The Decline of Jaguar Land Rover | In Practise

The Decline of Jaguar Land Rover

Former Director, Product Strategy, Jaguar Land Rover

Learning outcomes

  • History of Jaguar and Land Rover brands from 1980s to today
  • How Tata's decision on vehicle architecture handicapped JLR
  • Componentry procurement and potential rationalization in JLR's manufacturing footprint
  • Why Jaguar has little pricing power in the market
  • Disadvantage of not having a captive financial business for JLR
  • Internal causes of quality issues in China
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Executive Bio

Derek Weale

Former Director, Product Strategy, Jaguar Land Rover

Derek is an autos veteran. An engineer by training with over 40 years experience working in the industry, Derek started his career working for GM in 1971. He then moved into Product Planning at Ford and was involved in launching the first generation Ford Mondeos in the 1990's and the global C-segment products in the 2000's. Derek worked at Ford from 1982 until 2010 and therefore was close to the evolution of Jaguar Land Rover. He officially moved to a management role at JLR in 2003 whilst the brands were under Ford's ownership and stayed with JLR as Director of Product Planning at JLR as a standalone business. Read more

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Derek, I thought a good place to start would be to run through JLR's history.

I think that's a good place to start. I think that's really informative as to where we are now and why we are where we are. Looking at Jaguar Land Rover's ownership history, through the 1980s both Jaguar and Land Rover were part of British Leyland. Jaguar was spun off from British Leyland in 1984 and listed on the London Stock Exchange. I have to say I don't think that Jaguar had ever been a particularly willing part of British Leyland, it had always tried to keep itself as separate as possible. Its products were quite different from the volume products that were the main part of British Leyland's business. It had tried to retain a certain amount of autonomy, and that was finally fully achieved in 1984 when it was spun off.

It was effectively independent for 6 years until it was acquired by Ford in 1990. Now, Ford, at the time, were in an acquisitive frame of mind. They saw Jaguar as a big opportunity into the premium market. They really only had their US brand Lincoln, and that wasn't a global brand in the premium area. Ford made substantial investment in Jaguar, both in terms of products and in terms of manufacturing facilities. During Ford ownership, they introduced four major vehicle lines, the X-Type, the S-Type, a completely new XJ series and the XK sports coupe. Two of those vehicles were based on existing Ford architectures, the X-Type and the S-Type; and two were completely unique to Jaguar. They also made major investments in the manufacturing facilities in Castle Bromwich in Birmingham and in Halewood in Liverpool, which had previously been a Ford manufacturing plant. So Jaguar was not short of investment during the Ford ownership period, it was substantial indeed. Now, I have to say, their biggest issue was one of design. This was a case of US owners heavily influenced by US dealers, in terms of design direction. And the design direction they took was basically backwards. They went for retro designs, which had short term attractiveness, particularly in the US market, but were probably quite wrong in the European and global market. Okay, Jaguar are a traditional brand, but there are many traditional brands that continue to move forward. Design really was one of their biggest issues here.

Then, in 1994, looking at Land Rover, they also left British Leyland and became a part of Rover Group that was then sold to BMW. I think Land Rover was a prime reason for that purchase by BMW because they could see the increasing importance of SUVs in the marketplace. It was owned for 6 years, through to 2000, when it was acquired by Ford, and it became a part of what was called the Premier Automotive Group, alongside Lincoln, Volvo and Aston Martin. The Premier Automotive Group was arguably a flawed concept, and not well managed. What it tried to do was bring together premium brands. Understandable. But premium brands that actually had entirely unique DNAs. The intention obviously was to increase scale by sharing components, and in that there was some success, I guess. For instance, the original Jaguar S-Type was actually based on a US Ford Lincoln platform that it shared. Volvo increasingly used Ford platforms for their smaller vehicles. Ford continued that approach with Land Rover as well. They brought a Range Rover to market that was actually really a BMW design. They invested in a new Discovery and a new Range Rover Sport. The Range Rover Sport, I would say was something of a business masterstroke, by taking a platform that was used for Discovery, turning it into a Range Rover and charging substantial premiums for it. They then used a European Ford platform to build the Freelander replacement, again quite successfully. They even more successfully spun off the Range Rover Evoque off that platform, which really was a breakthrough product. It effectively created a new segment, which took most of the premium competitors close to 5 years to actually catch up on. As with all good ideas that create new segments, particularly premium segments, it generated good profits for the business. And really, during this period of ownership by Ford, it was the Range Rover brand that was driving profitability; therefore, their choice was to continue to invest in Range Rover.

