Why is Ratan Tata happy to write such a sizeable cheque for Land Rover and Jaguar? The £1.15bn the Indian conglomerate is paying for the two marques certainly crystallises an embarrassingly large loss for Ford, but that doesn't mean the price tag represents a bargain.
Ford has been very fortunate to find in Tata the one business in the world able to justify this deal. During the interminably protracted sale process, private equity bidders fell by the wayside, while no other large car manufacturer entertained serious thoughts about expressing an interest.
Tata, on the other hand, has both the financial clout necessary to buy Jaguar and Land Rover, and the aspiration to become a major player in the global automotive industry. It lacks expertise, or even a presence, in the sectors of the market occupied by either company but has the ambition necessary to overcome any doubts that Ford's well-documented problems with the brands might have prompted. Mr Tata will know that buying Jaguar and Land Rover gives him instant access to technology and expertise that will be hugely valuable across the company's engineering businesses. Building such knowledge organically would take many years.
Still, Tata faces all sorts of problems in making a return on its investment. The first is that though the two brands currently enjoy quite different fortunes – Land Rover is relatively profitable, while Jaguar is very much not – separating them would be a logistical nightmare, given the extensive integration of their production and technology.
In other words, this is an all-or-bust transaction; as Tata can't split the two businesses it must concentrate on reviving the fortunes of Jaguar, a task that is far easier said than done. This, after all, is a company that as recently as six years ago was selling 130,000 cars a year, but is now down to 60,000 units. Sales in February were 33 per cent down on a year ago in the US and 25 per cent down in Europe.
Jaguar is flagging so badly because it is too small to compete with the likes of BMW, which sells 20 times as many cars each year, and does not have the prestige to operate in the space occupied by, say, Bentley or Rolls-Royce, which sell tiny numbers of vehicles at very high prices.
The challenge for Tata, then, is to transform the scale of Jaguar's business. This will require new models, better marketing, more innovation and, above all, huge investment. All this in a global market for cars that has massive over-capacity. Maybe the task can be accomplished. After all, Ford has not covered itself in glory at Jaguar, with new designs poorly received and a total failure to develop new markets.
But even assuming the hurdles can be overcome, another serious problem is looming large for Tata – both Jaguar and Land Rover produce cars that are about as un-green as one could imagine. And in Europe – particularly the UK – the outlook for gas guzzlers is pretty dismal.
In 2012, the European Union plans to begin fining car manufacturers with models that don't get the average carbon dioxide emissions of their fleets below 130 grams per kilometre travelled. And in the UK, it's pretty obvious the Treasury now regards it as open season on the type of cars Jaguar and Land Rover currently produce.
Tata has time to mitigate such worries and its investment in research and development projects at Warwick University – plus plans for a new automotive technology centre in Europe – demonstrate its determination to do so. The success of the Lexus hybrid models is an example of where Tata should be heading, but there is an enormous amount of catching up to do. And it will be expensive catching up, financed by Tata rather than internally – Land Rover's profits are not sufficient to fund roll-outs of new models.
Where does all this leave the prognosis for British jobs? The good news is that in the short term at least, Tata is committed to maintaining employment levels in the UK, with staff told to expect no material change to their terms and conditions. Ford's cash injection into the pension fund is also excellent news.
In time, however, the trades unions that welcomed yesterday's announcement may grow less enamoured with Tata. It's very likely some production will eventually be moved to India, or at least that new models introduced to the two ranges will be produced in part by an Indian workforce.
Tata will certainly not engage in the sort of wholesale outsourcing seen following Nanjing Automobile's takeover of MG Rover in 2005 but many motor analysts believe British workers should be worried by the pricing of yesterday's deal. Moving production to a far cheaper base may, in the end, be the only way the numbers can be made to add up.
Red faces all round at the FSA
There is something to be admired in yesterday's mea culpa from the Financial Services Authority on Northern Rock. It's not often that a public-sector organisation is so honest about its failings. And, of course, all organisations learn by their mistakes.
That's the charitable bit out of the way. The truth is that after months of high-brow discussions and academic soul-searching about just how Rock came to collapse, what emerges from the FSA's internal audit is a picture of rank incompetence.
First, those excuses in full. The regulator blamed limited resources for some failings and the fact it was coping with an unusually high workload during the run-up to the Rock crisis, with a series of banking mergers to examine, as well as the new Basel capital adequacy requirements. The extent of the credit crunch was "generally not foreseen by commentators", it added.
Then there's a dig at the Bank of England, which, the FSA said, could reasonably have been expected to have pumped sufficient liquidity into money markets to prevent Northern Rock's demise.
Above all, the regulator believes that even if it had done a better job supervising Rock, the bank might still have collapsed. (As it was not necessarily wrong for it to conclude that Rock's business model, so heavily dependent on mortgage securitisation, had a low probability of failing.)
Forget all that stuff. Drill down into the minutiae of this audit, and the FSA's regulatory failings are shocking.
Northern Rock, for example, was supervised by a team that spent most of its time policing insurance companies. In its wisdom, that team decided the bank only needed to submit to in-depth regulatory reviews every 36 months, far less frequently than the vast majority of high-impact companies (defined as those where a failure would have serious consequences for society).
In the first eight months of 2007, the team met with Rock on just eight occasions, compared to an average of 22 meetings held by other teams with high-impact groups. It's not even possible to say what was discussed at these meetings – no proper records were kept.
The litany of errors goes on and on, but the killer stat is that of 38 high-impact companies studied by the internal audit, 37 had a proper risk management plan in place with the FSA. No prizes for guessing which Newcastle-based mortgage bank was the odd one out.
In other words, beneath all the philosophical bluster about the exact responsibilities of the tripartite authorities (not that the FSA seems to have asked the Bank for its views, given the assumptions it made about liquidity injections), this is a story of some very basic cock-ups.
Yesterday's report said Northern Rock was an "outlier", in that its analysis of regulation of other high-impact firms showed higher standards.
What a pity the regulator fell down on the job most seriously in the one case where it could least have afforded to do so.