Report: How Tata Made Jaguar Purr Again

Report: How Tata Made Jaguar Purr Again
 

The cat’s back and purring again. It looked an incredibly brave move when Indian conglomerate Tata bought Jaguar Land Rover (JLR) from Ford for $2.3bn in 2008 after almost 10 months of negotiations. The US auto giant had never made a profit from the company and the financial crisis had thrown the future of the global economy into uncertainty. Fast forward seven years and the bold move has turned out to be a stroke of genius. Although it has taken more than £11bn of investment, JLR is now one of Britain’s most profitable companies.

The sheer scale of the turnaround under Tata’s ownership is illustrated in the company’s financial performance. In 2008 — the year Ford disposed of it — the carmaker made a £41.6m pre-tax loss on revenues of £2.1bn. Last year, JLR posted £2.6bn of pre-tax profit on £21.9bn of revenue. Staffing has almost doubled to 36,000 and in 2014, the carmaker sold 462,209 vehicles. “It has paid off for Tata,” says Professor Richard Parry-Jones, who was in charge of global product development at Ford when JLR was sold, and who later chaired Britain’s Automotive Council. “Traditional buyers would have seen more risks than opportunities, whereas Tata saw it the other way round.”

Tata took on JLR just as the UK government changed its stance towards the auto industry, going from being “anti-manufacturing and anti-car, to pro-manufacturing and favouring all forms of transport, including low-carbon private vehicles“, according to Prof Parry-Jones. This U-turn — along with sympathetic unions and Tata’s faith in and funding for, the business — helped reverse the Coventry-based company’s course. The strong Range Rover and Land Rover brands were the first to benefit, with updated and improved models helping to drive sales of the company’s biggest-selling brands. Jaguar got the treatment next with its new XJ large saloon in 2009.

The real driver of change was Range Rover’s Evoque in 2011, with the smallest car in the range arriving in time to catch the public’s growing desire for “crossovers” – vehicles that are a mix of car and sports utility vehicle (SUV). Dick Elsy, now chief executive of the High Value Manufacturing Catapult research centres and a former product development director at Jaguar, said: “Tata brought complete freedom. They said ‘You are the guys that know. We’ll give you the funding, you’ve got free range.’ Look at the Evoque, it’s a very striking car. A lot of car companies are very conservative and would not dare do it.”

The Evoque soon became the company’s biggest seller, accounting for almost a third of sales — and helping provide the funds, momentum and cachet for the marque to develop new Jaguars. The company also invested heavily in new factories and technology, including expanding the use of aluminium platforms pioneered in the XJ that meant lighter, less fuel- thirsty and consequently greener cars.

In 2013 the two-seat F-Type sports car was added but the Jaguar that delivered the marque’s aim to boost sales significantly was the small XE saloon, a direct competitor to BMW’s all-conquering 3 Series. The XE also used Jaguar’s own Ingenium engine, a new design built from aluminium. The mid-sized XF, which was introduced under Ford’s ownership, also got a makeover and aluminium frame. Officially launched to much fanfare at the Frankfurt motorshow last week and completing the line-up is the F-Pace crossover. Jaguar has got the cars — now it’s got to compete. Last year just 76,930 Jaguars were sold, compared with 385,279 Land and Range Rovers. Unlike their off-road derived stablemates, Jaguars do not make a profit — although JLR will never admit it.

Now that could all change. The XE and particularly the F-Pace are expected to be big sellers, but crucially they share the same basic frame (along with the XF), cutting production costs for JLR. Instead of losing money, Jaguars should make money. “The F-Pace is the first public sign that JLR is not just copying BMW, Audi and Mercedes,” says John Leech, head of automotive at KPMG. “The F-Pace is about Jaguar spotting vehicles where it can make the most money. There’s not a lot more cost in making a crossover than a saloon if they share the same floorpan (frame), but you can stretch the pricing for a crossover more than a car.”

Leech predicts that Jaguar will eventually add both smaller and larger versions of the F-Pace to cash in on demand for crossovers. “Before Jaguar launched the ‘baby’ XE it had very few buyers under 40, but a ‘baby baby’ Jag could draw even younger buyers. Larger F-Paces would compete with rivals’ bigger models.” Industry insiders say the F-Pace and XE mean Jaguar is projecting annual sales of 200,000 by 2018 and 250,000 two years later — an achievable level according to Prof David Bailey, an auto industry expert at Aston University.

“Jaguar sales figures might eventually rise to the level of Range Rover’s now,” he says. “But they will probably not be the same, as Range Rover will introduce new models that will probably boost group sales to 1m.” He agrees smaller Jaguars are also likely further down the road — “Jaguar designer Ian Callum has expressed an interest in one, but said he has to make the business case, though they could easily be made off the XE floorpan” – as well as larger versions of the F-Pace.

Both Leech and Prof Bailey doubt Jaguar producing larger crossovers would cannibalise Evoque sales, with Jaguar being marketed for its rich sporting heritage, and Range Rovers’ offroad being flagged up, which would differentiate them. The big challenge will be upping production levels to meet demand. Although JLR has opened a plant in China and has a small facility in India, about 400,000 of the cars it built last year rolled off lines in England. Massive investment in the UK should be enough to meet rising demand and JLR is set to build factories in Brazil and Slovakia and has agreed a contract with Magna Steyr for production in Austria.

“Ramping up production is a challenge, especially when they are moving away from traditional steel that’s welded to aluminium that’s bonded and riveted,” says Elsy. “You can’t just stop production to add in new lines at existing facilities — that’s probably why they are going for greenfield sites abroad.” Sources close to JLR said Tata “had authorised” more funding for production and R& D for a couple of years at about £3.5bn a year, though the Evoque’s success and sales hopes for the newest Jaguars mean the company could move towards self-funding. However, Elsy points out that whether the supply chain can match the increased demand is the most likely point of failure.

Other concerns include the 30pc sales slump in China. While JLR bats this off as temporary, and notes that the new Jaguars have not yet entered the country, pointing to strong growth elsewhere, China is the company’s biggest market, responsible for a quarter of all sales. “The problem is China accounted for 80pc of all JLR’s profits because it’s able to sell cars at higher prices there,” says Prof Bailey. A crackdown on graft, economic uncertainty, the yuan’s devaluation and Beijing looking at the prices foreign companies charge are all piling on the pressure.

“The Chinese are happy to pay more for the genuine article,” adds Leech. “But China is denting JLR’s profits.” Tighter controls on CO2 emissions from the big cars that JLR produces could be a further headache. “It’s hard to pass on massive price rises from developing greener engines to customers,” said one industry insider. The possibility of JLR being floated has also been posited, a move that would help return some of Tata’s investment, though it’s seen as some way off. A sale could be another possibility with a cash-rich industry giant — such as Toyota — using JLR to leverage its way into markets where it has a small presence.

However, chief executive Dr Ralf Speth says the company will remain British. The German boss of an Indian-owned business has made his feelings clear: “JLR is, at its heart, a British company built around two iconic. British brands. We have reaffirmed our position as the UK’s largest premium automotive manufacturer this year through significant investment and job creation.” Given time, Prof Parry-Jones says JLR could be taking on German giants Audi and BMW, who each sell more than three times as many cars as the British manufacturer.

“Why not?” he says. “They’ve shown they can raise production, they’ve got the skills, the management, styling is spectacular, their technology has kept pace with the rest of the world despite JLR’s small size and the products are in global demand. They have momentum but they’ve got to keep going. Once they get to 1m there will be no looking back and there’s no reason they won’t be able to pull it off.”

The Sunday Telegraph