Can Tata succeed where Ford failed?

Jan 9 2008 by Alistair Houghton, Liverpool Daily Post

TAKING Jaguar back up-market could help turn the fortunes of the prestigious brand. Alistair Houghton reports

WHEN Tata Motors was last week named as preferred bidder for Ford’s Jaguar and Land Rover business, the Indian giant said it was “very positive” about the prospects of the business.

But industry analysts are unanimous in their view that Tata will have its work cut out if it is to do something Ford couldn’t manage by making Jaguar a profitable and worthwhile investment.

Jaguar may be one of the world’s best-loved and most prestigious motor brands, but it has had a very chequered history of profitability. Indeed, in recent years, it has lost hundreds of millions of pounds for its Detroit-based parent.

Ford does not break out the profit performance of its individual brands. But last year the Detroit News reported that Jaguar lost more than $715m (£362m) in 2006.

The paper said that an internal analysis showed the brand was expected to lose more than $550m (£278m) in 2007 and more than $300m (£152m) this year.

Ford’s own figures show its Premier Automotive Group (PAG), which includes Jaguar, Land Rover and Volvo, reported a full-year loss of $327m (£166m) for 2006, down $238m (£120m) on 2005.

Ford said Jaguar Land Rover had been “solidly profitable” for the first nine months of 2007, but this is a combined figure for the two brands, not just Jaguar on its own.

Land Rover is performing well and reporting record sales driven by the Halewood-built Freelander 2. PAG’s financial woes in recent years have been blamed on Jaguar’s falling sales.

The Halewood-built X-Type was launched in 2001 as an “entry-level” Jaguar to boost sales, but its performance has been disappoint-ing, with sales in recent years running at around one-third of the original target of 90,000 a-year.

Ford had hoped the X-Type would boost overall Jaguar sales to over 200,000, but the company sold just 75,013 cars world-wide in 2006, of which 32,519 were X-Types.

Most of the damage came from the North American market. The US was to be the key market for the X-Type, but sales have fallen from a high of 30,000 a year at launch to less than 4,000 in 2007.

Ford says that decline is thanks largely to an unfavourable exchange rate of more than $2 to the pound that has made it hard for the imported X-Type to compete with US-built models. As a result, Jaguar has decided to stop exporting X-Types to the US this spring.

Professor Peter Cooke, KPMG automotive professor at the Univer-sity of Buckingham, said he expects Jaguar to remain in loss for at least five more years. He also expects Tata to take Jaguar back up-market and move away from X-Type-style vehicles designed to make Jaguar a more mass-market brand.

He said: “Jaguar is an aspirational brand. If you’re an aspirational brand, you don’t want every man and his kids to have one. Probably £80,000 will be the starting price in two or three years’ time. They’ll go for value-added rather than huge volumes.”

But Prof Cooke says making Jaguar more exclusive does not mean shrinking sales, as there are new markets to tap into.

“India has a middle-class popula-tion bigger than the whole of the middle class in the EU,” he said. “But Tata also understands China is becoming more and more important.

“One amazing thing we’re seeing in China is people are buying their first cars and they’re buying Mercedes. They’re not starting off like you or I with a car you need to push to get started. They’re starting at the top.”

Tata, says Prof Cooke, “doesn’t back losers” and will already be developing long-term plans for growing Jaguar and Land Rover.

He said that, while the current X-Type was reaching the end of its life, Jaguar would be able to create new and improved products to be built at Halewood.

He said: “Are we going to see Jaguar going back to the great days of soft-top Jaguar coupés, but up-market? They might be the son and daughter of the X-Type.

“It won’t be the son and daughter of the X-Type as we know it, but it will be an X-Type plus.

“Ford was the world’s second most successful car company because it knew how to make volume. It didn’t know how to make premium products and aspirational cars.