Jaguar Land Rover's Indian Adventure

It's boom time at Jaguar Land Rover's Halewood Body & Assembly facility on Merseyside, the northernmost tip of the Tata Motors empire, the Indian giant that has coaxed a pair of venerable British car brands into performing one of the most dramatic U-turns in recent corporate history.

Despite the 4,500-odd miles between it and Tata Motors Group's famously modest HQ on Homi Mody Street in Mumbai, the influence of the firm and its patriarch, Ratan Tata - who has made his fortune extracting value out of businesses that others failed to spot - is clear. JLR's assets, both human and financial, are sweating hard.

The 300-acre site is home to the firm's latest bestseller, the industrial-chic Range Rover Evoque. Thanks to 4,500 workers - nearly twice as many as a couple of years ago - on a round-the-clock, three-shift pattern, a new car comes off the line here every 82 seconds.

'We completely underestimated the demand for Evoque,' admits Halewood's operations director, Richard Else, a 24-year veteran of Jaguar, who is busier now than he has ever been. 'The plant has never been on three shifts before in its 50-year history. It has created a whole new segment that appeals to both existing customers and to those who have never bought a Land Rover before.'

Since its launch at the end of 2011, more than 200,000 Evoques have been sold, some 20% of them destined for customers in China, which is now the firm's largest market.

The UK and the US can only manage second and third respectively (see box below). Equally vigorous sales of its larger brethren, the Range Rover and Range Rover Sport, helped JLR to shift a total of 425,000 vehicles in 2013, up 19% across the board and no less than 30% higher than the year before in China and the Asia-Pacific region.

Its pre-tax profit for the year to March 2013 was £1.675bn on revenues of £15.8bn, making the firm one of the most profitable car makers around, and the UK's single largest exporter of manufactured goods, to boot.

And yet back in 2008 when Tata bought (or, more accurately, rescued) the firm from Ford for £1.15bn, it made a full-year loss of £376m on sales of £4.45bn.

Tata was widely criticised for overpaying at the time, a view that the prompt arrival of the great crash only months after the deal was done seemed to confirm. Sales collapsed by over 30% and hundreds of jobs were lost. Tata was forced to raise an urgent and unplanned £500m just to keep the show on the road.

And yet it is now abundantly clear that for all the intervening grief, Tata bagged itself a colossal bargain. 'It has been very interesting to watch, because the firm seemed not to have a future,' says Philippe Houchois, automotive analyst at UBS in London.

But the fact that so many premium car sales go to the German big three (Audi, BMW and Mercedes, accounting for some 80% of the market) creates opportunities for other, more differentiated brands, he reckons.

'There is amazingly high concentration with the three Germans. But people buy premium cars because they want to be different. That's what has been benefiting JLR.'

Well, that and China. From Shanghai to Shenzen, there is no better way to show that you've arrived than by arriving in a top-of-the line 'Lu Hu' (Chinese for 'Road Tiger'). And Chinese entrepreneurs and factory owners will pay handsomely for the privilege - a supercharged Range Rover 5.0 Autobiography retails for around RMB2.8m, over £300,000.

Well-known analyst Max Warburton at Bernstein Research predicted in a recent note that JLR's sales in China this year will continue their double-digit growth to hit 150,000 vehicles, and also stated that earnings per car were no less than four times higher in China than in the UK.

Of that £300,000 top-of-the-range list price, no less than two-thirds is accounted for by tax and the dealer's mark-up. But that still leaves nearly £109,000 for JLR's coffers - 45.8% more than the same model would yield in the UK and 52.4% more than in the US. Even the more modestly priced Evoque, which starts at the £30,000 mark in the UK, yields nearly £10,000 more per car in China than it does here.

No wonder JLR is so keen to make progress with the manufacturing joint-venture it signed with Chinese state-owned car maker Chery in 2012, and it is clearly looking to perform the same trick in Brazil, where it has just announced the construction of a £240m assembly plant, and possibly even in Saudi Arabia too.

One of the secrets of the Evoque's customer appeal is its capacity for personalisation. As each bodyshell trundles slowly around Halewood's factory floor - the Evoque shares this with its dowdier sibling, the Freelander - doors, engines, drivetrains and interiors are added. The enormous range of paint finishes, trim and wheel choice becomes apparent.

Buyers can choose from 16 'designer interiors', featuring four metal finishes and three wood veneers, three different colours of headliner and even 'illuminated aluminium tread plates'.