By the time we got to the purchase by Tata, they already had the development of the Range Rover's replacement in progress, the Premium Lightweight Architecture based current Range Rover and Range Rover Sport. So I guess the question is, what was the attractiveness to Tata of Jaguar Land Rover? I have to say that I believe this was a decision driven very much by Ratan Tata himself. Ratan is an anglophile, he was educated in the UK, and I believe it was as much an emotional as a rational purchase of Jaguar Land Rover, particularly, for the Jaguar brand itself.

I think it's true to say that by the time of this purchase in 2008, Ford had effectively given up on Jaguar as a brand and really couldn't see how they were going to turn this into a profit generator. They had re-used the S-Type architecture to create the first series XF, and that was relatively successful. But the fact was that to create a new generation of Jaguars, they were going to have to build a new architecture, which honestly is the most expensive part in terms of product development and manufacturing facilities in the car business. You usually have to start with a clean sheet of paper. And I think it had got to the point with Jaguars where that was going to be necessary for their products to be competitive into the future.

The Land Rover side was producing returns, but again it was going to require substantial investment, particularly with the increasing emissions requirements on the horizon. I think it's true to say that of all the potential bidders for Jaguar Land Rover, Tata Motors probably had the least knowledge and experience of exactly what they should be looking at. I personally don't believe they had a great understanding of the sort of legal pressures that were going to come into the business, particularly for Jaguar Land Rover.

They were clearly looking to expand the range of Tata Motors. Tata Motors was basically built around truck manufacture and small cars in India. Clearly the idea of a premium brand with potentially much higher margins was a very attractive idea. As was using the technical knowledge and technology from Jaguar Land Rover to improve their own products. Again, I think that may have been something that was somewhat overestimated at the time, because the gulf between products was enormous, particularly in terms of the costs required to be competitive in the market. I think, only now, with Tata introducing the Harrier SUV in India, which uses a level of technology from the Discovery Sport and the Evoque, are they beginning to see any returns in terms of the technical knowledge that they gained from Jaguar Land Rover.

First of all, 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 programs. 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. Bear 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 aluminum 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 aluminum 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 have been able to get any price advantage as a result of aluminum 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-facilitize 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 were 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 centered 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.

But is this choice of design architecture the only core driver of the issues today for JLR?

My view is that maybe the underlying issues are not the ones that are being talked about in public. Clearly, China is being talked about and is a very substantial issue, because honestly the business's profitability has hinged on China for several years. But the fundamental issues to me are: cost, and that is two things, design cost - we've talked about aluminum architectures and the associated costs of that - and the other thing is impact of exchange rates, because a high proportion of materials and high value parts of the vehicle being sourced out of mainland Europe in Euros. So they have enormous cost issues, which I don't believe they have really been able to address effectively. There has been a real intention to try and increase UK sourcing to try and mitigate the effects of exchange rates. But, most manufacturers and suppliers - even more so in the last 2 years because of Brexit issues - are just not willing to relocate into the UK, when the whole industry is so unstable at the moment. So I think there's a fundamental cost issue.

I think there's also a portfolio issue, with investment having been made in segments that are very, very challenging. I think the XE is the best example of this to be honest. Because you have incredibly well-established German name plates in those segments selling much higher volumes with much better distribution in global markets, at lower cost. There's the issue of steel bodied vehicles versus aluminum, which have a real volume cost reduction opportunity versus JLR's model. And finally, you're selling them when so much of the business has to be financed. Those manufacturers have in-house finance activities, which allows them to be hugely competitive on lease rates.

Basically, we've gone from a situation where you were selling primarily Range Rovers, very often to wealthier high-end private buyers who were actually able to fund these vehicles, to mainstream business. Let's not kid ourselves, the BMW 3-Series and vehicles like that are just volume cars now. Okay, they are premium brands. But, if you look at the sales figures and what they're used for, they are just volume cars. This is all about price, all about cost. They're frequently company-owned, and they're just after the best deal. Trying to enter that segment with a direct facing competitor to the BMW 3-Series with a flawed strategy. It simply hasn't worked. As we can see, the volumes were never high enough and they're getting lower. The car just isn't distinctive enough, it's too high cost, and they haven't got the financing available. Too many buyers will simply say, "It's not worth it."

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The Decline of Jaguar Land Rover

November 5, 2019

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