Press Comment : The Cat is back and heading East

David Bailey, Birmingham Post, 28th May, 2010

Jaguar Land Rover announced today that it will indeed begin assembling cars in China.

Is production of the Jaguar XF heading East?

Is production of the Jaguar XF heading East?

JLR CEO Carl-Peter Foster said today that “we will need to manufacture at least two models in China… We’ll take one to two years to set it up, but first we will need a partner.”

That the raises the question of whether it is looking for a Chinese partner for a Joint Venture – as is often preferred by the Chinese Government as a way into the market.

The move comes as no surprise – most auto firms produce near end markets and have operations in Europe, Asia and North America for example – and with China growing rapidly and a middle class keen to gobble up JLR products, it makes sense for the firm to be there.

After the lift-and-shifts of MG Rover and LDV, the move East will raise fears in the UK of a further hollowing out of our manufacturing base, but JLR said today that the move into China is not a shift out of the UK, and that it is planning to take on an extra 1,000 temporary workers this year, linking to the start of Baby Range Rover (or ‘Range Rover Coupe’?) production next year.

Back in Black

JLR today unveiled terrific results today, with end of year profits of some £32m for its owner Tata Motors, quite a turnaround after the carnage in the auto sector last year.

The firm saw big increases in global sales of Land Rover and Range Rover 2010 models, which totalled 14,350 in April, almost 90% higher than the same month last year.

Jaguar sales remain flat as the boost from the XJ has yet to feed through. The firm’s shift away from higher volume X-TYPE production also means that the firm is essentially repositioning the Big Cat in the premium sector where it can earn more money per car.

JLR’s results were contained in Tata Motors’ annual results. These showed sales up by 31% to £13.6bn, with Tata Motors profits of £378m (as against a loss of £310m last year).

Tata said it was also optimistic for JLR in the year ahead, especially given the warm reception to new models: “With the positive market reception of the enhanced product range in an improved market environment as well as continued cost reduction efforts, the business was able to show sustained quartered on quarter improvement towards solid profitability in Q3 and Q4 of FY10.”

Over 2009-10, JLR launched updated models including 2010 facelifts for the Range Rover, Range Rover Sport, LR Discovery 4 and Jaguars XF and XK. Jaguar also expects better sales in late 2010 after the launch of the flagship XJ.

Tata stated that “JLR retail sales improved favourably in the second half of the year, after addressing the strong recovery in the UK were Land Rover retail sales were up 25% year on year… the Jaguar XF improved in the UK by 28% year on year”.

And indicative of why JLR is going to China, Tata said it was also hopeful of continued expansion in China, where demand for the vehicles is growing with the emergence of the new affluent middle class; “China continued to show significant growth for JLR with Jaguar growing by 38% and Land Rover 55% year on year,” said Tata.

Underpinning these results are three things: 1) a great product line-up with more to come (which is why R&D and innovation is so important); 2) strong growth in emerging markets like China boosting demand for JLR products; 3) a weak pound which has helped firms like Jaguar export.

Plant Closure Still Looms

The Guardian yesterday reported that the sales boost at JLR has led the firm to reconsider closing one of its West Midlands plants, and that no such closure is now on the cards. JLR denied this immediately.

My reading of the situation is that a plant is still likely to close after 2015 and the announcement will probably be made sometime this summer.

Whilst unions will rightly be concerned about possible job losses, it’s difficult to see how JLR could keep open 3 plants in the UK. JLR aims to ramp up production over the next few years from around 200,000 now to around 300,000 units but even then the economics of 3 plants fail to stack up.

What economists call the ‘minimum efficient scale’ for a car assembly plant is around 200,000 to 250,000 units a year. In theory JLR could actually shoe-horn all their production through a slightly enlarged Halewood, which would be a huge blow for the West Midlands.

So in that sense I’m relieved at least that the firm is looking to consolidate output in the West Midlands on one site and cut costs (such as by having one paint shop rather than two).

At the moment JLR jobs are roughly distributed as follows:
Halewood – aprox 1900
Solihull – approx 4600
Castle Brom – approx 2400
Browns Lane – approx 400
Gaydon – approx 3000
Whitley – approx 1900

In terms of a plant closure, it’s too close to call which way things will go. Solihull is a large plant with plenty of scope for expansion and with a relatively new paint shop and up-to-date multiple forming press.

