Jaguar, Land Rover talks move to engines and logistics

As the sale of Ford’s Jaguar and Land Rover to India’s Tata Motors comes closer to fruition, sources close to the negotiations say that engines and engine technology have become the hot issues on the table. According to a report in the Detroit News, engine logistics and technology are being discussed in conjunction with other issues such as intellectual property, consumer credit, pensions and residual values for vehicles that are already leased – all topics that come as no surprise with the changing of hands of an automobile company and the effects this would have on its customers.

Ford will only be getting around $2 billion from the deal, suggesting that this move is more about streamlining Ford as a company rather than making a profit from the sales. Jaguar has been hemorrhaging money from Ford for years and will require substantial investment to get it out of the red zone. There are reports, however, that Land Rover has made a profit of $1.2b in the last year, effectively cancelling out Jaguar’s losses and making the combined entity a profitable unit.

The issue with the engines is quite serious - most of the engines used in Jags and Land Rovers are designed and manufactured by Ford and produced in their two British factories. In order to recoup the investment in these two engine plants and regain some of the capital lost through Jaguar, Ford wants Tata to purchase engines from Ford on a long-term basis.

Tata would prefer to produce their own engines in the long term although in the near-future they will continue to purchase engines from Ford. As part of the deal, Tata is also asking for some engineers to be included to develop their own engines, a request which has been causing friction in the deals progression.

Another sticking point concerns intellectual property, most notably the fact that some Jaguar products are based on the same vehicle architecture as other Ford products, effectively giving Tata the chance to modify the X-Type and sell it as a Tata sedan which would provide some significant competition to Ford.

The administration of the workers’ pension funds as well as financing is also being discussed, with debate concerning which company should be responsible for them.

Despite these issues, it is expected that a deal should be inked sometime in February, although there are still some other issues that must be addressed as well as the ones currently on the table.