Jaguar Lands On Its Feet Again
The British maker of speedy and stylish cars lives another life as Ford sells its luxury marque to an Indian company known for autos aimed at the middle class
Paul A. Eisenstein
From the Print Edition:
Kevin Costner, July/August 2008
(continued from page 1)
Who says cats have nine lives? Just ask Jaguar. The long-suffering British automaker has gone through at least that many, and it appears this cat is about to be granted yet another reprieve, bought out from Ford by an Indian automaker. Since Sir William Lyons built his first Swallow sidecar more than three-quarters of a century ago, the company has been nationalized, privatized and repeatedly left for dead, yet somehow, some way, it always lands on its feet. In 1989, the British government gladly sold off its controlling interest in Jaguar to the Ford Motor Co., which shelled out an astounding $2.5 billion for what was little more than the Jaguar reputation—and a tarnished one at that.
Since then, Ford, increasingly frail itself, has pumped in billions more, in the hope of transforming its troubled acquisition into the cornerstone of a global luxury network dubbed the Premier Automotive Group. Rather than prop up Ford's balance sheet, Jaguar has threatened to plow it under, so now, a struggling Ford is ready to say "Tata."
That's Tata, as in Tata Motors, itself the centerpiece of an ambitious Indian mega-conglomerate founded by the self-made billionaire Ratan Tata. On March 26, the emerging automaker announced it would spend $2.3 billion to acquire both Jaguar and Ford's other once-promising British marquee, Land Rover. It's a curious move for a company that, until now, has focused on building basic transportation for the subcontinent's emerging middle class. At $2,500, the plastic-bodied Tata Nano microcar—announced with much fanfare, barely a month before the Jaguar deal was completed—is about as far from a 400-horsepower, wood-and-leather-bedecked luxury saloon car as one could imagine. Yet the acquisition may be far less incongruous than it first appears. With the purchase of one of the empire's former crown jewels, the Indian maker hopes to finally be taken seriously, and in the process, transform itself into a global automotive power.
Jaguar's roots are actually as humble as Tata's. Long before he could add the "Sir" to his name, William Lyons set out to build a series of lightweight aluminum motorcycle sidecars, in the coastal town of Blackpool, England. Founded in 1922 as the Swallow Sidecar Co., the business morphed into SS Cars Ltd. in 1928, when Lyons moved his operations inland to Coventry and built his first, modest automobile, the SS 1, in 1931. Like most of the country's manufacturers, the company was drafted for war production, in the late 1930s. And when peacetime returned, in 1945, the name was changed again, to Jaguar Cars Ltd.
Whether you pronounce it Jag-wahr, like most of the world does, or Jag-U-wahr, like the Brits, the company that emerged from the war quickly made a name for itself with a procession of such fast, sleek sports cars as the legendary XK120, which lays claim to being the first automobile to comfortably cruise at 120 mph. Turning to the aircraft designer Malcolm Sayer, Jaguar launched an aggressive motorsports campaign, with its C-Type racer soon scoring victories across Europe. The quick and nimble D-Type, which overwhelmed the competition at the 1955 endurance race, the 24 Hours of Le Mans, was arguably also one of the most beautiful cars to take to the track, and probably won as many fans and followers for its distinctive design as its performance.
There's long been an adage in the auto industry: "Win on Sunday, sell on Monday." Overstated, perhaps, yet Jaguar's wins began to translate into serious business as the automaker wisely produced a street-legal version of the D-Type. But before Lyons and company could savor their success, the Coventry plant went up in flames. Other struggling manufacturers might have rolled over, but it didn't take long before the Jaguar was on its feet—again. And this time, Lyons—who had been knighted in 1956—wasn't making any compromises. He built an all-new car specifically for the road, rather than the track. The blindingly voluptuous E-Type made its debut in 1961, at the Geneva Motor Show, Lyons explaining its shape in typically blunt fashion. "I like curves," he declared to a fawning automotive media. It would provide the carmaker's legacy—and its visual theme for decades to come.
But the war years had been rough on Great Britain, and peace hadn't made things much better. With food shortages came political turmoil, much of it played out on the nation's factory floors, where left-wing unions battled manufacturers—and themselves. One after another, England's automakers failed, many of them to be swept up by the government. By 1975, Jaguar was one. The company's new managers had little interest in the automotive business—and they made little effort to pretend otherwise. Mike Dale, long the head of Jaguar's North American operations, recalls that company loyalists hid the many trophies the automaker had won in the 1950s, to keep the government's bureaucrats from selling them off.
