Alas, the British auto industry, what's left of it, is again on the block. With Ford Motor making so much noise about selling the furniture to keep the lights on and the water running, much activity is swirling around Jaguar, Land Rover, and Aston Martin.
And for good reason. Until recently, when small Aston Martin began showing signs of life under Ford (F) after only 20 years of the Dearborn (Mich.) company owning it, the Brit brands under Ford were collectively known as The English Patient. (Still, according to Automotive News, as of June, 2006, Aston Martin had sold only 37 cars in North America year-to-date.)
Ford has sunk in excess of $10 billion in losses and investment into Jaguar since 1989, according to Ford insiders. But the worst is probably over. Land Rover is showing a modest operating profit for the moment, but between the original purchase price and subsequent losses, Ford has certainly lost far more on Land Rover than it has earned back, or will earn back in the next five years.
It could be that the worst is over with these brands; that Ford has set them on a course that would make them worthwhile for another owner to gamble on. And Ford should seek buyers. It has demonstrated that managing them for lasting profit is beyond their mass-market culture.
Let's look at the pluses and minuses of selling the Brit brands and explore who is interested in buying them:
Ford has fixed the quality issues that once dogged Jaguar. That's a good thing for those who always felt kindly toward the classic brand but resented having to buy two since one was always in the shop.
The financials and sales forecast of Jaguar look just awful, because under former CEO Jacques Nasser and ex-Premier Auto Group head Wolfgang Reitzle, Ford hatched a plan to expand Jaguar to some 200,000 units a year worldwide. That meant scaling up a costly British factory. To get there, Ford developed the X-Type sedan, built off the front-drive platform of the European Ford Mondeo, gave it all-wheel drive, and launched it at less than $30,000.
Mistake. The car doesn't look like a real Jag, and it undercut the brand's cachet. And as Dan Gorrell, executive director of consulting firm Strategic Vision, once told me: "The ladies who bought Jaguars didn't appreciate seeing their hairdressers driving one, too."
Through June, Jaguar sales in the U.S. this year are down 25.2%. The rest of the lineup consists of the S-Type sedan, XJ sedan, and XK sports coupe (see BusinessWeek.com, 7/27/06, "A Tale of Two Kitties").
O.K., raise your hand if you've ever seen anyone under the age of 55 driving an S-Type? The current model looks like it should be wearing a bowler hat. Built off the same chassis that underpinned the Ford Thunderbird and Lincoln LS, the car seems caught between Jag's past designs and what it wants to be in the future. It fell victim, says one Ford designer, to the "Jaguar Taliban" at Ford: men who couldn't envision a future Jaguar without borrowing lines and pieces from old models.
The XJ and XK share expensive aluminum chassis. The XJ, redesigned just a few years ago, hasn't caught on. Like the S-Type, the XJ seems to be looking over its shoulder at the XJs of the 1970s, neither staking out its own identity or paying proper homage to its inspiration.
The XK is a smart piece of work. Fast and nicely appointed. Sexy, too (see BusinessWeek.com, 6/28/06, "Trying to Sharpen Jaguar's Claws").
But Jag is suffering a bit from brand fatigue. All the mistakes that have come before the XK make it tough to justify a Jag in the face of cooler rides for similar money from BMW, Mercedes-Benz (DCX), and, yes, Aston Martin.
Ford has green-lighted a smart looking successor to the S-Type with better proportions and styling (I've seen it in sketch form). The plan: Let the X-Type wither away and concentrate on making Jag a $50,000-and-up brand starting with the S-Type. And management had already told the Jag folks that the upcoming S-Type, the XJ, and current XK are all there is. If they can't show profit and progress with the new lineup, the brand's a goner with or without a buyer.
Land Rover was sold to Ford in 2000 by BMW, which had acquired the brand in 1994 when it bought MG Rover. After almost imploding the company with the mismatch of British and German combustion, BMW was happy to unload Land Rover/Range Rover to Ford—as well as Rover to a British investor group—while keeping MINI.