However, on the other hand, the firm could easily shift more Land Rover production to the big Halewood plant and focus on high-tech aluminium construction at Castle Bromwich.

On balance Castle Bromwich may be the more vulnerable as a more space constrained site.

Where Next?

In terms of models, JLR is looking to reduce the number of platforms to two to drastically cut development costs (I should stress that what follows is simply my own guess on where the firm might go, based on developments in the industry).

This would mean having the Range Rover, Range Rover Sport and Jaguar XJ models all on one platform and the XK and (rumoured) new small sports car all aluminium as well. Reports in auto magazines suggest that the Range Rover and Range Rover Sport could also be available in 7 seater versions. Meanwhile, the XF would carry on in steel until its replacement comes out.

The Freelander and Discovery (which is anyway perhaps getting too close the Range Rover brand) might be phased out, leaving Halewood to produce the new lightweight hybrid LRX (nicknamed the ‘Range Rover Coupe’ for now) and a more utilitarian Land Rover.

That suggests the emergence of Range Rover as a much more distinct brand in its own right (as we have started to see with two models already and the Coupe yet to come) where the firm can earn higher premiums.

As previously predicted, JLR will produce in China given the rapid growth of sales there and the emergence of a middle class that will look to buy premium cars like Jags and Range Rovers.

Maybe basic Land Rover Defender production might be moved to India in the middle of the next decade, leaving JLR in the West Midlands to focus on more up-market premium models?

Boosting Manufacturing Capacity

The recent turmoil in the car industry has meant that many car firms, including JLR, have had to rapidly re-draw their plans. However, some things haven’t changed: JLR currently has one car plant too many in the UK and far too many separate platforms.

I do, of course, share with the unions a concern over manufacturing jobs and the need to rebalance the economy. There are two important issues to remember here though.

Firstly, JLR has stated that it aims to retain overall employment in the region after the consolidation so workers are likely to be moved from one plant to another. We therefore need to focus on maintaining skilled employment levels rather than whether workers are at one plant or two.

This means thinking about how the Government could help JLR get new models to market (launch aid is one element here, R&D support is another) so as to maintain skilled employment.

Secondly, we need to think more creatively about how to build and sustain manufacturing capacity. If we want more manufacturing so as to avoid over-reliance on financial services, we should be looking now at how Castle Bromwich or Lode Lane could be used for making something else.

For example, JLR’s parent firm is Tata Motors. They have talked about bringing electric Nano car production to Europe. What better place than the West Midlands given the supply chain expertise here and given their considerable investment in R&D in the region?

That would mean the Government taking a more interventionist line (as Labour did with Nissan) to persuade Tata of the benefits of producing in the UK. I have no idea of where Tata are looking to produce Nano electric car production, but I suggest the new Coalition Government makes a strong case to bring it to the UK and look to use an un-needed JLR plant.

PM David Cameron will today talk of the need to rebalance the economy and foster a vibrant manufacturing base. That means intervening to make it happen, starting right now. JLR is a winner and is a great case of how we can export our way out of recession. It deserves state backing, as does the manufacturing base more generally if we really are going to rebalance the economy…

[Source: Birmingham Post]

[Editor’s Note: Professor David Bailey works at Coventry University Business School.]

Clive Goldthorp

About the Author:

Clive claims that his interest in the BMC>MG story dates back to his childhood in the 1960s when the family’s garage premises were leased to a tenant with an Austin agency. However, back in the 1920s and 1930s, his grandmother was one of the country’s first female Garage Proprietors so cars probably run in his genes! Admits to affairs with Alfa Romeos, but has more recently owned an 06/06 MG TF 135 and then a 15/64 MG3 Style… Clive, who was AROnline’s News Editor for nearly four years, stood down from that role in order to devote more time to various Motor Racing projects but still contributes articles on as regular basis as his other commitments permit.

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  1. DaveH says:

    JLR has not said which two models will be built in China. I presume this is because they have not yet decided or, as I think is more likely to be the case, JLR are either looking to bring out a smaller Jag to replace the X-TYPE (there could be a large market for such a car in China) or maybe relaunch the Rover brand. I reckon that, if Range Rover is repositioned as a high-image brand and Land Rover as more affordable, then the Rover brand could slot underneath.

