How Jaguar Turned It Around

On May 26, Jaguar Land Rover (JLR) announced profits of $1.71 billion on sales of $16.3 billion for its fiscal year. This closely followed a successful $1.6-billion bond sale and even forced Ford chairman Bill Ford to deny that the $2.3-billion sale of the company to Tata in 2008 had been a mistake.

It's a remarkable turnaround for a company once derided as a millstone around Ford's neck. And while Land Rover remains the dominant partner — it sold 182,000 units in 2010 to Jaguar's 51,000 — Jaguar is playing a key role in JLR's renaissance. Through May, U.S. sales are up this year totalling 5,021 units.

The figures are still comparatively tiny — Mercedes has sold 75,132 units through April — but it's worth remembering that Audi was selling just 12,000 cars a year here in the early '90s, compared with 100K today. With a bold, new design language pioneered by Ian Callum, significant investment from parent company Tata and an impressive new management team, Jaguar could be on the verge of an unprecedented period of success.

The Raw Stats
In 2010, Jaguar's global sales fell by 400 compared with 2009, but this belied a more profitable model mix. The 2009 figures were bolstered by the unloved X-Type, whereas the 2010 stats reflect the launch of the new XJ, which boasts a much higher profit margin. In the U.S., for example, the XJ accounts for 40 percent of Jaguars sold.

Jaguar is also enjoying success in developing markets: Chinese sales were up 47 percent last year and Indian sales grew 437 percent (from a very low base), helped by the local knowledge of parent company Tata. Sales of the XF rose 8 percent globally and it, like the XK, should be further boosted by the arrival of a face-lifted model later this year.

The Success
There are two key drivers for Jaguar's success — improved quality and a new generation of desirable, forward-thinking cars. Design Director Ian Callum's overhaul of Jaguar's style is regarded as a key factor in the sales growth. The Scot was heavily involved in the recent bond sale, regaling investors with his "confidence and understanding of Jaguar's future."

When Callum arrived at Jaguar in 1999, the company was owned by Ford and in the process of launching the X-Type and XJ, both of which offered a pastiche of 1960s Jaguar styling. "Clearly there was an issue to address," says Callum in his thick brogue. "Sales were flagging and we were not attracting younger buyers. The X-Type marketing spoke of a 'new generation' but that wasn't reflected in the design. The management knew Jaguar had to change, but to what? I had the loudest voice and an absolute view as to what had to happen. It wasn't a high-risk strategy — doing nothing would have been a much higher risk." Jaguar's core customer base had shrunk to such a low level that there was little danger in causing offense.

It is a function of a Jaguar to look beautiful. People must want to have a Jag.

Although the 2007 XK was a Callum design, the 2009 XF and the 2011 XJ are the true standard bearers for Jaguar's new design language. While Callum talks of being inspired by the company's heritage, the cars marked a dramatic break with the past. "It is my ambition to make Jaguar a design-led company," he says. "It is a function of a Jaguar to look beautiful, to be stylish but not vulgar, and to have intellectual value. People must want to have a Jag."

While Callum was revolutionizing the design strategy, Jaguar's much derided quality standards were taking a leap forward, a process that began under Ford's stewardship. Chairman Bill Ford recently claimed Ford had taken Jaguar's quality "from the worst in class to the best in class." In the 2011 JD Power Vehicle Dependability Study, Jaguar ranked 3rd, while the 2011 Customer Service Index study ranked Jaguar 2nd among luxury brands.

The Investment
Tata Motors CEO Carl-Peter Forster told Inside Line that Jaguar has now "completed Phase One — two difficult years," and that now is the time to "invest and expand."

Forster, who was previously the CEO of General Motors Europe, has committed to investing over $8B in JLR over the next five years for improvements to the three U.K. plants, a proposed new production facility in China and "40 significant product developments." A thousand more engineers will be employed in Gaydon, England, to work on new models.

Jaguar brand director Adrian Hallmark says the company needs to "expand its product footprint. In the U.S., 70 percent of the XF market is four-wheel drive, which we don't offer. And in Europe, the absence of an XF estate and a 2.0-liter diesel engine means we've been giving away free volume. The XF hasn't realized its full potential because we can't reach some customers' needs." Jaguar will thus embark on a "top-down approach, rather than the bottom-up approach adopted by Audi." New models will slide underneath the current range, boosting volumes and helping Jaguar appeal to a younger audience.

Ambitious Product Strategy
The new 2.2-liter diesel XF, introduced alongside the face-lifted range, should boost European sales and marks the start of an aggressive product strategy. Within five years there will be a small sport saloon to take on the BMW 3 Series. "Just because we didn't hit the bulls-eye last time [with the X-Type] doesn't mean we should give up," says Hallmark. The new "small" car is likely to be similar in size to the current XF, which will be replaced by a larger, second-generation model to compete with the upsized BMW 5 Series and Mercedes E-Class.

An XF estate and a smaller sports car to sit below the XK and take on the Porsche Boxster/Cayman will also be joined by a new crossover, utilizing Land Rover technology. Such a model is seen as crucial to expanding Jaguar's appeal in the U.S. and the developing world. Callum admits, "It will not be easy to take the design language forward to a crossover, but I know [Jaguar founder] Sir William Lyons would have been pragmatic enough to deliver what China and the U.S. wants."

There will also be a new naming strategy. Hallmark admits that the current XF, XJ and XK nomenclatures are proving difficult to communicate in countries unfamiliar with the Jaguar brand.

The Challenge Ahead
One of Jaguar and Land Rover's biggest challenges will be to sustain this rapid pace of development while remaining, in global terms, a small player. JLR is developing hybrid and range-extender concepts, but the company's ability to develop new platforms and keep up with technical change is likely to remain its biggest challenge in the coming years.

Hallmark recognizes the problem and refuses to rule out strategic collaborations with other like-minded brands, citing BMW as an example. "Such collaborations make sense. The market today is totally different to what it was 20 years ago." They could prove critical to the development and supply of new engine technologies, for example. The genesis of the C-X75 supercar, in partnership with the Williams grand prix team, will provide an interesting test of this strategy.

Any discussion of Jaguar's future must also include the £700K, 200-mph C-X75. The range-extender hybrid-powered supercar, which Jag just announced will go into limited production, has been criticized as representing a vanity project at a time when Jaguar really needs more mainstream cars, but Callum sees it as "a clear message of ambition and an attempt to get 15-year-olds talking about Jaguars." Forster maintains the C-X75 is an "important motivator for the company" and that Jaguar can scale up to meet its challenges. "It is a research tool," he says, "and a source of inspiration. We want to inspire and be at the cutting edge."

The Future
The new models could see Jaguar's sales volumes top 100,000 units within the next five years, although this is still small fry compared with the 230K cars that BMW and Mercedes sell each year in the U.S. alone.

"We will not compete with BMW and Mercedes' volume models," says Hallmark.

"We need a credible volume and more than today, but we have no need or desire to sell a million cars a year. We don't need volume, we need profit." He cites Porsche as an example of a highly profitable premium brand selling less than 100K cars a year. Jaguar, though, lacks the support of the Volkswagen empire now supporting Porsche and there's no denying that keeping up with future technological developments will be a challenge for JLR.

But there can also be no denying that Jaguar is in a stronger position today than it has been since the days of its Le Mans victories and the E-Type. It has momentum, desirable products, solid foundations for growth and a brand that, for all the ups and downs, continues to inspire genuine affection.

Jaguar has come back from the abyss, and the legendary marque is poised to develop into a potent, alternative premium brand. It will no doubt be one of the most exciting brands to watch over the next decade.