Imagine a distant relative dies and leaves you £200,000. You might decide to invest in a buy-to-let property and get a rental of, say £1,000 per month, which would give a return of 6%. Now imagine a house that costs £200,000 but gives an income of over £20,000 per month.
That never happens, unless you are Tata and you have bought JLR Towers – or Jaguar Land Rover as it is more commonly known. JLR has just announced that it made £440 million in the last three months – that is just over £145 million per month, compared to a purchase cost of $2.3 billion (just £1.2 billion at 2008 exchange rates).
So how did this bizarre state of affairs come about? Let's stick with the housing analogy for a moment. Mr. Ford bought Jaguar for £1.6 billion in 1989, but he never bothered with a surveyors report – he got into a bidding frenzy and got carried away. He then discovered that, behind the nice facade, lay a wreck: rotten foundations, broken plumbing, dry rot – the lot. So he repaired the house at vast expense, but had no idea about how to make it look better. So he stuck X-Type stone cladding on the facade, and proudly showed it off to the neighbours.
He then bought the house next door in the form of Land Rover, for £1.8 billion. That had previously been owned by a nice man from Munich who had already repaired much of the rotten foundations, so that seemed a much better buy. The rental income was not bad – the Range Rover Sport apartment was said to be the most profitable in the entire Ford portfolio. However, Mr. Ford had problems with his American houses, so he put JLR Towers up for sale. He was asked why he would want to sell Land Rover when it could still bring in decent income. He never gave a straight answer, being too embarrassed to admit that the Jaguar house had been valued at less than nothing by the estate agents. To get rid of Jaguar, he had to sell both properties.
Mr Tata had a few sleepless nights, as everyone wondered if JLR Towers could ever make money, given how bad the economy looked. However, within a year or two, Chinese people started knocking at the door, desperate to rent his rooms. Mr Tata, who had intended closing one of wings (either Solihull or Castle Bromwich was going to be shut), found he could rent every apartment twice over.
In a completely non-ironic way, this could not have happened to a nicer man. Ratan Tata has always been known as one of the most thoughtful and gentlemanly bosses of any big corporation. 15 years ago, who would have thought he would also turn out to be one of the canniest?