Thursday, August 12, 2010

Back from the brink: The Jaguar Land Rover story

12/08/2010

Most termed it Ratan Tata’s vanity play when he acquired the marquee brand in the UK. Two years later, JLR’s performance has gone beyond everyone’s expectations.

When Tata Group Chairman Ratan Tata announced the acquisition of British luxury carmaker Jaguar Land Rover (JLR) in 2008, it was widely dismissed as a vanity play. Most analysts thought the losing British luxury carmaker was an unnecessary burden for a company which should focus more on its vast home market.
The unhappiness was evident at last year's Tata Motors annual general meeting when shareholders questioned Tata about the wisdom of paying $2.3 billion for acquiring the two brands, which had caused a $10 billion loss to Ford Motor Company, their erstwhile owner.
To make matters worse, the economic meltdown happened immediately after Tata Motors took over JLR, which went into a major downturn and started sucking a lot of cash. Tatas had to put in $1.5 billion to keep it up.

Both Tata and his trusted lieutenant Ravi Kant tried to soothe shareholders' nerves by saying that the two luxury brands can be put on the path of recovery and that JLR will become profitable in two years. Few believed them at that time.
But Tata Motors has achieved that feat a year earlier by reporting first quarter results that are way beyond everyone's expectations. And the main reason was JLR, whose revenue jumped 10.5 per cent quarter-on-quarter while Ebitda jumped 50 per cent in the same period. This was much better than the standalone results of Tata Motors.
JLR also turned free-cash flow positive after accounting for capital expenditure and product development expenses of around Rs 2,000 crore.

Tata Motors MD & CEO Carl-Peter Forster, till recently head of General Motors Europe, says "demand for JLR vehicles has exceeded our estimates and we are currently struggling to cope up. The markets in the US, UK and Europe have bounced back, even though China is cooling off".
Sales in the United Kingdom, JLR's home country and also its second largest market, rose by 23 per cent to 13,200 units during the recently concluded quarter as compared to 10,700 units. Similarly, North America recorded sales growth of 23 per cent to 12,600 units as against 10,300 units.
Forster says the company is focusing on selective hiring for JLR. "We have a very ambitious cycle ahead of us and need additional engineers for product development".

So how has Tata Motors achieved this? While a slowly improving global economy played a crucial role, sales volumes have also been rising as the new management compressed the time frame of product launches and launched high-margin cars, resulting in higher realisations.
Its 2010 range of revamped Land Rover, Range Rover Sport and Discovery 4 is doing well. Meanwhile the stunning Jaguar XF and XJ take on all-comers. The two brands had bagged a massive 13,000 units, $850 million, three- year order from China last year. However, it is pushing its facilities to the maximum to be able to wrap up the full order by this year itself.
In addition, Ratan Tata's plans to launch a new entry-level model, a roadster and a station wagon for Jaguar and a completely new Range Rover as well as hybrid vehicles in the coming period will add to the overall product portfolio.
It shows how important JLR's £800 million investment in green technologies really is, and how key the LRX (a lightweight hybrid 'baby' Range Rover) will be.

The compact, three-door LRX concept built on a sustainability-focused platform
The company has also created national sales organisations in all the countries where it sells JLR and all the new models are high margin products.
Besides, JLR's traditional markets - US and Europe, which had shown a sharp slump during 2008 following the global meltdown - are beginning to get back on its feet. Tata Motors also made the business more accountable and appointed KPMG and Roland Berger Strategy Consultants to cut costs at JLR.
It then went for major cost cuts through a thorough review of the manufacturing process, rationalisation of platforms and increasing the share of components purchased from low-cost countries like India and China.
A year and a half ago, JLR sourced 14-15 per cent of its total component requirements from low-cost countries. This has now risen to more than 20 per cent and the company targets to increase this to around 30 per cent. It has already opened purchasing offices in China in 2009. JLR thus directly gains a cost advantage of 30-40 per cent in components.

Total sales in China now account for about 10 per cent of JLR's total sales, and the company plans to increase sales to around 25,000 units in future. For this, the company plans to establish a separate national sales company in China shortly.
The management is also working towards joint development of engines, vehicles and platforms which will yield substantial savings in operations in the coming period. As per the senior management, JLR will explore the possibility of making small capacity engines with Tata Motors, while reducing its dependency on Ford Motor Company, from where it presently purchases all its engines.
Tata Motors also appears to be steadfast in its decision to close one of the three plants of JLR in the UK, in an attempt to further rationalise costs while consolidating the remaining two plants.

K.Venugopal
#1
Thursday, 12 August 2010 16:29:03
TATA is a name all Indians are proud of. Now that they are getting ready to have a new helmsman to head the empire, may I chip in my uncalled for but very much legitimate opinion because TATA is not simply a multi-national Indian brand but the blue eyed boy of the Indian Parivar and as an Indian, I must have my say. Tatas can afford to have the best of most competent names in the world to head it and such names might almost be dying to be the successor to such a worthy name as Ratan Tata. Many such names are already in the fray. But there is only one name that can carry forward something so cherished like no other name can - and that is a name which has mystique - TATA. Therefore Noel Tata, no pushover when it comes to exposure in Tata, though not as experienced, maybe, when more eminent candidates are considered, should almost automatically be successor to Ratan Tata. Ratan himself was somewhat, it was thought at that time, in the sea and had to be expertly guided by honchos of grey eminence till be broke free to set his own pace and become a legend in his own lifetime. Naturally - he had the TATA mystique. Let us not lose out on that mystique by denying Noel the role he is obviously born for.

http://autos.in.msn.com/autonews/article.aspx?cp-documentid=4260005&page=0

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