There are seven styles of alloy wheel in two sizes, and the roof can be painted a contrasting colour or even fitted with a full-length panoramic glass panel, should that be your desire. These cars are effectively built to order.

The emerging markets may have been crucial, but credit must also be given to Ratan Tata himself, says Ray Hutton, author of a new book on the JLR story, Jewels in the Crown - How Tata of India transformed Britain's Jaguar and Land Rover.

With an eye for the firm's heritage and the savvy born of a lifetime of dealmaking, the septuagenarian Indian billionaire saw potential in JLR at a time when no one else did. And having done so, he stayed at the wheel despite a bumpy ride.

'You can't underestimate the importance of Ratan Tata's interest and enthusiasm for the business. He has restructured the whole group,' says Hutton.

Tata Motors is part of the huge Tata Group of companies, which operates across a vast range of industries from steel to computers to telecoms. Its Tata Global Beverages business owns the UK's Tetley Tea, its hotels arm the Pierre in New York.

Like a South Korean chaebol, it is largely owned by investment trusts, and the influence of family remains strong. Although Ratan stepped down as chairman of Tata Group in December 2012, his replacement, Cyrus Mistry - who also chairs TMG and JLR - is the son of the firm's largest single shareholder and Mistry's sister Aloo is married to Noel Tata, Ratan's half-brother.

JLR's backstory is more typically Anglo-Saxon. Although Jaguar can trace its roots to 1922 (when William Lyons founded Swallow Sidecars) and Land Rover to 1948, as a group, JLR was formed as recently as 2002. Ford - which had owned Jaguar since 1989 - bought Land Rover from BMW, which in its turn had bought it as part of the German firm's ill-starred attempt to make a go of Rover in the 1990s.

When an increasingly cash-strapped Ford decided to get out of upmarket cars, it began by selling Aston Martin and then JLR. Volvo, the final constituent of its now-defunct Premier Automotive Group (PAG), soon followed.

Compared with Ford, Tata's ownership model produces a more autonomous management culture. 'Tata had no choice,' says Hutton. 'It didn't have anyone who could really run the business; it came in not as a motor manufacturer but as an investor. What it brought was money and vision.'

Tales abound from the Ford days of decisions on even the smallest details having to be referred back to HQ in Dearborn, Michigan. But on Tata's watch, JLR's UK-based management are better able to shape their own destiny.

'It's a different way of working,' says JLR executive director Mike Wright, 'but I wouldn't call it hands-off. The engagement is more strategic and with fewer people involved. Remember that the Tata Group operates across a raft of segments. If it has got 98 companies, it's hard to micromanage them all. So we are accountable for the decisions we make and we have to step up to the responsibility that's been given to us.'

Tata has also given a pretty free rein to Ralf Speth, appointed CEO of JLR in 2010 and Wright's direct boss. The taciturn, Teutonic Speth - with 20 years at BMW under his belt as well as a stint at JLR when it was part of Ford's PAG - announced in the autumn one of the most aggressive, ambitious and high-risk expansion plans to be found anywhere in the car business.

Bankrolled by Tata, Speth is planning a £10bn investment programme to take on the Big Three, with the launch of 40 new models over the next five years, the opening of several new factories in the west - so far, a £500m engine plant in Wolverhampton and that £240m assembly facility in Brazil - and the fulfilment of its JV with Chery, whose Chinese plant is due to open this year. Tata Motors also has plans to increase the output of Jaguars and Land Rovers supplied effectively in kit form for assembly at its giant plant in Pune, 100 miles south east of Mumbai.

And to help him deliver it, he has been on a talent-hiring spree that would not disgrace a newly promoted Premiership football club, bolstering the board with no fewer than four of his own countrymen: Wolfgang Epple, director of research and technology; Wolfgang Ziebart, director of engineering; Wolfgang Stadler, manufacturing director; and Wolfram Liedtke, director of quality and safety. You don't have to be called Wolfie, but it helps.

'What motivates us now is growth,' says Wright. 'In the premium car business, we are still quite small, but we have a track record driven by investment - we're launching new models and updating current ones.'

He is right that JLR is still a minnow. Its 425,000 cars last year may be a record for the firm, but BMW makes 1.8 million and Audi and Mercedes about 1.5 million apiece. In the car world, volume is the name of the game - it is notoriously capital-hungry and manufacturers live or die by the ruthlessness with which they can exploit economies of scale. So for all its profitability, JLR cannot afford to stay where it is.