  2. Keith says:

    Launching a small Jaguar as a Rover would make sense in China – look at how the “Britishness” of MG and Roewe is pushed for all it is worth. A few sheet-metal changes to the X-TYPE, move the lines from Halewood to the PRC and job done!

  3. Alain says:

    Re-introducing the Rover brand would be a good idea. Jaguar is too much of a premium brand. A new SD1 (if, of course, it was reliable and drove well) could be a good alternative to the Audi A4/A5, BMW 3-Series and Mercedes C-Class.

    The X-TYPE was too small for a Jaguar, that’s Rover’s niche. There are plenty of satisfied Rover 75 drivers who would be happy to drive a new Rover again. They don’t want a Jaguar XF or a big SUV.

  4. Jon says:

    Rover is NOT coming back and that is official – JLR have already stated this. The new small Jaguar will be loosely based on existing concepts. The Freelander and Defender will be built in China with the possibility of kits of the Disco 4 also being assembled there.

    Next year will be the year of the Cat with lots of new metal.

  5. David 3500 says:

    Jon :Rover is NOT coming back and that is official – JLR have already stated this. The new small Jaguar will be loosely based on existing concepts. The Freelander and Defender will be built in China with the possibility of kits of the Disco 4 also being assembled there.

    Next year will be the year of the Cat with lots of new metal.

    Oh well, I guess I will have to stick with driving and enjoying the appeal of an existing Rover model, as neither the Jaguar name, image or styling appeals to me. Perhaps I will eventually consider supplementing a Rover with a Land Rover Discovery – it still has ‘Rover’ in its title and has an honest pedigree based on the Land Rover name.

  6. Richard Kilpatrick Richard Kilpatrick says:

    @David 3500
    That’s interesting logic – given the choice between a Jaguar, designed and built in Britain with an interpretation of what JLR feel is a British take on a modern car, or the Rover nameplate applied to, say, a Kia with a few styling tweaks and some wood on the dash… what would you choose?

    Name and image are meaningless. The car is what counts. I can quite see why Jaguars (and a lot of modern cars) fail to appeal to car enthusiasts, but a modern Rover is still a modern car. The 75 has nothing in common with a P6 or SD1 bar the badge and market segment.

  7. Mark Pitchford says:

    @Jon
    Who stated this when? Where?

  8. DaveH says:

    @Jon
    How many times have we heard companies say they are not bringing back stuff? Heinz, for example, said they were not bringing back Beanz Meanz Heinz as it was not appropiate for the modern market – we are going for the super bean! Heinz reversed that decision and the old phrase is now back.

    JLR stated back when they were part of Ford they would not bring back the Rover name. However, Tata did not rule out using the name (in an interview which appeared on here somewhere) but said they would be evaluating all parts of the business before making decisions.

  9. David 3500 says:

    Richard Kilpatrick :
    @David 3500
    That’s interesting logic – given the choice between a Jaguar, designed and built in Britain with an interpretation of what JLR feel is a British take on a modern car, or the Rover nameplate applied to, say, a Kia with a few styling tweaks and some wood on the dash… what would you choose?

    Name and image are meaningless. The car is what counts. I can quite see why Jaguars (and a lot of modern cars) fail to appeal to car enthusiasts, but a modern Rover is still a modern car. The 75 has nothing in common with a P6 or SD1 bar the badge and market segment.

    With due respect, as someone from a Psychology and media background, I think image and name have a lot to do with it (although neither are my sole reasoning). You should ask why so many people buy BMWs and Mercedes-Benzes when the reality is their quality isn’t the best in class.

    Indeed, ask my father about that when he had to pay for a new radiator grille because the chrome on his three year old 5-Series peeled away and it was just outside the then warranty. Ask him about the three and a half year old E-Class he sold two weeks ago, but which one week after it was three years old had to have four new heater thermostats which he had to pay for.

    My father is not alone in this respect, which would suggest that image and name are very important motivating factors in people’s choice of car (there are lots of published academic psychology and marketing studies to support this in respect of brand names). Styling, too, is subjective, which is why I have not liked many Jaguars and have liked most (but not all) Rovers.

