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New roar to Jaguar Land Rover, but future looks complicated

AID Newsletter Editorial 1401 from Peter Schmidt - January 17th 2014

New Jaguar Crossover concept Frankfurt 2013 IAA

Open quote signJLR Jaguar Land Rover finally has its time in the sun. Ironically, after finally succeeding against some of the worst odds, potentially menacing dark clouds are already drifting over the horizon. 

The biggest worry about JLR’s medium to long term future - compared to the towering size of its main sector rivals like BMW, Audi and Mercedes - is that now more than ever JLR lacks the economies of scale needed for long-term survival. 

A case in point, in China alone - a market responsible in no small part for JLR’s strapping good health - Audi is about to lift its production capacity to 700,000 cars a year, with the goal of using it fully by 2017 at the very latest. Compare that with today’s Jaguar Land Rover.

With last year’s 425,000 annual sales, of which just 80,000 were Jaguar cars, JLR is a mere tiddler in today’s choppy and shark-invested sea. 

By direct comparison, sector-leading BMW closed out last year with 1.96m cars; Audi’s sales rose for yet another year to 1.58m units; and third placed Mercedes sold 1.46 million during 2013. 

Not only does JLR lack the vital economy of scale benefits enjoyed today by the world’s premium sector leaders such as BMW, Audi and Mercedes, reality is, despite being a member of the Tata family, that within its sector JLR operates effectively as a stand-alone premium carmaker. 

So much so in fact, that because of necessity, and now lacking the former convenience of dipping into Ford’s parts bin, today JLR is left with precious little alternative but to develop and build even its own engines. 

That’s likely followed by the need to also develop its own premium sector vehicle structures from scratch. 

Underlining the mounting cost pressures, even mighty Mercedes saw the need to forge a technological tie-up with Renault-Nissan in order to lessen mounting vehicle cost pressures. 

Moreover, as part of the risk-sharing deal, Nissan’s Infiniti offshoot will benefit forthwith from its ability to use some of Mercedes’ floorpans and more for some of its future models. 

Despite JLR’s simply astonishing comeback, adding for the first time for decades some genuine glitter to the brand, whilst generating some serious profits, there’s still a major fly in the ointment. 

At a time when critical mass is needed by way of product development, the sharing of platforms, running gear, powertrain and the increasingly crucial electronic platform, all pivotal in determining an operation's future viability, JLR remains out in the cold on its own. 

Despite today’s truly glowing Jaguar Land Rover numbers, the dilemma now for reborn JLR is whether to soldier on under its own steam into a fast-changing risky future or to play it safe by seeking out a mutually beneficial liaison with a large premium carmaker. 

Not only will the horrendous cost of future product development put a brake on Jaguar Land Rover ambitions, crucially advanced future products, because of its small size, are effectively out of reach for a stand-alone JLR. 

The clock is ticking. If it fails to do forge a link with a larger premium sector player, chances are that for Jaguar Land Rover the future might conceivably be much like the company’s infamous past. 

So it would not be at all inconceivable that a suitable and potentially interested partner can be found. 

Given today’s excellent state of heath of the bride to be, means that JLR also has a fairly strong hand if and when it comes to negotiating a marriage contract.
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EDITORIAL | BMW is right to have a foot in both camps, payback may take longer  18 Dec 2013

EDITORIAL | Audi and Porsche, for its Volkswagen parent, are the icing on the cake  04 Dec 2013

EDITORIAL | Once bitten, twice shy - paradigm shift in consumer sentiment?  20 Nov 2013

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