Choosy BeggarsIn today's economy, Americans can't afford to be such snobs.
Posted Tuesday, Dec. 18, 2007, at 7:05 PM ET
The great thing about globalization is that you no longer have to travel abroad to be an Ugly American. In fact, a car dealer in Florida, simply by musing about a prospective corporate transaction, can typify precisely what a lot of the world sees as being problematic about this great nation of ours.
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StumbleUponThe back story: Jaguar, the storied British luxury car brand, has been part of the Ford family since a $2.5 billion acquisition in 1989. But Ford is having a tough time making money producing Jaguars—or anything else. So, it is selling off its high-end niche brands. In March, Ford sold Aston-Martin to a group of investors. Earlier this year, it put Jaguar and Land Rover on the market. Given the difficulties General Motors and Chrysler are having—not to mention this summer's trans-Atlantic credit meltdown—not too many American or British buyers have surfaced. But others have, including Tata Motors, a part of the Tata Group, an enormously successful and sophisticated Indian company. Last year, Tata's firms had revenues of $28.8 billion, a market capitalization of $73.6 billion, and employed 289,500 people. The members of Tata Group include giants like Tata Steel and outsourcer Tata Consultancy Services.
The prospect of Tata owning Jaguar didn't sit well with Ken Gorin, president of The Collection, a luxury-car retailer in the Miami area and chairman of the Jaguar Business Operations Council, a group of Jaguar dealers. He told the Wall Street Journal earlier this month that selling Jaguar to Tata—or to Mahindra & Mahindra, another Indian firm that had been mentioned as a bidder—would present "unique image issues." "I don't believe the U.S. public is ready for ownership out of India," he told the Journal. "I believe it would severely throw a tremendous cast of doubt over the viability of the brand." Further:
Mr. Gorin said he wasn't judging the management capabilities of Tata or Mahindra. "My concern is perception [in the marketplace], and perception is reality," he said. "It's about saying there are unique image issues with two of the bidders that the other one doesn't have."
He added that his concerns wouldn't be relevant if the car brand being sold was mass-market. "We're a luxury brand. ... There are a number of subjective items that create the luster of a brand," Mr. Gorin said. "I don't mean to be negative towards anyone. I don't think we could have a Chinese-owned Jaguar" either, he said.
It may be that the prospect of Indian ownership of Jaguar will turn people away from Gorin's showroom. (I guess when people show up, he doesn't offer them Tetley Tea. After all, it's been owned by Tata Tea since 2000.) And Gorin is clearly not alone in believing Indian ownership will taint a luxury brand. This month, luxury hotel chain Orient-Express Hotels responded to the news that Indian Hotels Co. (also part of the Tata Group) had taken a significant stake in the company by telling it to shove off. "We believe any association of our luxury brands and properties with your brands and properties would result in a reduction in the value of our brands and of our business."
Never mind the implicit prejudice or the potential for brands to be sullied when their representatives behave like neocolonial jerks. If Jaguar could retain an upscale image after 18 years of being associated with the manufacturer of the Ford Taurus, it's pretty well impervious to debasement. And if Indian brands are such poison to luxury properties, how does the Trump Taj Mahal manage to survive? But such attitudes are increasingly economically untenable at this particular moment of financial history. For two massive trends are conspiring to place ownership of U.S. brands and British brands Americans like into the hands of foreigners.
The first is the relative enrichment of a large chunk of the world. If you're interested in selling assets, you can't afford to write off China, or India, or the Persian Gulf because you don't like their politics, or their economic systems, or their history of poverty. Companies (and governments) in these areas are incredibly liquid. They've been busy producing commodities, goods, and services and selling them to the booming global economy. As a result, they have loads of cash and solid balance sheets.
The second is the relative (temporary, one hopes) impoverishment of the United States. As the country comes to grips with the subprime mess and the associated problem of bad debt of all types, American financial firms and private-equity firms have morphed quickly from dispensers of capital to seekers of capital. That's what was behind Blackstone's sale of a 10-percent stake to China's sovereign wealth fund, and behind Citigroup and chip maker AMD raising much-needed cash from entities associated with Abu Dhabi's government.* If Americans believe that the identity of the corporate parent, or of the investor who owns a controlling stake or something close to a controlling stake, will somehow cause damage to the consumer brand, then we're in big trouble. For with each passing month, a growing share of the world's capital resides overseas, in places that would seem to be beneath Ken Gorin. Dependent on foreign sovereign wealth funds and companies for capital, and dependent on foreign central banks to buy our government debt, we have become imperial beggars.