It was a shotgun marriage, and an exceedingly unhappy one for everyone involved. And so, by the mid-1980s, with the Conservative government of Margaret Thatcher in power, it was inevitable that Jaguar would be privatized. The only question was, who would buy what was left of the damaged brand?
To borrow another cliché, hindsight is 20/20, and nowhere is that more apparent than in the auto industry, where mistakes are often measured in the billions. True, the British brand was, as seemingly always, in trouble, but back then it appeared to be an ideal acquisition, and when the Brits made it known they would sell their golden shares, a number of potential suitors started sniffing around, notably Ford and its longtime archrival, General Motors. While both of the companies had their own luxury brands—Lincoln and Cadillac, respectively—they were players only in the traditional American market. Jaguar offered an opportunity to compete against such surging imports as Mercedes-Benz and BMW, both at home and abroad.
The bidding war was fierce, or so it seemed. When the figures got up to $2.5 billion, GM unexpectedly bowed out. Why? That's a question often asked in automotive circles. "Because they were clever," suggests David E. Cole, chairman of the Center for Automotive Research, in Ann Arbor, Michigan. Cole insists that the industry giant always knew Jaguar was damaged goods, and simply entered the bidding war as "a strategic moveÉto cleverly suck billions out of Ford." Pose that theory to GM managers and they smile—then change the subject.
By 1989, when Ford finally took the keys to the Coventry operation, things suddenly looked quite different from what people expected, recalls Allan Gilmour, Ford's former vice chairman and chief financial officer. The factory was a nightmare needing a quick and complete renovation. And while it was clear that Jaguar had a wonderful image when it came to design, its reputation for poor quality was a disaster that would prove difficult to reverse.
Still, Ford was in it for the long haul, and no one seemed more convinced of Jaguar's potential than Jacques Nasser, who became the U.S. automaker's CEO in 1999. Though he was often called Jac the Knife for his willingness to slash budgets, Nasser could also be surprisingly free with the checkbook. Nowhere was that more apparent than with the Premier Automotive Group, which Nasser cobbled together from an assortment of import and domestic brands, including Jaguar and the even more upmarket British luxury marque Aston Martin. Nasser rounded out the group with Sweden's Volvo, which he bought for $6.45 billion, and Land Rover, which he got for $2.7 billion.
Land Rover was another dusty relic of the English automotive past, but by the time Nasser made his offer, the company was in turmoil. Originally part of the larger Rover Group, the United Kingdom's biggest homegrown carmaker, it was acquired in 1994 by BMW AG. But that deal proved another match made in hell, and by the end of the decade, the Germans were desperate to get rid of their British albatross. In the third month of the new millennium, Rover's passenger car operations were effectively given away to a British investment group—which quickly failed—then sold to a pair of Chinese upstarts. Ford gobbled up Rover's truck side.
It seemed like a brilliant idea at the time. After all, with cheap and plentiful fuel, American motorists were snapping up sport-utility vehicles in record numbers. And while Land Rover, like Jaguar, had a long-standing problem with quality, the brand had a carefully cultivated image as the manufacturer of the ultimate in SUVs.
To manage the new network of luxury brands, Ford pulled off another coup, signing up Wolfgang Reitzle, BMW's longtime, highly regarded product development czar. With a hotline to Nasser and a seemingly unlimited budget, the German executive started moving fast, setting in motion a series of product programs that were aimed at making Ford Motor Co. the world's dominant luxury vehicle manufacturer. At a time when Ford seemed well positioned to push past GM in the global sales sweepstakes, Nasser's team was forecasting that the collective Premier Automotive Group would soon account for a whopping one third of Ford's total profits.
But neither Reitzle nor Nasser calculated into their equations the peculiar internal politics of the U.S. automaker. Even the CEO didn't have the sort of functional authority that could bring the company's various fiefs into line, recalls a former Ford executive. Now a senior vice president with another global luxury-car contender, he laments that "there were plenty of people willing to sabotage the PAG." Notably, those working for Ford's original luxury brand, Lincoln, which Reitzle had intended to marginalize, perhaps even abandon. Increasingly frustrated, the German executive tendered his resignation. And then, following the catastrophic Ford-Firestone tire fiasco, Nasser himself was driven from the company.
