As India's Tata Motors finalises its purchase of Jaguar and Land Rover, analysts are questioning its ability to integrate the luxury auto brands with its staid but profitable line-up.
They claim the deal to acquire the two brands from Ford will create opportunities but also challenges for India's number three carmaker.
"About 10-12 years ago, Tata was clearly only a bus and truck maker, while today it is also about small cars, plus Jaguar and Land Rover," said Mohit Arora, managing director for India at JD Power Asia-Pacific.
"It's a bit like an elephant: whichever part you touch, you get a different impression. And there are fears that with so much bulk it can't run," he said.
Tata's presence is mainly in the low to mid-end segments in India and some developing markets, and some analysts have questioned the rationale behind it snapping up brands that will push it into the luxury category and into markets where it has limited experience.
Tata Motors dominates India's commercial vehicle segment with a market share of 60 per cent, producing a wide range of vehicles from sub-one tonne mini-trucks to buses with a reputation for sturdiness and good value for money.
It moved into cars a decade ago with the functional Indica hatchback - rebadged in Britain as the ill-fated City Rover - and in January unveiled the Nano, priced at just above £1,250, or about half the price of the cheapest car on the market now.
Analysts are doubtful if such a line-up can support the ultra-premium Jaguar and Land Rover brands.
"There is very little fit with Tata's current line-up, there are no product synergies, and it will also be very difficult to leverage Land Rover and Jaguar dealers to sell Tata vehicles," said Ashvin Chotai, an independent consultant based in London.
Long term, Land Rover will provide Tata with technology that can gradually be leveraged on to Tata's SUVs, he said, but for now the deal should be viewed more as "an opportunistic move".
Ratings agencies Moody's Investors Service and Standard & Poor's had placed Tata Motors on review for a possible downgrade when it was named the front-runner in early January.
It is thought Tata will have to work with a series of banks in order to fund the acquisition but there is a danger that its credit rating may be adversely affected on account of the large debt.
"Primarily, there are funding and management challenges, as it is a large-scale acquisition," S&P credit analyst Anshukant Taneja in Singapore said.
"In the short-to-medium-term, there could be a negative impact depending on how they fund it. Taking any more debt on their books is a concern," he said.
Moody's said the deal could eventually elevate Tata into a global automobile manufacturer as well as enlarge its scale, improve its technology and broaden its range. However, execution and integration challenges were substantial, it said.
Integration and cost-savings in the near term would be tough, said Ian Fletcher, auto analyst at Global Insight in London, as the deal was likely to be subject to several clauses on issues such as intellectual property rights, sourcing and jobs.
Jaguar and Land Rover could also face increased challenges from, for example, stricter environmental regulations in Europe that are weighted heavily against luxury cars and SUVs, he said.
These concerns have weighed on Tata's shares, which have fallen about 10 per cent since mid-July 2007, when media reports first indicated its interest in the brands. In the same period, the benchmark Indian index has gained nine per cent.
"I'm of the opinion that an automaker doesn't need to have a luxury brand to be successful, and Jaguar-Land Rover could potentially be a weighty commitment for Tata," Mr Fletcher said.
However, the brands look good value, with Jaguar restructuring and its new model line-up well received, he said, adding that Land Rover also had "the strongest product portfolio in a long time".
The deal comes at a time when the credit-market crisis has raised borrowing costs and deterred deal-making across the globe.
Tata Motors is also facing growing competition at home and, like other vehicle makers, is battling high raw material costs.
It plans to spend about £1.5 billion in capital expenditure over three years. Besides the Nano, there is a new-generation Indica and Indigo, a crossover vehicle and a new-generation truck in the pipeline.
There is also a manufacturing venture with Fiat.
In fact, extending its alliance with Fiat will probably help Tata enter international markets and tap new technologies faster than the purchase of Jaguar and Land Rover will, analysts said.
"Considering that financial and human resources will be stretched, providing sufficient management and other resources for the deal and turnaround will be a challenge," Mr Chotai said.
While Land Rover appeared to be in good shape, reviving Jaguar would be a major challenge.