As the economy slows down and Americans cope with the aftermath of the housing bust, they are finding that there are a rising number of luxuries they can no longer afford. Being a snob about the source of capital may soon join that list.
Correction, Dec. 19, 2007: An earlier version of this piece mistakenly referred to chip-maker AMD as ADM. (Return to the corrected sentence.)
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Remarks from the Fray:
Foreign firms have always been keen on buying what they perceive as Landmark companies and properties that belong to the US, only to lose their shirts later. I'm not just talking about Daimler paying $2 Billion to rid itself of Chrysler or The Japanese with Pebble Beach and Rockefeller Center.
The recent acquisitions such as the sovereign wealth fund of China losing $600 million on Blackstone, or Lenovo's absent profits from its purchase of IBM's PC division, prove that the foreign companies are not that good at valuing American assets they buy. Instead of getting a perceived discount, they are the ones who get ripped off instead.
Thus, for any protectionists out there, they should instead embrace the trend of new foreign overlords and allow them to take over our money-losing operations. Their infusion of cash through these purchases can only benefit our economy in the long run, as it keeps businesses that would otherwise be shuttered or significantly downsized from collapsing.
--clevernickname
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We have to finance trade deficits some way, either by borrowing or by selling assets. Seeing how the dollar has been steadily losing value for a few years, maybe them foreigners don't want to lend us any more money if we're going to pay them back in inflated dollars. They don't seem to be interested in snapping up the over-priced real estate that the artificially low interest rates inflated, either. So instead, they buy U.S. companies, like Jaguar.
This is what you get when the economic policy of the federal government is borrow and spend, not only by the government, but also by consumers.
--kgsbca
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It's not your father's Ford, or your father's auto market, or your father's India. It's not about yesterday's customer either. It's about tomorrow's customer. Viewing the market penetration of Mercedes Benz's $30,000 model it seems a savvy move. The Mercedes brand has not been damaged by its middle class offering.
Granted the Jaguar Brand is a bit different from Mercedes, even more rarified, even more dependent on glimmer and the perception of exclusivity. Yet anybody who spoke with a Jaguar owner heard about the mechanical issues, the breakdowns, the cost of parts and repairs. Jaguar is no ordinary automobile experience, seeming more like the love affair that is ownership of an antique auto, [rather] than a genuine transportation mode.
The move to India may not damage the car from a reliability standpoint. It may help to move the brand from an automotive "relationship" to automotive transportation. The perception that India will damage Jaguar may be overplayed. India is a major world player and trade partner with generally good press. Indian people are hardly mysterious to Westerners having earned a place as hard working immigrants and citizens.
Jaguar may sell more cars and make more money, glimmer be dammed.
--Blue State Blues
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It is ironic that those in the developed world find the consequences of globalization so hard to stomach. For years they have been lecturing the developing world about adapting to realities of the modern world and not living in the past and rightly so. Now when the developing world finally emerges into the fray they get all huffy.
--Inquisitor
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An earlier poster writes, correctly, that "luxury goods are sold on perception." Apparently, that perception includes the image of Westerners, or at least those Westerners who can afford luxury goods, as lords of the earth. That's particularly true of British luxury marques, which trade on the memory of the palmy days of the British aristocracy.
Calling a casino the Taj Mahal is reminiscent of the Raj. Buying a Jaguar built by a prosperous and powerful Indian multinational corporation is an unpleasant reminder of how things are today.
--jack_cerf
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It seems from the posts here that there are a lot of people who think that Jaguar sprang full-grown from Ford. Actually there used to be a substantial British automotive industry. Remember MG, Triumph, Austin-Healy, Vauxhall?
Guess what. Those car brands all died, not from US hegemony, but from incredibly bad engineering and manufacture. A relative of mine had a dealership many years ago for some of these brands. He made way more money repairing them than selling them. It used to be axiomatic that a British car would go maybe 500 miles before something broke. Couple that with the styling disasters of Rolls-Royce and the poor engineering of Land Rover, and you have the death of the British auto industry.
Ford tried to do something with the Jaguar brand; something stupid apparently. The Jaguars are more reliable than when they were British-made, but it seems that buyers at that price level are more concerned with a difficult to capture cachet than with reliability or styling (the Jag styles haven't changed that much).
The Jag dealer in Florida is doing his complaining way too late. The Jaguar decline began long before Tata was even a gleam in an Indian's eye.
--alittlesense
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(12/20)