Tata Motors puts Jaguar, Land Rover back on track
Hard work and tough decisions have combined with more favourable market conditions to help Tata Motors revive British luxury marques Jaguar and Land Rover, analysts say.autos Updated: Jun 01, 2011 10:58 IST
Hard work and tough decisions have combined with more favourable market conditions to help Tata Motors revive British luxury marques Jaguar and Land Rover, analysts say.
Loss-making former owner, US giant Ford, sold just under 50,000 Land Rovers and nearly 15,700 Jaguars in 2007, shortly before it offloaded the brands to India's top vehicle maker in a $2.3 billion deal.
Last week, Tata Motors revealed that annual sales of the luxury cars were nearly 244,000 globally and that more than 80 % or $1.7 billion of its bumper $2.04 billion annual profits came from the JLR unit.
The first Indian factory to assemble Land Rovers opened last week, with its owners hailing the move as a vital step forward in cementing the brand's presence in the world's fastest-growing car market.
Jigar Shah, head of research for Kim Eng Securities India, said: "A lot of effort has gone into the turnaround. It's not just favourable conditions."
The reversal in fortunes has been all the more remarkable as until it acquired Jaguar Land Rover, Tata Motors' entire profit came from India, selling mainly trucks and buses -- and the initial returns on the investment didn't look good.
Nine months after the acquisition, Tata Motors suffered an annual loss of 25 billion rupees ($520 million) in the fiscal year to March 2009 -- its first in more than seven years -- and blamed the slump on poor Land Rover sales.
But the company responded aggressively, cutting costs and 3,000 jobs at its British factories, aligning production with demand and tightening control over cash flows.
It also increased JLR's sourcing of raw materials from low-cost locations, like India, following the example of its rivals BMW, Mercedes, Audi and Renault-Nissan, to increase competitiveness and ultimately, to lower prices.
Even decision-making got quicker, said Jaguar Land Rover's India spokesman Del Sehmar. "We're more nimble," he told AFP last week.
For Howard Wheeldon, a senior strategist at BGC Partners, a leading financial services group in London, Tata Motors' energy and investment has revived JLR's fortunes.
Tata Motors has invested $3 billion in JLR to bring it out of losses, analysts say, even at a time when British manufacturing is widely seen to be in decline and money better spent on cheaper, emerging markets.
"JLR has brilliantly proved the point that competitive volume or semi-volume investment manufacturing in the UK can be profitable for those prepared to invest," he said.
Most of all, though, the company and industry watchers agree that Jaguar Land Rover now has a range of quality products to entice consumers in India's fast-growing luxury car sector -- and elsewhere, as economic recovery continues.
Tata Motors sells Jaguar XJ, XF and XK sedans in India in addition to the Discovery and Range Rover SUVs from Land Rover, which are sold through a network of local showrooms.
Chief executive Carl-Peter Forster believes India is a "huge market with immense potential" and sees it with China, where JLR sales rocketed to 27,500 last year, as a key target for growth.
Just 891 cars were sold by the company in India.
But riding on JLR's success may not be enough for Tata Motors, analysts say.
Rising costs of raw materials such as steel and rubber could shrink Tata Motors' operating margins further, as the local car market gets more crowded.
Parent company Tata Group chairman Ratan Tata was recently embroiled in a row about the work ethic of local managers at Jaguar Land Rover and its steel unit Corus, which it bought in 2007.
He was quoted by The Times newspaper as saying that "nobody is willing to go the extra mile" at the firms. Tata later said he was talking about former managers and was not suggesting they were lazy.