The first of the planned new models is a smaller Jaguar saloon, to compete with German bestsellers the 3 Series, the A4 and the C-Class. The last time Jaguar attempted this feat, back in the days of Ford with the X-Type, it was an abject failure.

Wright is circumspect: 'We recognise the challenge. Look at the Evoque and the Range Rover Sport before it. They are positioned precisely in the market, not taking rivals head-on but creating new market segments. That's the objective: to create incremental products.'

The firm is tight-lipped on its precise growth targets, but Bernstein's Warburton reckons on a doubling of sales to around 800,000 cars by 2017. That means it needs another three or four winners of the scale and profitability of the Evoque - a pretty tall order.

The margins on the Evoque - a 'mass-premium' car retailing for between £30,000 and £40,000, selling in relatively large numbers yet costing little more to screw together than a hatchback selling for half as much - are high, even by JLR standards: as much as 20%, according to some estimates.

No wonder the firm is so keen to squeeze every last vehicle from Halewood's maxed-out facilities. In the press shop where body panels are formed, the giant hydraulic presses operate 24/7, and on the shopfloor parts are stacked up in every available corner, even hanging from the roof, kipper-style, to meet demand.

But not all the firm's plants are quite so busy. For while the 'LR' of JLR may be shifting as many Range Rovers as it can put together, the same has not been true of the 'J'.

In 2012, Jaguar (whose main manufacturing base is at Castle Bromwich, on the site of a wartime aircraft factory that turned out Spitfires and Lancasters in their thousands) sold just under 54,000 cars, compared with Land Rover's 304,000. That's only 5,000 more than it sold in 1988.

Rose-tinted spectacle-wearing Brits of a certain age may fondly recall the E-type and XJ-S of days gone by, but the truth is that the Jaguar brand has struggled for years to cut much ice with today's buyers. Not only do the Chinese not buy many Jaguars, it has been losing business in traditionally strong markets such as the US.

As design pundit and MT contributing editor Stephen Bayley puts it: 'The Range Rover has no peers, it's arguably the best car in the world. But not many people go to sleep dreaming of owning a Jaguar any more. It has become a deliberately quirky choice, like Saab or Citroen.'

Even Wright admits there is work to do. 'We're on a journey with Jaguar. It's wrong to judge it now; the time to do so is in a few years.'

Nevertheless, a strong Jaguar is at the heart of growth plans - the first new model will be 2015's baby Jag saloon, the second will be a Jaguar-branded 4x4 crossover, both using a brand-new aluminium platform. And if customers can't be persuaded to swap their 5 Series BMW or Audi Q7 for one of the new Jaguars, there's no plan B. It's Jaguar's last chance.

Just as well then that there are signs of progress even here. In 2014, Jaguar delivered its strongest sales performance for years, 76,668 cars, up 42% on last year. Even more encouragingly, it is the fastest growing premium brand in both the US and its rivals' heartland, Germany. That will be music to the ears of CEO Speth, owner of a classic E-type as well as the latest F-type Jaguar sports car.

But for all the external challenges facing the firm, arguably the greatest risk on the horizon is internal. Tata Motors is in trouble. It has $2.75bn of debt ($1.3bn of which matures in the first half of this year) and, in an ironic echo of what happened to the British industry in the 1960s and 1970s, its car sales have collapsed in the Indian market as the economy has faltered and better foreign imports have lured buyers away.

So Rome is burning, and its management seems unable to kill the fire. 'There is a dire shortage of new products in the car business, and while the truck business is solid it doesn't make much money,' says Hutton.

All of which presents the unwelcome prospect that JLR - now by far the most profitable of Tata's automotive businesses - could be plundered either for cash or for management talent, or both, in order to prop up its ailing Indian parent. It's a temptation that most of the world's great empires have succumbed to sooner or later, after all. Historians call it 'imperial overstretch'.

An outright sale to one of the major manufacturers seems unlikely. Not only would it would deprive Tata of the jewel in its crown, but such a buyer might also prove pretty hard to find. So a partial IPO - delivering cash to Tata while allowing it to retain a controlling interest in JLR - could be more appealing if and when the need to raise cash to deliver that £10bn investment programme does arise.

'We see an amazingly high level of investment at JLR at the moment,' says UBS analyst Houchois. 'Is that doomed to persist beyond what even its parent can afford?

