Tata buys Ford's luxury marques for just $2.3bn

Tata Motors ended months of speculation yesterday when it agreed to buy Land Rover and Jaguar for just $2.3bn (£1.15bn) in a deal that gives short-term security for 16,000 workers at the luxury marques.

The final price – less than half what Ford had paid for the companies, not to mention the billions it pumped into them over its two decades of ownership – was a reflection of how far the companies have fallen under the American giant's stewardship. So desperate was Ford to rid itself of the struggling brands that it agreed to inject $600m into the pension funds to seal the deal. It will also continue to supply components and technology, and provide financing, through its credit arm, to dealers and customers for up to a year to see through the transfer of ownership.

The deal won the immediate approval of the Government and unions, who had worried about massive job losses. Roger Maddison, of the union Unite, said: "Today's deal is really good news for the UK automotive industry and the thousands of people who work for Land Rover, Jaguar and its supply chain." The union said it had secured from Tata written agreements on staffing levels and terms for all five of the companies' UK plants. "The sale ensures our members' futures and we look forward to working with Tata," Mr Maddison said.

Analysts were sceptical of the soothing messages dispensed yesterday by Ratan Tata, head of the all-consuming Indian conglomerate whose other companies include UK icons Tetley Tea and the former British Steel. "There is no way Tata can keep those jobs in the UK other than for a brief courtesy period, and that's assembly line and supplier jobs. They have to go to India," said Krish Bhaskar, automotive consultant at the Motor Industry Research Unit. "It's very sad, but those are the economic facts."

America is the world's largest car market, and given the strength of the pound against the dollar the cost of production in the UK made it very hard for either Land Rover or Jaguar to make money and led to years of value destruction for Ford.

Land Rover is understood to be turning a modest profit. Jaguar is another story, racking up billions of pounds in losses over the years, losses that the ailing American giant is less and less able to shoulder.

Industry experts were also asking yesterday just what Tata's long-term plans for the marques would be. Many questioned how well the acquisition would fit with Tata's strategy, until now at least, of making cars for the developing world. The company launched the world's cheapest mass-produced car, the £1,250 Nano, earlier this year.

Tom Donnelly, a professor of Automotive Business at Coventry Business School, said that even if Tata does move some production offshore eventually, it would likely do so on a "complete knock-down" basis, under which most of the guts of the car are made in the UK – allowing it to keep its "Made in Britain" label and the cache that goes along with it – but assembled overseas.

Some of the problems that have plagued Jaguar can be laid squarely at the door of Ford. For example, the company used the body model of its Mondeo saloon, a mid-market family car, as the basis for Jaguar's X-Type. Mr Donnelly said: "The car looked like a very expensive Mondeo. They just can't afford to do that."

When the X-Type was launched, Jaguar spoke hopefully of generating annual sales of up to 200,000 cars per year and beyond. Last year, it moved just over 60,000, a drop of nearly a fifth from the previous year. The success of its new XF model, launched earlier this year, is critical to its near-term health and how quickly Tata will be able to turn it around. Early reviews have been positive.

For Land Rover, the problems are equally daunting. Its gas-guzzling sports utility vehicles are facing increasingly stringent fuel-efficiency requirements from the European Commission and US regulators. And recent changes to the tax code will mean that new buyers will have to pay a punitive tax.

They are problems that Ford will gladly be rid of.

Budget cars to luxury brands and everything in between

How, Ratan Tata was asked just two months ago, could his company launch a budget car such as the £1,250 Nano while bidding for a luxury brand such as Jaguar or Land Rover.

Mr Tata, 67, was too much of a gentleman to say so, but it was clear he did not think much of the journalist's question. "If you take Unilever, they may make a soap in Africa for the masses and they may make a high-class cosmetic product in the UK and that high-end cosmetic product has its own brand equity," he responded.

Yesterday Mr Tata saw his wish fulfilled by securing the two luxury marques. The great-grandson of Jamsedji Tata, the founder of Tata Group, he heads the largest private company in India, a business that operates in 85 countries. Its annual sales total around £9bn. A year ago it bought UK-based Corus steel, to create the fifth-largest steel concern in the world.

As head of a business whose interests range from tea to trucks and hotels, Ratan Tata is revered by Indians as a national icon. Unflashy and discreet, he has built a reputation as a businessman who is interested in making money but who is interested in other things as well.

When he unveiled the Nano car earlier this year, his supporters announced that here was a man who intended to solve middle-class Indians' transportation needs.

Such reverence has always been attached to the family. When his great-grandfather established Tata in the 1860s, he insisted on workers' conditions that were unheard of elsewhere around the world – eight-hour working days, a pension fund and housing. This earned the family a reputation for fairness that still holds true. Indeed, more than 60 per cent of the Tata Group is owned by charitable trusts which contribute around £200m to good causes.

At Jamshedpur, the city named after Jamsedji Tata, workers at the company's steel plant receive cut-price housing and free health care, education for their children and water. Even electricity is subsidised.

But not everything is so rosy. In the state of West Bengal, there has been a long battle from farmers who say they were evicted from their land to erect the plant that will build the Nano. There were clashes between farmers and police after the 1,000-acre site was fenced off. Protesters said they had not been fairly compensated or had been given no choice. Tata denied the claims.

Andrew Buncombe in Delhi