks for Rajiv and others who corrected me.
~~~~~~~~~~~~~~~~Original Write up follows ~~~~~~~~~~~~~~~~~~~~
This article is a quick analysis of happenings in world Automobile market with particular reference to Ford’s interest selling off its subsidiaries: Volvo, Jaguar and Land Rover.
Ford Motors Logo
Background Information (for those who have not been following recent developments in world Automobile market): Detroit based Automobile Major Ford Motor (NYSE:F) has been running in loss for quite sometime and is reportedly looking forward to sell of some of the other brands it owns: Sweden based Volvo (Nasdaq: VOLV), Jaguar and Land Rover (Europe).(BBC report says Ford has denied such possibilities. Ford has already sold off Auston Martin in March 2007 for US$ 848 million-BBC Report) News is that India’s Tata Motors (NYSE:TTM)is interested in buying Jaguar brand from Ford to help the former gain access to premium car segment and compete with the likes of Audi, Porsche etc.

Related News: Tata in Race to buy Jaguar (on Hindustan Times)
Struggling Ford May sell Volvo for US$ 7 billion (Telegraph)
Image of tata Logo
Now, I suggest (who am I to suggest? Anyway...) Tata to consider buying Volvo instead of Jaguar (or both. Jaguar and Land rover are far cheaper at US $ 1.5 billion, Volvo is several times expensive at 7 billion so funding might be a problem, but don’t think that is impossible)
image of Jaguar concet car

Rest of this article is dedicated to explaining why buying Volvo will be helpful for Tata’s long term success. (Assumption is that they don’t want to dilute their HTV (Heavy Transport Vehicles-Buses and Trucks) portfolio)

1. Tata’s truck manufacturing know-how was originally secured from Daimler Chrysler (NYSE: DCX)(Makers of Mercedez Benz). Now Tata is operating independently and Daimler Chrysler has recently decided to sell of its 6.6 % stake in Tata Motors [Reuters Report], meaning there’ll be no more backing of an international company (both from technology and funding perspective) for Tata Motors
Volvo Logo
2. Volvo buses and Trucks have been a huge huge success in India (as well as other countries). Volvo B7Rs have become a craze among bus operators who are on a frenzy to buy dozens of B7R intercity coaches (they cost nearly 70 lakh each, twice their nearest competition). B7R has been popular due to unique design (low centre of gravity, rear engine, unmatched comfort) Both Tatas and Ashok Leyland have desperately tried designing buses with rear engine but have failed due to design flaws. Tata low floor buses with rear engines were launched in some cities as trial service, they didn't succeed. (Rear engines have some unique advantages like short shaft length, pushing is easier than pulling etc).

Having said that, buying Volvo would strengthen Tata’s Buses and Trucks portfolio and give access to unique technologies Volvo owns. Volvo is also known for cars, marine engines and construction equipments, areas in which Tata already has presence and can expand upon.


3. Premium Truck market in India is hotting up with entry of Mercedez Benz (with their Actros trucks, to be assembled and sold in India[report]), Force (formerly known as Bajaj Tempo)-MAN, Volvo’s F9, F12, FM and other models (imported and assembled at Volvo India plant near Hoskote, Bangalore. Tata’s and Ashok Leyland are unable to compete with them in this segment. (With the supply chain management shifting towards hub and spoke model (i.e. heavy trucks bring the goods till city entrance from where they are distributed in smaller vehicles inside city) cargo operators are increasingly preferring trucks with high tonnage, higher fuel efficiency and express highways are aiding this). Mining and construction industry also prefers to get more work done in less time. Buying Volvo will help Tata corner a majority stake in these segments.
Image of Volvo Truck
Tata has shifted focus towards passenger car segment and is gaining popularity and market share there too. Buying Jaguar will no doubt increase their strength as well as reach by leap and bounds. But for that, should they loose focus on flagship buses and trucks segment?

It might look like a crazy idea but does makes lot of sense. I'm in no authority to dictate someone to spend 7 billion US $.Just my opinion. What do you think?

Note: All images are sourced from external websites.

Also read: Why blame Tata NANO for traffic jams?

2 comments :

Anonymous said...

Hi. Only one problem. Volvo, the company, is not the same as Volvo Cars, which was earlier sold by Volvo to ford.. So, buying Volvo from Ford gives you only Volvo Cars.

Shrinidhi Hande said...

I realize that. I've updated the review to that effect. Thanks for the comment.