Detroit Free Press - "Home for clawless cat wanted. Ford may be about to throw limping Jaguar and Land Rover to the wolves."
That was European newsletter Automotive Industry Data's cruel take four years ago on rumors that Ford Motor was trying to dump its chronic British loss makers, Jaguar and Land Rover. It was no surprise that the two companies were unwanted.
After all, Jaguar, which Ford bought for $2.5 billion in 1989 in the hope of creating its own BMW equivalent, went on to lose its American parent another $7.5 billion before it managed to persuade Tata of India to buy the storied British sporty brand, with its barely profitable SUV-making Land Rover compatriot thrown in, for $2.3 billion in 2008.
Jaguar Land Rover is still with us, but the jury is out on whether it can survive and thrive against the German premium maestros Mercedes, BMW and Audi.
"Jaguar has always depended on a sugar daddy; first it was Ford, then it was Tata," said professor Karel Williams of Manchester Business School.
Williams believes Jaguar Land Rover is too small, and despite having some excellent models, needs much more volume to be able to compete with the Germans. Jaguar Land Rover's global sales last year were just over 240,000, with Land Rover accounting for about 80 percent of that. Mercedes, Audi and BMW each sold more than one million cars last year. Audi has another advantage because it can use components from its Volkswagen parent to cut costs more. This year it launched the little Audi A1, a thinly disguised version of the VW Polo city car.
"Audi has the advantage that it shares parts with VW; hence of course the A1, basically a sales hit at almost no expense, all they have to do is dress up the VW Polo. Now I can't see how in the long run Jaguar, given this massive contrast of scale, can recover its costs of production and development of the next model," Williams said.
Change the basics
"It may be that it is possible for Jaguar and Land Rover to grow their way out of this problem as BMW did in the '70s, '80s and '90s," Williams continued. "The only way to make a success of Jaguar, it seems to me, is to change the basic economics of the business by borrowing volume platforms as Alfa Romeo plans to do from Fiat, or by buying major mechanicals, which JLR is already doing with engines from Ford and Peugeot (of France)," Williams said.
Professor Stefan Bratzel of the Center of Automotive Management in Bergisch Gladbach, Germany, said the premium sector generally is doing well, attracting new entrants in Europe like Nissan's Infiniti subsidiary, and getting more competitive all the time.
Bratzel wonders why Tata wanted JLR in the first place, and also doubts it has much chance of success.
"It is quite difficult for me to make a long-term business case out of this situation because the volumes are much too small and the only future is to rapidly increase volumes with new products or seek solid cooperation agreements with other manufacturers. There is one big positive, though. Jaguar and Land Rover have good heritage, and a good strategy would make use of that."
Less crucial
Bratzel said the possibility that Jaguar might put some new production into China or India wasn't that important because production costs in the premium sector are less crucial than in mass manufacturing.
"You have to have new technology on a very high level and not too late and that costs a lot of money. Costs (of production) are not the main problem; it's more about leading edge technology and the costs of that," Bratzel said.
Jaguar has been criticized for being late with new technology. For instance, the big top-of-the-range XJ sedan has a six-speed automatic gearbox, while the BMW equivalent 7 Series, Mercedes S class and Audi A8 have seven or even eight speeds. The fact that for the normal person this would make absolutely no difference at all to the driving experience is less important than the bragging rights associated with being able to flaunt the latest technology, or at least corporate marketing types claim this is so.
Jaguar is expected to launch a smaller car in the next couple of years to give it an equivalent to the BMW 3 series, although under Ford this strategy crashed and burned when the little X-Type failed to take off. Jaguar now sells the mid-sized XF, the large XJ limousine and the XK two-seater. Land Rover is about to launch the Evoque compact SUV to add to its Freelander, Discovery and Range Rover 4x4 lineup.
Earlier this month Tata Motors Chief Executive and former head of GM Europe Carl-Peter Forster announced an $8.2 billion five-year investment program to try to catch up with German quality, for product development, and perhaps for a new factory in China. JLR is also expected to invest about $1.2 billion in a British engine factory.
Jaguar also announced it will build the C-X75 hybrid supercar, which wowed crowds at the Paris Auto Show last year as a concept. Jaguar will make 250 C-X75s between 2013 and 2015, developed with the help of the Williams Formula 1 Grand Prix racing team, and priced between $1.2 million and $1.5 million.
Professor Ferdinand Dudenhoeffer of the Center for Automotive Research at the University of Duisberg-Essen, Germany, is confident that despite the tough competition JLR has the right stuff to succeed, with the crucial element being the quality of its management.
Evoque shows the way
"I'm convinced that JLR will come back and will within five years be an interesting premium car group which also will be profitable," Dudenhoeffer said.
"Carl-Peter Forster knows very well how to successfully manage a premium car brand. (Forster was at BMW before moving to GM Europe.) Cars like the (Land Rover) Evoque show us they are on the right track. The point about Audi's scale is really overestimated. Sixty percent of Audi growth in 2011 is due to the Audi A1, the better Polo. And the customer realizes that the A1 is just a better Polo. The A1 doesn't sell well; if you compare it with the (BMW) Mini it's a mess, and it needs a lot incentives to sell," Dudenhoeffer said.
Coventry University Business School professor David Bailey agrees that JLR's volume can increase.
"Yes, JLR is still very small scale compared with the likes of BMW, but 300,000 is possible by 2015 and it could get to 600,000 plus by 2020 if they extend the range, and produce in India and China. Tata has deep pockets and is willing to invest. This has been a huge boost for JLR and opens up access to finance to invest longer term. Ultimately they will be producing a range off three platforms. JLR doesn't necessarily need to be as big as the Germans to make big money. It depends on how premium you are, how much profit you are making," Bailey said.
Not sustainable
But Manchester Business School's Williams can't see JLR raising its game to allow proper sustainability.
"JLR is doing everything right to a point and as long as the money comes in from Tata it is going to be OK. But a sustainable car company needs to be recovering the costs of the next model as the existing model goes down the line. On 240,000-odd a year, that's a business model which doesn't allow them to do that," Williams said.
