Jaguar: Finally Ready to Roar?

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Most analysts and auto industry observers view the Jaguar and Land Rover purchase as good for the brands. But they wonder if Tata has the marketing experience to handle the challenges of the high-end car business. "There will be issues around an Indian company owning these luxury brands because people outside India do not associate India with vehicles in this price range," says Kishor Patil, CEO of KPIT Cummins, an India-based information technology and consulting firm that works with auto companies.

Keeping Production in Britain

Indeed, U.S. analysts say the big question for Tata in the coming months will be whether it will be a good guardian of the brands while seeking opportunities to cut costs. "If they run the brands as a British company and invest properly in new product, it will be successful because they are still attractive brands," says Charles Hughes, who launched Land Rover North America in the U.S. in the 1980s and is now a principal at marketing consultant Brand Rules.

That seems to be the game plan being written by Tata Chairman Ratan Tata (BusinessWeek.com, 8/2/07), a car enthusiast who sits on the board of Italian automaker Fiat (FIA.MI) and has said he also wants to own part of Ferrari. "Our plan is to retain the image, the touch, and the feel of Jaguar and Land Rover," Tata said at the Geneva Auto Show last month. "We will not tinker with the brands in any way… they are special global brands and whoever acquires them has a responsibility to nurture them and enable them to prosper."

Chairman Tata says his company will not transfer Jaguar and Land Rover production or component sourcing from Britain to low-cost countries, as had been feared by British unions. "We are conscious that the brands belong to Britain. These brands will continue to belong to Britain," said Tata, who added that he plans to keep existing management in place.

Still, high manufacturing costs have long been a problem for both Jaguar and Land Rover. When Ford acquired Jaguar in 1989, it inherited a bloated workforce and a factory that dated back to World War II. In 2000, Land Rover came aboard with similar problems. The previous owner, BMW (BMWG.DE), had not been able to make much headway. Ford went into a ditch with Jaguar in 2000 when it developed the X-Type sedan, priced at under $30,000, and began building them at a former Ford plant in Halewood, England, that had capacity for 200,000 cars a year. The company targeted 200,000 overall global sales for Jaguar. But the car was poorly received in Europe and the U.S., and the factory lost money hand over fist. Today, Ford builds both Jaguars and Land Rovers at Halewood and also builds Land Rovers at a factory in Solihull, England.

Sorry to See It Go

Ford has been making progress in lowering costs, cutting headcount, and improving quality. Ford's Premier Auto Group, which includes the two British brands and Volvo, earned $504 million in pre-tax profit last year. Ford doesn't have to break out profitability of each brand, but claims that Land Rover gains made up for continued losses at Jaguar to allow the two brands to finish in the black. One way to boost profits will be to expand distribution. "Tata has an opportunity to take the existing products and expand distribution into developing markets in Eastern Europe, the Middle East, China, and Southeast Asia," says a Ford executive who formerly worked on the business. "Ford just couldn't invest in that kind of distribution expansion with so many other fires to put out."

Tata's commitment to fixing the brands, its financial health, and its deep pockets, in fact, encourage even some Londoners. "Tata might in fact improve the prestige of these brands by spending more on marketing than Ford did. They might have the money to invest in research and development too so that these ranges are more high design/high performance," says Allyson Stewart-Allen, director of International Marketing Partners, a London consulting firm.

Tata inherits a decent, if thin, product line from Ford. Jaguar is about to launch the XF sedan, which replaces Jaguar's S-Type sedan. It has gotten good reviews in the automotive media and from dealers. The ill-fated X-Type is being phased out in the U.S. Jaguar also markets the XJ sedan, but the current design has not been well received. However, the XK sports coupe has drawn raves from many enthusiast magazines. In the U.S. last year, Jaguar fell to nearly an all-time low of 15,683 sales.

Land Rover is more prosperous, and the feeling among analysts and would-be buyers is that Land Rover/Range Rover is the jewel in the purchase for Tata. Besides the Range Rover models, the company sells the Land Rover LR3 and LR2. Sales in the U.S. last year were a record high of 49,550.

In recent years, Ford has combined parts and even powertrains of Jaguars and Land Rovers. It has agreed to continue supplying key parts and components to Tata. "A lot of the heavy lifting has already been done to fix these brands and get them profitable," says a Ford executive not authorized to speak about the deal. "If things were better for Ford in North America, we would have kept at it."

David Kiley is a freelance writer based in Ann Arbor, Mich.