Tata Motors to develop new JLR engines in-house

Indian engineering will play a role in the design of new Jaguar Land Rover engines, Tata Motors chief executive Carl-Peter Forster said today, a long-term threat to Ford which is now under contract to supply JLR engines.

Tata Motors bought Jaguar Land Rover from Ford in 2008. As part of that deal, Tata Motors entered into a series of contracts to buy vehicle components and technology from Ford.

Forster said those contracts begin to expire around 2015. He said he intends to renew them, but would like to engineer new Jaguar Land Rover engines in-house, combining the expertise of the group's engineers in India and the United Kingdom.

Ford declined to comment.

"In this segment, image is very important," said Deepesh Rathore, chief vehicle analyst at IHS Global Insight in New Delhi. "You can't keep running your cars with Ford engines. You need to have your own engine."

He said the contracts were probably worth a few hundred million dollars to Ford. "Business-wise it's definitely a loss, but I think it's something Ford would have always been prepared for," he said.

The move comes as Tata works to integrate its UK operations with its low-cost India base. Forster said Indian engineers would help out with the redesign of the Defender.

"We are determined to come up with a modern-day Defender," Forster said. "Our team here in India has a lot of expertise with off-road and 4x4 vehicles for developing markets. This is not to say the next generation Defender will be engineered in India, but we are one company and we should leverage our capabilities."

He said Tata Motors' Indian expertise in engineering small engines could prove especially helpful. Global demand for small engines, even in the luxury segment, will probably grow as small engines become more powerful and fuel efficiency becomes more important, he said.

As India - and China - develop their car industries, more production will probably move offshore due to cost pressures, despite political headwinds against offshoring, analysts say.

Tata plans to assemble the Land Rover Freelander for domestic sales in India next year and source some parts locally, Forster said. That is essential to stay competitive with BMW and Mercedes, which already import kits and assemble them locally, drastically reducing import duties which results in lower consumer prices.

The company is also looking for a joint-venture partner in China, its fastest growing Jaguar Land Rover market, to start assembling vehicles there and source some parts locally. Tata is on track to sell about 25,000 Jaguar and Land Rover vehicles in China this year, Forster said.

He said he wanted to further develop the capacity of Indian suppliers. Once that happens, he said, Jaguar Land Rover engines could be jointly engineered in India and the UK and substantially sourced out of India.

"It should be our aim to combine the strengths of what we have in Europe and what we see and can develop in India," he said.

Forster said he has no intention to offshore full production of Jaguar Land Rover. "The mainstay manufacturing of Jaguar Land Rover we want to stay in the UK. We don't want to deindustrialise the UK," Forster said.

Rathore says that would not be commercially feasible anyway until Indian demand for luxury vehicles gets far larger, which is not likely to happen for decades.

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