Nobody who supports innovative automotive manufacturers could fail to be depressed by today’s news from Jaguar Land Rover.
The whacking loss of £673m in 2008 (and that’s disregarding the significant pension and actuarial losses) is in stark contrast to 2007’s profits of £641m.
Much of this loss will have been caused by JLR’s need to continue to invest in new technology and new models. Sales and showroom profits may fall away, but the need to keep expensive new model programmes rolling is paramount.
When Rover sales collapsed in 1998, the company ran up a loss of around £750m in 1999. This mostly because it was engaged in engineering the new Mini and new Range Rover from scratch, as well as working on a new V6 petrol engine and the Rover 75 estate.
JLR may have significant problems, but poor product isn’t one of them. Instead it is blighted by its lack of product integration. Land Rover has four distinct platforms (Defender, Freelander, Disco/RR Sport and Range Rover) and two factories (Solihull and Halewood).
With the upcoming death of the X-Type, Jaguar is in a better position with two distinct platforms (XF and the XJ/XK) but it is also has one basic family of running gear and one factory at Castle Bromwich.
To make things more complex, Land Rover had healthy annual volumes (over 220,000 units) before the global crash and was benefiting from good margins, especially on the three largest models. Jaguar, by contrast, might be leaner but it might shift only 65,000 units annually, when you discount the X-Type.
Pulling these disparate technologies and model lines within JLR into one healthy whole is possible. But it is also going to be expensive and take a few years to achieve.
The importance of synergies – sharing products and technology – across as many brands as possible was underlined today by a new report from auto analysts at BernsteinResearch.
In a note warning that VW should not pay too much for its takeover of Porsche, Bernstein reveals that the Cayenne SUV generated half of Porsche’s earnings.
Apparently, Porsche carried out much of the R&D work for the Cayenne-Touareg-Q7 family and VW paid for the capital costs of production.
This deal allows Porsche to buy the Cayenne from VW’s Bratislava factory at a very competitive price and so it enjoys healthy profit margins.
Of course, had Porsche not joined forces with VW it could never have engineered and launched the Cayenne under its own steam. (Indeed, it could not have built the Panamera without the healthy profit margins generated by the Cayenne).
Unique, low production run automotive technology is increasingly ruinously expensive, according to Bernstein. The 911 family (including the Boxster and Cayman) is said to be expensive to build. But, luckily, the 911 commands a premium showroom price.
The truth is that long-term survival in the auto industry demands either bulletproof premium pricing and consistent sales or ever-increasing levels of component sharing. And the latter is a much more reliable bet than the former.
JLR might reflect that even Porsche, which enjoys the highest profit margins in the industry, achieves this by sharing plaforms with the mass-market VW brand.