Jaguar Land Rover: Sales Channel Risks

What’s the history of JLR in China? When did the company enter the region?

My years might be a little fuzzy. I’m not sure exactly when we sold our first cars in China but the initial set-up was an importer model. There were four main importers into China. I think the number of Jaguars going in was minimal and there were a couple of thousand Land Rovers, but nothing significant - but four major importers. I think the penny dropped. I don’t know who and when and what was involved in this decision, but circa 2010, a decision was made to go to a sales company in China, and an agreement, which must have been long fought, was struck with the importer for them to become major retailers in the network.

I think it was about 2010 when we switched across to being a national sales company. But, essentially, your VWs and your BMWs and your Mercedes had been there for a very, very long time - at that point even 10-15 years - and had significant presence in the marketplace. So it was an import-only model initially, and the volumes grew substantially, and when Evoque came along as an import car, it just absolutely hit the sweet spot and sales absolutely sky-rocketed. If you can imagine, we were doing 30-35,000 Evoques into China at 600k+ RMB, which is just unbelievable.

I’ve got the numbers here. I’ve dug around in the monthly volumes and I think for the fiscal year February 2013, 68,000 Land Rovers were delivered. But in 2017, it goes up to 115,000, and 2018, 136,000. But now, back down to 91,000. Obviously, there’s probably some seasonality there in terms of launches and stuff.

So it was an import-only model; sales took off, quality took off, it was going great, and it became a dominant player within JLR.

Was it only Land Rover mainly driving the growth then in China?

I don't know the sales figures for Jaguar for that period, but it was Land Rover that was selling. And externally Jaguar seemed to be selling. But what turned out to be the case was that Land Rover was essentially subsidising the Jaguar business at a retailer level. It was a single franchise; it was set up as a JLR contract at the beginning, single dealerships were set up for Jaguar and Land Rover. Essentially, everyone found that the Jaguar volume was forced off the back of Land Rover. As a retailer, you are desperate, “Take some Range Rovers off me. I'll give those to you as long as you take some more Jags.” And Range Rovers were selling at 0% discount and in many cases, for quite some time, at a surcharge - over list price. And the Jaguars were piled through. It was a false dawn for Jaguar, I would say.

So the dealers were pretty much buying the Range Rovers and saying, “I'll take the Jags and just discount them with the profit I’m getting from the Range Rovers”?