The current Range Rover and Range Rover Sport are nicely turned out (see BusinessWeek.com, 8/3/06, "Good Sport"). The surprise success of the Sport—it had sold more than 1,300 units through the end of June—has single-handedly created an operating profit at the unit. The LR3 replaced the ancient Discovery last year. And a new small Rover, called the LR2, is ready for Europe this year and the U.S. next year.
Mike Jackson, CEO of mega car-dealer company AutoNation (AN), makes a strong case that Land Rover is largely fixed and a better global brand than Jaguar. I'm inclined to agree. Despite truly ugly fuel economy numbers, the brand still garners respect across the globe, from Los Angeles to Europe to South Africa to Dubai to Japan. Jaguar doesn't have the same kind of brand panache worldwide any more.
Aston, James Bond's favorite car, is repaired and on the rails. The market for cars priced between $100,000 and $200,000 is proving stronger than anyone thought (see BusinessWeek.com, 7/20/06, "$100K Cars").
As BMW and Mercedes-Benz turn out vehicles that make their brands seem more commonplace, the well-heeled are looking to smaller niche brands like Bentley and Aston to make a statement. There is a realistic-sounding business plan to sell a few thousand Astons a year at an average transaction price of around $150,000. That sounds like real money to me. With three models—the Vantage, DB9, and Vanquish S—there's a good base from which a new owner could keep the momentum going.
There has been talk for a few weeks that private equity firms have been pitching Ford about buying Aston Martin. Those are the logical buyers. But, frankly, Renault-Nissan (NSANY) would do well to consider the brand should it talk to Ford about a broader business alliance. Its Infiniti brand still looks weak in the U.S. and is not yet a factor in Europe. The addition of Aston would make a rounder portfolio for the auto maker.
British construction machinery group JCB said this week that it has some interest in acquiring Jaguar, but only if it's separated from Land Rover. JCB Chairman Sir Anthony Bamford was quoted as calling Land Rover loss-making. He had better check the books. Jaguar is still the unit bleeding money, while Land Rover is squeaking out some black ink at the moment.
Moreover, it would be difficult if not impossible to separate Jaguar from Land Rover because, in the U.S., at least, Ford has been combining distribution through the dealer network. Sourcing of parts and components as well as purchasing have been combined wherever possible. For example, some Jag and Land Rover models share power trains.
Another potential fly in the ointment is political. Ford constitutes the biggest auto maker in Britain. A sale of Jag or Land Rover should be friendly and not result in job losses in Britain. Ford needs to take care to avoid a public relations problem similar to the one that afflicted BMW and Rover. Ford doesn't want to see angry British tabloids or boycotts of Ford vehicles.
And maybe this is just me, but since there is a consensus that Jaguar has an image problem to overcome, is being owned by a backhoe company really going to help?
Former Ford CEO Nasser, reported Bloomberg News, is making inquiries, backed by his private equity group, about buying the Brit brands. This sounds like a more viable plan. Nasser knows the businesses even if he did make mistakes in running them.
And Nasser might link up with his old friend and partner Reitzle, currently CEO of German industrial company Linde AG. Reitzle, who was head of product development and design at BMW before coming to Ford, must miss the car business an awful lot. This could be his last shot to play in the game.
But don't forget the Chinese. China auto makers are looking to bust out of their own mainland and into the U.S. and Europe. The Chinese have a dated sense of brand equity. They love Buicks over there, you know. General Motors' (GM) big brand in China is Buick. No kidding. And Nanjing Automobile Group recently took over MG Rover, and will build MG branded cars in China, Britain, and the U.S. Shanghai Automotive, meanwhile, has bought the rights to the Rover brand name from BMW AG, which owned Rover in the late 1990s and retained the rights to some of the brand names. Selling Jag, Land Rover, and Aston to the Chinese seems like a natural. And they are bound to overpay. I hear they have money, too.
If Ford sells all three Brit brands, it means it is giving up on the luxury business, since Lincoln is a moribund retail brand in the U.S. and has no presence outside the U.S. Volvo, assuming Ford keeps it, can be made to grow, probably with products priced up to $50,000 or more. After the Dearborn carmaker gets the rest of its house in order, maybe it will start a new luxury brand. Seems like a good idea—just look at Lexus. Believe me, that's exactly what Ford has been doing.