* Indian company reaping rewards of $2.3 bln gamble
* Cars developed under Ford at heart of JLR turnaround
* Future hinges on new technology and models
* China becomes biggest overseas market
By Rhys Jones and Henry Foy
SOLIHULL, England/MUMBAI, Jan 14 Jaguar Land
Rover has roared to health in the four years since it was bought
by India's Tata motors, but now comes the hard part for the
luxury British automaker: proving it can build new models
without former owner Ford.
Since Tata took a $2.3 billion gamble to buy JLR
from Ford at the height of the financial crisis, it has
discovered a formula for success, surprising sceptics by winning
new customers in Asia.
The firm, with sleek saloons favoured by British Prime
Ministers and luxury SUVs born of desert and jungle combat, now
has factories working around the clock in England, bucking the
trend of hard times for European auto-makers.
JLR said on Monday it had sold 357,773 vehicles in 2012, 30
percent up on a year earlier, and would create 800 jobs at its
Solihull plant in central England to keep up with demand.
British-based managers credit their new Indian owners with
providing the capital needed for JLR to expand - especially in
China - while avoiding the sort of overseas micro-management
that they say stifled the company under Ford.
Tata's funding allowed JLR to launch products from a
fully-loaded development pipeline inherited from Ford.
But whether it can continue that success - and unlock its
future potential - depends on learning how to update its
portfolio on its own, including achieving ambitions to develop
in-house engine and transmission technology by 2015.
JLR has yet to release a model designed under Tata's
ownership. It still buys many of its engines from Ford.
That is set to change. JLR now aims to invest 1.5 billion
pounds ($2.4 billion) a year until 2017 in new products and in
expanding its engine range, says its chief executive, Ralf
Speth. It plans to unveil eight new vehicles in 2013, including
a convertible sports car and a new hybrid Range Rover.
A new plant near Wolverhampton in England's midlands, built
at a cost of 355 million pounds, will design, engineer and
manufacture its new family of engines, creating 750 engineering
and manufacturing jobs.
It will make low-emission, 4-cylinder petrol and diesel
engines - a sharp contrast from the giant 2.2 litre powerhouse
that gives the Jaguar XF luxury saloon its growl.
The new models are needed, industry analysts say. Despite
the success of cars like the XF and the Range Rover Evoque small
SUV, a Goldman Sachs report says JLR's product line "is
currently inadequate, and suffers from significant gaps".
The report valued JLR at only 2.8 times its earnings before
interest, tax, depreciation and amortisation, compared with 9.1
times EBITDA for German rival BMW.
"In order to achieve more sustainable and broad-based growth
in the long term, we believe JLR will need to invest in
increasing its presence in segments it is currently not present
in," Goldman Sachs said.
JLR's turnaround so far has been remarkable. When the global
automotive industry fell into crisis at the end of the last
decade it had to slash jobs and take loans from the State Bank
of India and the European Investment Bank.
Tata lent JLR some $1.5 billion to help it survive the
downturn. Since then, it has seen those efforts rewarded with a
record pre-tax profit of $2.5 billion in the fiscal year that
ended March 31, success that seems to vindicate the hunch of
Ratan Tata, patriarch of the $100 billion Tata Group.
When he first bought JLR, sceptics suggested Tata - who had
already bought British firms like Tetley Tea in 2000 and Corus,
formerly British Steel, in 2007 - was overpaying for another UK
trophy. Now, criticism of the purchase is hardly heard.
"Tata Motors allowed development in full force," said Atul
Penkar, fund manager at Birla Sun Life Asset Management in
Mumbai, which held $34 million worth of Tata Motors stock on
Oct. 31, according to the Thomson Streetsight holdings database.
JLR now finances itself with the $2 billion plus of cash it
generates each year. It has paid back its borrowings to Tata and
today is propping up the parent company as its core Indian
business struggles with sliding sales and market share.
Its Solihull plant which builds some 150,000 Land Rovers and
Range Rovers a year, has moved to three-shift, 24-hour
production. Its Halewood plant in the northwest of England is
also on three shifts to produce the Evoque.
At Solihull, home to Land Rover production since 1948,
workers stick bar-coded slips onto the Land Rover Discoveries
and Range Rover Sports, identifying their shipping destinations
as they roll down the line. The list includes countries as far
as Australia, the United States, Vietnam and, above all, China.
In 2005, China accounted for just one percent of JLR's
combined sales. In the quarter that ended in September, it made
up 20 percent, making it the biggest export market and nearly
overtaking domestic British demand, helped by the sale of some
18,000 Evoques in China this year alone.
JLR sold 71,940 vehicles in China last year, 71 percent up
on the previous year.
It is now building a factory in China, and has spent some
500 million pounds there on marketing, communications and
expanding its reach over the last five years. It opened its
101st Chinese dealership last month.
UK-based managers say Tata's hands-off approach gave them
the freedom to pursue opportunities in emerging markets like
China, taking risks that might have been harder to take when
tightly controlled by Ford.
Before Tata bought it, JLR was part of Ford's now-defunct
Premier Automotive Group, along with UK rival Aston Martin and
other luxury brands. Ford dictated much of JLR's product and
marketing strategy from its Detroit base, and required JLR to
use many of Ford's systems, set up for a multi-brand global
organisation, which did not suit a company of JLR's size.
"Ford's policies and procedures manual would be about three
inches thick and it's now about four sides of A4 paper," joked
Phil Popham, JLR's global operations director.
"We were part of a huge automotive company in Ford but we
were a very small part of that," he said. "Tata's approach is to
work with us but to allow us to run our own business with a high
level of autonomy."