It may not have been obvious, at least not yet, but the clock was ticking down for the Premier Automotive Group. Those who didn't catch the subtle signs didn't need an interpreter once Alan Mulally came onboard a fast-failing Ford, in the autumn of 2006. His mission was simple to define: "back to basics." That meant, first of all, making some money at a company that was plunging deeper and deeper into the red. It wasn't going to be easy, the former Boeing executive quickly realized. One of the things it would require was getting management focused. Corporate politics aside, the PAG was, to Mulally, a major distraction for his new management team. It had to go.
Aston was first. The ultra-luxury maker had made a dramatic turnaround under Ford and was solidly in the black, with new models, such as the V8 Vantage, rolling out and sales growing by the day. It was snapped up by a team of Kuwaiti investors and the head of Aston's racing team.
Some thought Jaguar and Land Rover might pose a more difficult sales job. With their design, engineering and manufacturing operations tightly intertwined, they could only go as a pair. The truck brand was in reasonably good shape, and despite the run-up in fuel prices, still seemed to boast plenty of potential. But the carmaker was in serious trouble, with sales just a fraction of what Nasser and Reitzle had been forecasting just a few years before. Yet a closer inspection suggested the situation wasn't quite as dire as media reports were making it out to be.
For one thing, most of the heavy lifting had already been done. While Ford officials decline to provide hard numbers, various analysts estimate that over the years the maker had sunk as much as $30 billion or more into Jaguar and Land Rover. And a chunk of that was finally in position to pay off, ironically, just as Mulally announced plans to put the pair of marques on the auction block. Jaguar was rolling out its all-new XK sports car, and to generally favorable reviews. That was to be followed by the XF, the replacement for the S-Type, the largely unloved midsize saloon, or sedan, car. "It looks like Ford has sold them off just as everything is getting turned around," says George Peterson, founder of AutoPacific, a California-based automotive research and consulting firm.
At least a half-dozen bidders materialized, including, curiously enough, groups led by several former Ford executives, Nasser among them. But by late last year, it was obvious that Tata was in the lead, and barring an unanticipated snag, a completed deal would only be a matter of time. When the announcement came, late in March, the Indian company had agreed to pay $2.3 billion—$200 million less than Ford had spent for Jaguar alone, nearly 19 years before. And a close look at the details revealed that the U.S. maker would take at least $600 million of the payout and use it to cover pension liabilities for Jaguar and Land Rover employees. "They basically gave it away," contends analyst Peterson.
"Jaguar and Land Rover are terrific brands [and] we are confident that they are leaving our fold with the products, plan and team to continue to thrive under Tata's stewardship," Mulally declared following the announcement. Perhaps not surprisingly, as they wait for the formal handover, officials with Jaguar and Land Rover have declined repeated requests for their own comments. On the record, anyway, but in private conversations, they express few reservations about the upcoming transfer of ownership. "I'm confident things will get a lot better once we're out from under Ford," a top-level Jaguar executive emphasized during a recent conversation. "I have no interest at all in going back," added a senior product executive, who, like his colleague, asked not to be identified by name. Indeed, surprisingly few employees who have the option of returning to Ford have so far asked for a transfer.
It seems likely that little will change from the consumer's point of view. Even when Jaguar and Land Rover were under their American parent, Ford preferred to emphasize their British heritage. And Tata probably won't choose a different path.
Though things are looking up for Jaguar and Land Rover, industry observers caution that Tata still has its work cut out, especially with the cat. But the automaker, and its massive parent, the Tata Group, have huge cash resources to draw on. Meanwhile, the deal lets Jaguar and Land Rover retain plenty of engineering and design resources, while Tata gains access to technology and talent it could only dream of before. That should help the Indian automaker improve and expand its more mainstream product lineup. And that's clearly something that Ratan Tata has in mind.
In a conversation just before the deal was final, the executive was visibly pleased to be expanding into new markets such as Europe, though he added that getting Tata into the critical United States "is important because it's the world's largest market." With the potential size of India's auto-buying public, one might question that strategy. But for now, and decades to come, the United States is expected to be a market you ignore at your own peril.
Whether Tata can finally push its new acquisitions over the hump and achieve its grand potential remains unclear. After all, Jaguar, in particular, has had a spotty record at best. But the cat has proven itself able to keep landing on its feet, and maybe this time, it will do more than just survive.
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