    Compare the Jaguar X-TYPE to the Rover 75 and which one feels less compromised in its design and packaging? The Rover… Alternatively, the Rover CityRover is a real compromise more in tune with your latter statement about a ‘Kia with a few styling tweaks.’

    The Rover 75 was a compact executive car, while the P6 and SD1 (which I didn’t make reference to) were executive sector cars. I am sorry that Jaguar does not produce a saloon car that appeals to my heart and head, whereas Rover more often (but not always) did.

  10. Charles says:

    I could not agree more with the above. The Rondas of the 80s and 90s were, from an ergonomic point of view, very well packaged cars in comparison to many models from other car makers – take the Metro and the 800 Coupe.

    I don’t see any reason why the famous Rover brand should not reappear again in its own right. After all, it is still revered for quality in many countries.

    My grandfather had a fleet of Rover P6s at his own hotel in the Lebanon back in the 60s. People forget that they had a better reputation for build quality than the likes of the German cars – including Mercedes. One only needs to look at a 10 year old E-class which already has rust on the wheel arches…

    I’m 20 years old with 3 800s and a Rover 2000 and wouldn’t give them up for the earth!!

  11. Richard Kilpatrick Richard Kilpatrick says:

    @David 3500
    Ah, well, with a psychology and media background, I can see why you’d be in a better position to comment than I would 😉

    All I’m saying is that, to disregard Jaguar outright because it doesn’t say “Rover” on it, is silly and the point is not about which specific brand it is but that you’re potentially dismissing a good car in favour of a bad one – or even considering a totally different and, some would argue, hard to justify type of vehicle purely because it has “Rover” in the name. Not me, I should add, I think SUVs are unfairly targeted for criticism.

    I considered a BMW 1 Series despite the badge, as it’s a very competent small RWD car and I also made exactly the same mistake as I feel you would be doing to focus so heavily on the badge – particularly with a psychology and media background.

    I have a C6, which I bought because I am very fond of Citroëns and have owned many 1970s/80s designs, particularly CX and XM. I wanted that in my new car. The C6 is not remotely comparable to a CX or XM.

    Having driven both the X-TYPE and 75, I think they’re both flawed, but the X-TYPE was more comfortable.

    I know exactly why people buy formerly premium brands and that has a little to do with them engineering the cars properly and a lot to do with relative wealth and status – and the reduction in quality of Mercedes demonstrates how that fits in relatively.

    I also, backing up my background with a fair bit of time involved in the trade, am fully aware of what Rover ‘quality’ means and meant. I have no opinion either way about the brand coming back, but I maintain that buying any car with brand as a large influence on that choice is irrational.

  12. Eamonn says:

    I am very pleased that JLR is becoming so successful – it is very well deserved and, I guess, down to a combination of attractive products that are well built and reliable. I hope that they are successful in China and develop into a successful world-wide brand that is founded on ability and not just a badge.

    I agree with the comments above concerning Rover occupying the space “below” Jaguar but not straying into the territory of Ford etc. However, if Rover is to be successful once again, it must sell a product that represents the core values of Rover to differentiate itself from the volume manufacturers.

    Despite the ill-informed use of the “Auntie” tag, Rover’s heritage is one of innovation and competence. These aspects must be some of the vital ingredients in any resurrection of the marque. Rover should never be technical mediocrity clothed in flashy metalwork. All the best Rovers were, at least, on par with or exceeding prevailing technical standards but not at the expense of reliability.

    Tata has shown great ability with JLR. I hope that they recognise the following that Rover still has and introduce a new Rover-badged car to slot below the XF.

  13. Andrew M says:

    Capitalism comes to the rescue of Communism yet again. Time for political change in China. “Have your cake and eat it too”, “Best of both worlds”…

  14. Andrew M says:

    By the way anyone out there with England flags on a foreign car – hypocrisy?

