By John Reed
Jaguar launched the diesel-engine version of its XF saloon last week near Munich, in the backyard of its far-bigger German competitors, BMW, Mercedes-Benz and Audi.
The car, which costs about ?30,000, is aimed squarely at the same autobahn-driving businessmen that BMW targets with its 520d diesel. ?We?re going directly into the heart of our competition,? says Ralf Speth, Jaguar Land Rover?s chief executive.
?You bastards!? one executive at a rival carmaker is said to have exclaimed on hearing where JLR was premiering the car.
JLR?s cheeky choice of a launch venue is evidence of a new confidence at the British luxury carmaker. It is flourishing under Indian ownership and the management led by two German carmaking veterans with experience at BMW, General Motors and Ford Motor: Mr Speth and Carl-Peter Forster, Tata Motors? chief executive.
In two years, the group has gone from being a millstone that threatened to sink one of India?s most venerable family businessesto a cash cow, generating the bulk of the $2.1bn (?1.3bn) profit Tata Motors reported in its last financial year.
JLR?s turnround is remarkable for a company that looked vulnerable to failure at the start of the financial crisis given its reliance on big-engined, expensive vehicles.
Despite the stagnating UK economy, JLR is hiring graduates, spending ?1.5bn a year on new products, and plotting expansion in China, where Land Rover sales are up nearly half this year. Today, the brand launches production of the Evoque, a small, plushly-outfitted 4×4 model aimed at extending Land Rover?s allure among women and urban consumers and, in the words of one executive, ?upping the ante on luxury and quality?.
?We?re not just a manufacturer of 4×4 products any more; we?re a luxury goods producer,? says Gerry McGovern, design director for Land Rover and Range Rover. ?Part of this culture change is about opening our eyes and stopping thinking with a mid-Warwickshire mindset?.
Sales at Jaguar and Land Rover collapsed by more than a third during the crisis. In March 2009, as managers at JLR?s headquarters at Gaydon in the Midlands studied sinking sales forecasts across the 174 countries where the two brands sell vehicles, one board member recalls thinking: ?How much longer do we have to go??
Management cancelled shifts, slashed marketing budgets and cut staff numbers by about 2,500. It hired consultants KPMG and Roland Berger to advise on the business. In September 2009, JLR said it could no longer justify running three UK plants andwould have to close one.
Unions, which feared the company would shift production to India or elsewhere overseas, agreed to a two-tier wage system and a closing of the company?s final salary pension scheme, among other sacrifices management said they needed to make to keep the three plants open. Recruits are paid 80% of the rate of existing staff for the first two years, then 90% thereafter ? so two employees working on the same car might have a difference of ?100 a week in their take-home pay.
?We gave them concessions during the crisis ? part of the building blocks for getting to an arrangement at the end,? says Des Quinn, a Unite union official. ?We live to fight another day ? and that?s better than plants closing, investment going elsewhere and jobs being lost.?
Ratan Tata, the Indian group?s 73-year-old family scion, put more than ?1 billion of his group?s money into JLR and lined up private financing to keep the company afloat after failing to secure UK government financing. This allowed JLR to keep up investment in new cars and technology.
?They?ve been able to survive the winter and come out with a cost base that?s lean and products that are in strong demand,? says KPMG?s Mike Steventon.
Colleagues give the Indian boss credit for allowing them to do their jobs, while keeping a close eye on the business. Tata, a trained architect, can be found in JLR?s design room on his trips to Gaydon, debating design points with colleagues. ?He challenges us high-level,? says Ian Callum, Jaguar?s design director. ?He asks why some things are the way they are.?
Last December, Speth presented Tata with an ambitious product plan that intends more than 40 vehicles, engines, and vehicle variants be launched over five years. The cadence would challenge the capabilities even of a bigger carmaker than JLR, which sells only about 250,000 vehicles a year. Speth concedes it is ?ambitious?.
The group buys engines from Ford under long-term contracts, but is considering producing them itself in the UK or India, or both. As JLR goes head to head with its bigger German rivals, it must also contend with a thinner supply base in the UK, which has seen many groups decamp to Europe in recent years.
?We are buying a lot of our components out of the Continent?, says Speth. ?We have issues with skills, to catch the right skills for our engineering centres and on the manufacturing side ? but it?s becoming better and better.?
JLR will not be drawn on its internal profitability targets, but says it hopes to match Germany?s top-notch producers, even as it invests and expands. Speth hints they could even be as good as those at Porsche, the smallest and most profitable of Germany?s four big premium producers. ?We are looking for attractive margins because we are small,? says Mr Speth. ?We are a niche player. We need these kind of premium margins.?
? The Financial Times Limited 2011