Monday, December 22, 2008

Tata’s love for Ferrari ..



Just one week back the whole auto industry breathed a sigh of relief when the federal government approved more than $17 billion dollars as bailout package for likes of Ford, Chrysler and General Motors. Due to expectation of unfavorable economic conditions people are actually delaying their plans to buy new car. The reduced sale of new cars is leading to increases inventories and losses for all major Auto and auto ancillaries companies in the world. 


Everyone knows that last one year has not been the best of the year for Tata Motors (TTM). The average four wheeler sales growth rates have also reduced from preceding year and has turned negative which has caused TTM to cut down the production and give paid holidays to its employees . TTM is suffering hugely due to losses suffered in Singur which is in excess of $100 million, the untimely buyout of JLR had caused huge cash outflows and they are paying huge interests to cover the deal. The rights issue launched to pay a part of the deal was also not fully subscribed and was financed by Tata Sons. The Tata-owned Jaguar and Land Rover continues to lobby the UK government for a £1bn tax-payer bailout when they are actually bailing out likes of Ferrari. 


When the companies are conserving cash which can save themselves from future trouble, it’s very tough to understand the Tata’s logic to sponsor Ferrari for Formula One car racing championship. The question now is about surviving next two years rather than expansion for new phase of growth.


There might be a long term vision or strategy behind such move but I as a person am unable to comprehend the logic of such spending when you need to set your house in order first.

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