Jaguar, Land Rover look to buyers in India

(Fortune) -- Have boutique luxury car brands gone out of fashion? So it would seem. Not long ago high-profile upscale automakers sold faster than blue-light specials at Kmart. Buyers raced down the aisles, filling their shopping baskets with the likes of Lamborghini, Aston Martin, and Saab, not to mention Jaguar and Land Rover.

But now that Ford (Charts, Fortune 500) is trying to dispose of the latter two enterprises, it's clear that the shine is off the chrome. Ford is clearly a motivated seller, but it is having trouble finding qualified buyers.

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Bizarrely, two Indian companies are among the leading bidders. Tata Motors (Charts) is basically a maker of commercial vehicles that has been building passenger cars for only a decade. Mahindra & Mahindra, which specializes in agricultural and utility vehicles, is just starting to build passenger cars this year. Whatever expertise either company has in developing and marketing luxury vehicles can basically be rounded to zero.

Furthermore, the notion, expressed in one prominent business daily, that they could leverage economies of scale at Jaguar and Land Rover with their existing operations in India pegs the laugh meter. That would be as likely as mating a Mini Cooper to a Peterbilt truck. And how many Anglophile owners of Jags and Range Rovers are likely to remain loyal to their brands once title passes to the sub-continent?

Back in Great Britain, employees at the two companies are said to be rooting for a successful deal by one of the private equity bidders. The leader is One Equity Partners, whose bid is fronted by former Ford CEO Jac Nasser. But private equity, with its propensity to strip and flip, presents a big public relations problem for Ford.

Still the market share leader in Great Britain, it hardly wants to be viewed as sending the two companies along with their 20,000 employees through the private equity grinder. Besides, it is hard to see how the companies would survive as stand-alone entities without affiliation with any other automakers. Ford would be forced to remain a minority partner so that it could provide technology to the two companies and help offset the cost of meeting stiff proposed EU regulations on tailpipe emissions.

So perhaps the Indians win by default. Prof. Garyl Rhys of the Cardiff University Business School in Wales say Tata would be a more stable buyer and be most likely to treat Jaguar and Land Rover "in a responsible way." That means not closing plants, laying off thousands of workers, or tearing up supplier contracts.

Private equity, with its primordial urge to wring value from its purchase, would have a hard time refraining from swinging that ax. Rhys agrees that production synergies with Tata would be difficult to exploit, but notes that "at least everybody would be singing off the same hymn sheet."

But when he steps back from the immediate issue to look at the British companies from a greater distance, Rhys asks, as I do, a more direct question. Ford ran Jaguar for some 18 years and lost in excess of $10 billion in the process. (After a period of losses, Land Rover is currently profitable) If Ford, with 100 years experience in the auto business, has not been able to make a success of this company, how can we expect the next buyer to have any greater success?

In the end, Rhys says, an auto company like Jaguar -- which marries an illustrious history with as a perfectly awful profit-and-loss statement -- is an example of the greater fool theory. The next buyers will be "one set of characters who think they can do what everybody else failed to do" -- turn Jaguar into a sustaining enterprise.

Perhaps that is why Mercedes-Benz, BMW, Audi, Porsche, et. al, have remained on the sidelines during the bidding.

At least they will be getting it at a good price. The Financial Times reports that with an outstanding pension deficit at the two companies of more than $2 billion, Ford may have to pay a buyer to take Jaguar and Land Rover off its hands.