Page last updated at 13:14 GMT, Thursday, 24 September 2009 14:14 UK

Investment crucial for Jaguar's future

By Jorn Madslien
Business reporter, BBC News

Much has been said about how all carmakers have been hit by plunging car sales across the world, but it is clear that some have been struggling more than others.

Jaguar XF production line in Castle Bromwich, Birmingham
One of Jaguar Land Rover's factories will be closed within five years.

Jaguar Land Rover obviously falls into this latter category.

The company has been "disproportionately hit when compared with any other carmaker in Europe because of its model mix" of Jaguar's luxury cars and Land Rover's 4x4s, according to Tim Urquhart, automotive analyst, Global Insight.

But it is also worth remembering that the the two brands were in trouble long before the recession.

Indeed, the reason why Ford was prepared to sell them last year, for less than half of what it had originally paid, was that the two British luxury marques had been losing money for years - though at the actual time of the sale they were in the black.

Ford was itself losing money and was in no position to come up with the level of investment required to preserve, or even rebuild, their upmarket reputations.

So in March last year, when the Indian industrial conglomerate Tata agreed to pay $2.3bn - at the time £1.15bn - to acquire Jaguar and Land Rover, hopes where high of a prosperous future.

"With the commitments Tata have given to the future of Jaguar Land Rover... we're obviously pleased they are in the game," Tony Woodley, joint general secretary of the UK's biggest union Unite, said at the time.

Cutting costs

Tata has indeed invested millions of pounds since it took over, Jaguar Land Rover insists.

Jaguar at the 2009 Frankfurt motor show
Jaguar's latest models have been greeted with cheer.

"We've got terrific support from Tata," chief executive David Smith tells BBC News.

The question is: has it invested enough?

Jaguar Land Rover officials refuse to reveal any figures, beyond referring to an earlier commitment to invest £800m over five years to reduce emissions from its generally large-engined vehicles. Some of that will come out of a £314m loan from the European Investment Bank, secured earlier this year.

Long-lasting efforts by Tata to get the UK government to assist the troubled automotive division by offering loan guarantees seem to have failed, however, with Tata having been told it is big and powerful enough to stand on its own feet.

If only it was that simple.

Jaguar Land Rover is owned by Tata Motor, the automotive division within Tata Group, which is itself loss-making and thus unable to undertake massive investments on its own.

Industry observers believe that even a company such as Tata Group, known as a benevolent, hands-off parent when it comes to its overseas acquisitions, is reluctant to unconditionally pour funds into the two carmakers, whose sales have slumped from about 280,000 vehicles in 2007 and 255,000 last year to an estimated 150,000 by the end of 2009.

So instead, with "the scale of the JLR losses having caused much consternation in Mumbai", Tata has ordered a clamp-down on costs, observes Dave Leggett, editor of industry website just-auto.

Consequently, Jaguar Land Rover will close either its Castle Bromwich or its Solihull factory within five years.

"It makes sense for [Jaguar Land Rover's] three factories to be made into two," says Global Insight's Mr Urquhart.

Fight for jobs

Jay Nagley of Spyder Automotive says he expects the unions to be "realistic" about this.

Range Rover LRX
Some 800 jobs will be created to manufacture the Range Rover LRX.

"The company has to adapt," he says. "Otherwise it won't survive at all."

But he may have underestimated the workers' frustration.

"GMB will be opposing everything we have heard so far," says Bert Hill, GMB Regional Officer - in spite of assurances by Jaguar Land Rover that the plant closure should take place without any compulsory redundancies.

"As we replace existing models and add new products... we're actually going to be adding volume... and maintain employment levels," says Mr Smith.

Nevertheless, Mr Hill was clear: "We will fight the company on this - of that I have no doubt."

Lighter, more efficient cars

A dispute with its workers is the last thing Jaguar Land Rover needs in the middle of this restructuring effort.

"It is a question of cutting now, but also planning for the future," says Mr Nagley.

New cars are central to Jaguar Land Rover's strategy, with some models already having an impact.

"It's current model range is fantastic," says Mr Urguhart, who believes this will put the company in a strong position once sales of upmarket cars picks up.

XJ chassis at the Frankfurt motor show 2009
Reducing weight is central to Jaguar Land Rover's ambitions.

Jaguar's XK and XF models are living up to expectations, in contrast to the now-axed X-type, which hurt the brand under Ford.

"Jaguar is repositioning itself after the damage done by the ill-fated X-type ," observes Mr Leggett.

The new Jaguar XJ, which was on display at the Frankfurt motor show last week, is also expected to do well when it hits the road early next year, and its light-weigh aluminium construction is a clear hint at where the company is going.

Lighter, smaller cars with more efficient engines, including diesel, petrol-electric hybrids and other electric solutions are central to a strategy that includes the creation of some 800 new jobs at its Halewood site on Merseyside, where its LRX compact Range Rover will be built.

Government help

Jaguar Land Rover's decision to take the green lane has also pointed the way towards fresh funding sources.

"The Government has shown its support for [the LRX] project with investment of £27m," says Business Secretary Lord Mandelson.

In this he is not alone. As various scrappage schemes - which have bolstered car sales in recent months in many countries - are coming to an end, a number of governments have hinted that they would be willing to help with companies' efforts to reduce emissions.

"JLR's new plan also outlines its continued support for the development of ultra low carbon technologies and product design to position the models more competitively in the global marketplace," Lord Mandelson says.

"The Government will continue to do everything it can to help businesses fully exploit the opportunities that green manufacturing has to offer."



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