MUMBAI • Tata Motors and Zhejiang Geely Holding both bought iconic luxury brands from a struggling Ford Motor in the wake of the global recession. Both acquisitions were met with scepticism from investors, who now view the two firms very differently.
Since Geely's US$1.5 billion (S$2.04 billion) purchase of Sweden's Volvo Cars in 2010, the Chinese carmaker has seen the share price of its listed unit increase sixfold in Hong Kong trading.
India's Tata, which bought Britain's Jaguar Land Rover (JLR) two years earlier for US$2.5 billion, has merely doubled in the same period. The contrast is even starker in a shorter timeframe: Tata is down about 21 per cent this year, while Geely is up 155 per cent.
The difference, said Singapore-based automotive consultant Jochen Siebert, lies in what the companies have done with their landmark purchases.
Under chairman Li Shufu, Volvo Cars was able to lower its costs and gain economies of scale by manufacturing and selling in China, the world's largest car market. Geely in return benefited from the technology of the more established Swedish carmaker through the development of common underpinnings, which Volvo Cars also uses for its smaller models.
When Tata wanted a partner to help it break out of the domestic India market, it looked not to its luxury division, but to Volkswagen's Skoda. JLR and its Indian parent were just "too far from each other" in positioning, preventing them from creating any synergies between them, said Mr Siebert.
Talks about a partnership between Skoda and Tata ended last week without a deal as the projected cost savings fell short of expectations.
"Tata sees JLR as a standalone and a financial shareholding," said Mr Siebert, managing director of JSC Automotive Consulting. "As long as Tata doesn't want to develop into a higher-positioned brand in its own right, there is just no way to cooperate with JLR."
Geely's shares rose 2.8 per cent to HK$18.94 as of 9.54am in Hong Kong trading yesterday. The benchmark Hang Seng Index advanced 0.8 per cent.
A spokesman for Zhejiang Geely said the success of the acquisition "has been down to Volvo's strong product range and customer-centric design and engineering ethos".
Tata did not immediately offer a comment. It is now almost entirely dependent on its luxury unit for profits. JLR accounted for 78 per cent of the group's total revenue and 96 per cent of its operating income.
BLOOMBERG
