More than half the shares in luxury car-maker Jaguar, poised to launch its new XJ40 in the U.S., are now held by Americans, A month ago the figure for American share owners was close to 47%. But a recent spurt of buying, sending Jag shares to a high of 629p at one point, has pushed them above 50% for the first time.
The reason is that big shifts in foreign exchange rates are presenting the group headed by Sir John Egan with a golden opportunity to cash in when the XJ40 is launched next month. Jaguar has made major inroads into the American luxury car market in recent years. The company sold just 3,000 cars to U.S. customers in 1980. Last year, the figure was nearly 24,500. But still Jaguar’s transatlantic sales are small compared with those of its German rivals. BMW and Mercedes each sold more than 90,000 cars to the Americans in 1986 while U.S. motorists bought 62,000 Audis and 30,000 Porsches.
But the impact of the surging deutchmark against the American dollar is beginning to hit the German car makers. To keep profits from falling, prices must rise, BMW, Mercedes and Porsche have just raised pricesâ€”in some cases by almost a third. More are expected within six months. Jag has raised its prices, too, but not by that much and in doing so has increased its profit margin. Even at $37,500 (£24,350) its XJ6 sells for $3,000 less than its nearest rival and at $39,700 (£25,710) the XJ-S is $1,000 (£650) cheaper than a comparable Porsche. The XJ40 will easily undercut the $65,400 (£42,600) Mercedes 560SEL.
The strong West German currency is handing profits to Jaguar almost on a plate. There has always been a big difference in the way the U.S. and U.K. investors view Jaguar. Americans love it, but British analysts are cautious. They expect only a marginal profit increase when the car group reports 1986 results next month. The 1986 figure of £123 million will compare with £121 million for 1985. This year, profits should top £130 million. Philip Ayton, car analyst at Barclays de Zoete Wedd, says: “Given the dollar/deutschemark currency changes that have occurred in the last 12 months, the pressure on margins for Mercedes and BMW in the U.S, must be extreme.”
Porsche has been hit hard by the dollar’s strength. Almost two thirds of the company’s output goes to the U.S. The company has just announced a 37.5% profits fall. And analyst Stephen Reitman of Phillips & Drew largely attributes that to the currency shift. When the dollar was riding high two years ago, Jaguar cleverly hedged on the currency markets to make sure it got the best possible exchange rate for sales through to 1986. The effect of that currency hedging is now running out. But with the Germans being forced to put up prices in America, Jaguar is well placed to set an aggressive price for the new XJ40.
“This is a clear opportunity to regain profit margins,” says Philip Aytonn , And the Americans are expected to be enthusiastic about the new car. But the company “must not jeopardise dealer and customer loyalty by pricing it too high,” he says.