'There will come a time when the value of the business is impaired by the ownership structure. At some point, they will have to do something about it.'

So despite the huge strides that Tata has taken to revive JLR already, the greatest test of both firms' mettle may be yet to come.

But back at Halewood, that's a question for another, perhaps less frenetic, day. For now, the site's huge car parks continue to stack up with brand new Evoques as quickly as they are shipped out on southbound freight trains, and the road ahead looks clearer and brighter than it has for years. Long may the Indian adventure continue.

JAGUAR TIMELINE 1945: Makes fewer than 4,000 cars. Founder Sir William Lyons changes the name of his company - formed in 1922 - to Jaguar Cars to avoid the unfortunate connotations of its pre-war monicker, SS Cars

1961: Makes 25,224 cars. Launches the E-type Jaguar. Less than half the price of an Aston Martin DB4, it is described by arch-rival Enzo Ferrari as 'the most beautiful car ever made'

1989: Sells 47,400 cars. Sold to Ford for a hefty £1.6bn by Jaguar's then chairman, Sir John Egan

1999: 75,312 cars sold. Becomes part of Ford's upmarket Premier Automotive Group, alongside Volvo and Aston Martin

LANDROVER TIMELINE 1948: 8,000 cars sold. Rover Cars launches the four-wheel-drive Land Rover, a spartan vehicle aimed at farmers and landowners, inspired by the wartime Jeep

1970: 59,200 cars sold. The hugely influential Range Rover is launched, inspiring a thousand imitators and creating a brand-new market segment - the sports utility vehicle - in the process

1994: 90,050 cars sold. Acquired by BMW as part of its attempt to rescue the ailing Rover Group

2000: 169,492 cars sold. Sold to Ford, it joins Jaguar in the Premier Automotive Group

JLR TIMELINE 2002: 304,925 cars sold, fewer than 400 in China. Jaguar Land Rover formed by Ford. Jaguar sales peak, Range Rover now in its third generation

2008: 252,036 cars sold. Bought from Ford by billionaire Indian industrialist Ratan Tata's Tata Motors for £1.15bn, just months before the collapse of Lehman Brothers

2009: 196,226 cars sold. JLR flirts with bankruptcy as the global crisis bites and 2,000 workers are laid off. Saved by £500m loan arranged by Tata himself

2011: 274,280 cars sold, 51,000 in China. Range Rover Evoque launched. Range includes 'styled by Victoria Beckham' edition retailing at £80,000

2014: Record 425,006 cars sold, 95,000 in China. £10bn, 40-new-model investment plan under way. Profits for Q1 up 25% to £415m.

The Brits have always had awesome designs.

But never the quality, their union problems sort of paralleling the USA or perhaps worse.

Looks like the bodacious Tatas are working on that aspect.

British cars are a crap shoot.
The Jags always had electrical problems. The Old Triumphs rusted in years.
Range Rovers look sweet, but yikes the price.

I bought my wife a Range Rover Sport a few years ago, and was pleasantly surprised. It’s a solidly built vehicle and fun to drive. Four wheel drive performance is excellent although it rarely goes off road. We have had a lot fewer maintenance issues than I expected, given the reputation of the brand. I would buy another.

I recently considered buying an Evoque. But I couldn't get past the ugly shape and I thought the turbo lag was terrible.

I bought German instead.

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I owned four Jaguars during my misspent youth.

While campaigning a ‘66 E type roadster, a friend introduced me to a parts book from Delco of England. Low and behold, here was the solution to the failings of Joe Lucas. Better yet, I could order by parts number from the local NAPA store.
There was no quick and easy solution to the oil leaks and overheating problems in the Series 1. Only after opening up the grill and adding two electric fans could the E type keep its cool in the ‘68 version.

“The last time Jaguar attempted this feat, back in the days of Ford with the X-Type, it was an abject failure.” This was a very disappointing car. While it took its design cues from the old XKE, the rest of the car seemed like it was built by a committee - a passionless, boat anchor for tolerant liberals.

I can’t believe they left out of the history the racing years at Jaguar (!) as these were some of the most exciting and helped build the company’s reputation as a serious contender. The Jaguar D-Type won the 24 hours of Le Mans in 1955, 1956, and 1957.

I have seen the new designs. They look pretty good. I wish them well. Jags have always been one of my favorites. I’d take any of those older models C, D, or E models. I just loved them. Unfortunately, you last name would have to be Gates or Buffett.

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