Jaguar Land Rover: Tata Governance

Two questions on Tata: firstly, did they invest in the asset as well as they should have? And given the issues today, what's the governance of JLR been like at Tata?

The governance under Tata has been very different from that under Ford ownership, in a good way and in not such a good way. Ford were very highly engaged in the activities of Jaguar Land Rover on a daily, weekly, monthly basis, with very frequent reviews of programmes. Ford is very much a financially driven activity and they like to understand in great depth the financials of all proposals. Therefore, they did a lot of work, themselves, to understand and make sure that they were comfortable with what was being done.

Tata took a much more hands-off approach, frankly, a very trusting approach to Jaguar Land Rover. Bare in mind their own activities with Tata Motors were going through pretty tough times. I guess they may have felt they weren't in the best position to actually offer advice on how to build a business and had no experience in this segment of the market, or, in fact, in many of the geographical regions that Jaguar Land Rover was operating in. So they were very hands-off, and, if you like, respected the knowledge and skills that were in Jaguar Land Rover, possibly to too great an extent.

The one area they were very involved in, and that has been a great success, is in design. Again Ratan Tata is personally very involved and very interested in vehicle design and appearance, particularly exterior appearance. I think he has actually been a very positive encourager of that. Although they have their critics, Jaguar Land Rover under Tata ownership has been very successful in terms of design, interiors and exteriors. That is clearly one of the key areas that has driven the increase in volume, plus the expansion in the portfolio.

In my view, they have not taken the same level of interest in cost management. And therefore, decisions have been taken in Jaguar Land Rover that they are having to live with, that may be somewhat questionable. Looking at some of the financials, a critical decision was taken in terms of vehicle architectures, in terms of going for full aluminium construction. That's something that no other volume-type manufacturer has done globally. Some do this at the top end of the range. And it was well understood why you would do this for full-size Range Rovers, because weight is one of the key issues in terms of trying to improve fuel economy, emissions et cetera.

It is a much closer balance in terms of the smaller vehicles, particularly on something like the Jaguar XE, where it does impose a really substantial cost premium onto the vehicles. I, personally, do not believe that under Ford ownership going to aluminium construction for smaller Jaguars would ever have been agreed. I think it would have been viewed as a cost that was not recoverable in price premium. I think that has been proved to be absolutely the case. I don't think there has been any evidence that Jaguar has been able to get any price advantage as a result of aluminium construction. It's purely a cost penalty, which in the long-term could prove to be a good decision. The issue is that you have to get through the short-term to get to the long-term. They were faced with having to re-facilitise manufacturing plants to build these vehicles.

This was the sort of expense, especially on Jaguars, that I do not believe Ford would have been willing to pay. They simply had tired of investment being ploughed into Jaguar without any clear returns being achieved. I don't think they were ready or willing to support another cycle of that level of investment. Tata clearly had a different view and was willing to do that. But, I think, as we're seeing now, that part of the business has not paid off. We haven't seen the volumes that were necessary to recover that level of investment and to support at level of spending overall.

That is clearly one of the biggest weaknesses of the Jaguar Land Rover business at the moment. If we look at the way the margins have gone over time, what we're seeing is a move from a business that was really centred around high margin Range Rovers to one that now has to cover a much lower priced vehicle, working at much lower margins, partly because they are suffering a cost penalty versus competition. Therefore, we've seen a progressive dilution of margins for the business over time and through Tata ownership.