  15. Andrew M says:

    @Richard Kilpatrick
    In what way were the X-TYPE and 75 flawed? You considered the BMW 1 Series which is flawed (very little rear seat space, poor packaging – no doubt due to its RWD), yet you failed to noticed that…

  16. Richard Kilpatrick Richard Kilpatrick says:

    @Andrew M
    I considered the BMW 1 Series. I didn’t say it wasn’t flawed and nowhere can you infer that I failed to notice flaws in the 1 Series. Would you like a full review of the car? You forgot, for example, to mention the visibility and ergonomics.

    Most cars are flawed or, in other words, very few cars come close to perfection (even adjusting that concept to suit something which occupies so many different requirements and expectations).

  17. Ian says:

    Why not consolidate JLR production in the Midlands and close Halewood… surely that makes more sense?!

  18. Joel says:

    @Ian
    Halewood has phenomenal quality and productivity thus making it the least likely of any of the JLR plants to close (with the exception of R&D at Gaydon).

  19. Andrew M says:

    @Richard Kilpatrick
    In what way were the X-TYPE and 75 flawed?

  20. Richard Kilpatrick Richard Kilpatrick says:

    @Andrew M
    OK, here’s my opinion on the X-TYPE and 75 – see comments about subjectivity, experience (I’ve only driven a couple of hundred cars) and so forth. I’ve added my comments about the 1 Series since this seems so important to you:

    X-TYPE: Four cylinder engines were coarse, didn’t suit Jaguar’s image. Dashboard was dated, though Ford ergonomics were apparent in driving position and switch placement. Rear cabin access was less than ideal, due to the design of the C-pillar/roofline. Bootspace not perfect. V6 models prone to HGF, 4×4 models prone to issues with transfer/VC, and rear bush wear is unpleasant and usually ignored.

    75: See above re: four cylinder, though mostly due to having to work a bit harder to haul it about. Suspension insufficiently compliant on the models I’ve driven like the Streetwise, it felt surprisingly good when driven hard but seemed unresolved at lower speeds – earlier models might be better. On the ZT 260 I drove, the pedal area was cramped and uncomfortable (I came to the conclusion that the auto 75 V8 would be better) and the suspension was just hard – no finesse to it at all. Build quality questionable on early models and I found them all of them uncomfortable due to apparently short base cushions on the seats – not sure if this is perception or fact, to be fair, but it’s still something I can compare against the other executive saloons I’ve driven.

    I liked the ZS V6 I drove a couple of years ago – a nice red one owned by a bloke I bought some Volvo bits from – 52K miles and felt like new. That was very resolved, too – very different to the Streetwise experience I had.

    1 Series: Awful cabin plastics, useless rear seats (weren’t a concern for me at the time), poor visibility. Overriding all of these, as a flaw for me, was the placement of the gearlever. It was just randomly really far back – I like the lever to be almost “under” the dash, but the placement of the engine relative to the pedals/wheel and consequent location of the gearbox, sees it in an “elbow back” position at my height (5′ 10″ and short legs, long back). That was a shame, because the responsive steering, pleasant chassis and the joy of driving the base-spec model hard were pretty up there.

    I tried a MINI Cooper S at the same time and was pretty torn between the two, until I realised an RX8 was cheaper 😉

  21. DaveH says:

    The X-TYPE was seriously flawed – drive it back to back with its cousin the Mondeo and you see these errors. The Mondeo had better feeling switchgear (the X-TYPE’s was from a Focus), the seating position was un-Jaguar – you feel lower down in a Mondeo even if you’re not, there’s less room even though it shares the same floorpan and was not exactly built to brilliant standards. The Mondeo finished above it in customer satisfaction guides. But then the X-TYPE was designed as a parts bin special by Americans.

  22. Richard Kilpatrick Richard Kilpatrick says:

    Ah, you see why there’s an issue with making an outright statement regarding any car.

    I don’t like feeling like I’m sitting low down. It might not be like a traditional Jaguar (due, in part, to the scuttle height relative to the seats) but I didn’t hate the driving position. I like the new Jaguar XJ despite the low seating position.

    I’m not disagreeing with you at all, just making the point that flaws are all a matter of perception.

  23. DaveH says:

    I think that most people will have different opinions about seating positions. My gripe about the position in the X-TYPE is that it is supposed to be a sports saloon and so sitting up does not feel sporty – it’s rather strange that that happened as the Mondeo doesn’t feel the same.

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