Sep 4, 2008

Business - Jaguar Land Rover

Despite hard times for the makers of big cars, JLR is happy under its new owner

WHEN Ratan Tata claimed ownership of Jaguar Land Rover (JLR) from Ford in early June, one of the first visits he made was to the Jaguar heritage museum at the British firm’s old site near Birmingham. The 71-year-old Mr Tata recalled that his father had bought one of its first XK120 sports cars in the late 1940s. Not only was the museum able to dig out his father’s order from the archives, it also took the chairman of the Indian industrial conglomerate for a spin in a similar car. It was the kind of personal touch that both the tradition-steeped car firm, and its new owner, hope will characterise their relations.
Those relations may undergo an early test. When Tata Motors bought JLR for about $2 billion, it looked like a good deal. Thanks to Ford’s transformation of Land Rover, JLR had made profits of $650m in 2007. With its well received new mid-sized saloon, the XF, even Jaguar, a perennial lossmaker under Ford, was close to turning the corner into profit. In the first quarter of this year JLR rang up profits of $421m.
But life has since become much harder for makers of large, powerful cars. In America, where petrol at $4 per gallon means big sport-utility vehicles have suddenly fallen from favour, Land Rover’s sales fell by 31% in the year to July.
So far, booming demand in Russia (up by 106%) and China (up by 151%) have more or less plugged the gap. Land Rover’s overall sales are only 2.7% lower year-on-year than in 2007. But JLR’s new boss, David Smith, acknowledges that the second half of the year will be much tougher. Land Rover’s production is being scaled back by 25-40%, depending on the vehicle model.
A further worry for JLR is tightening environmental rules in most of its big markets. In Europe carmakers with fleets averaging more than 130 grams of CO2 per kilometre (g/km) are likely to face financial penalties by 2012. JLR is particularly exposed. Its best CO2 performer is the diesel Jaguar X-Type, which emits 154 g/km. Its worst is the Range Rover Sport which, in supercharged V8 form, chucks out 374 g/km. Even China has started to tax gas-guzzlers .
Even so, the mood within JLR is upbeat. Nobody at the company will say a bad word about Ford which, it is felt, not only did its best, but is still vital to JLR’s future as a supplier of powertrains and technology. But there is inevitably a contrast between the bureaucratic ways of an ailing car giant and Tata’s willingness to give JLR a lot of autonomy. Ford’s financial problems in North America also sometimes led JLR to take what one executive describes as “the low road, rather than the high road”.
Mr Smith claims that JLR has a new nimbleness which allows it to exploit its smaller size. Strategy is set by a board consisting only of Mr Smith, Mr Tata and Ravi Kant, the head of Tata’s automotive business. Tata is committed to supporting the business plan until 2011, but the intention is that JLR should operate as a more or less independent, self-funding entity.
Mr Smith’s strategy consists of three main elements. The first is improving customer service. Jaguar is already rated highly in America by J.D. Power, a consumer-research firm, but Land Rover “is not there yet” says Mr Smith.
The second is to recognise that, although JLR cannot compete across the board with the likes of BMW, Mercedes and Audi, it can be the best in its chosen segments. Land Rover, he says, has “benchmark products” in all its segments, and the XF, rated by several car magazines as superior to equivalent German cars, has shown what Jaguar can do. A new small Land Rover, based on the LRX concept-car displayed at car shows this year, seems certain to get the go-ahead, and Jaguar’s big saloon, the XJ, will be replaced next year with something sportier and more modern-looking. Mr Smith sees both Jaguar and Land Rover going even further upmarket, pushing into territory occupied by the cheaper Bentleys and Aston Martins.
The third element is to reduce emissions. Jaguar is already a leader in lightweight aluminium construction and Mr Smith expects a 25% improvement in fuel efficiency over the next few years just by refining existing engines. But JLR is also investing $1.5 billion in new hybrids which will come on stream from 2012. Land Rover’s “e-terrain” technology, a diesel-electric hybrid powertrain with an electric rear-axle drive system, should give future Land Rovers even greater off-road ability while cutting emissions by 30%.
“It’s not just about avoiding being hit by a new tax burden,” says Mr Smith. “We have to be able to look the customer in the eye.” He could have added that he has to be able to look Mr Tata in eye, too.

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