The first XK coupe trundles of the production line but Jaguar's future still looks to be uncertain

By Leow Ju-Len

Ford does not typically divulge profit figures for individual brands, but PAG as a unit may not break even for 2005, after losing US$146 million from January to September. The Jaguar division has been a huge drag on the group’s performance, chipping in as much as
US$746 million in losses in 2004.

Global sales are simply too low for Jaguar. After giving up on a plan to produce 200,000 cars a year, the carmaker churned out 118,000 cars in 2004. Production is expected to be down to 100,000 cars for 2005. That’s far too small to be sustained by a four-model line-up – in contrast, BMW sells 200,000 Minis a year – and means that Jaguar lost over US$6,000 per car in 2004.

Volvo is known to be a lucrative member of PAG, Aston Martin is profitable, and Land Rover’s profit/loss situation is probably negligible either way.

Ford has denied rumours that it is offloading Jaguar, and just last month pledged to inject around US$2 billion into the business. However, reports in the BBC suggest that much of the funds will go towards paying off restructuring charges incurred in 2003 and 2004, and to fill a large hole in Jaguar’s pension fund. That leaves little for future investment, and suggests that Ford could be preparing the company for sale.

The bottom line is that disposing of Jaguar would boost PAG’s (and thus, Ford’s) profitability immediately. A former chief executive told the press that he didn’t believe Jaguar would break even until 2007. This, despite the closure of Jaguar’s historic Browns Lane factory last July and the sale of its underachieving Formula One team in late 2004.

Ford, itself struggling with profitability, has all but admitted defeat. “We still have not figured out how to make the business equation yet for Jaguar a compelling one,” Ford chairman and chief executive William Clay Ford said last year.

Selling Jaguar would be a good way to kill two birds with one stone: it would raise cash for Ford, and amputate a persistent source of negative cashflow.

So if Jaguar is indeed on the auction block, who are the bidders? Ford is believed to be in talks with three parties, one of which is a Chinese car company. That would make sense; the Chinese have global ambitions and lots of production capacity. What they need is brand power and engineering strength. Jaguar would offer both, with its strong motorsports heritage and luxury positioning, and proven talent in chassis and engine design. Hyundai is reputed to be another possible buyer. Currently riding high in profit and volume terms, Korea’s biggest carmaker is also ambitious and flush with cash. Having established itself as a value-for-money brand, Hyundai now has luxury car aspirations and is at a similar crossroads to Toyota in the late 1980s: it can either spend billions to develop a premium car, create a new brand name and then market it heavily (as Toyota did with Lexus), or use the money to buy Jaguar.

For not altogether dissimilar reasons, the Peugeot-Citroen group may be the third party. With rising sales and profits, the French carmaker is looking for ways to expand beyond Europe’s saturated car market, and Jaguar would give it access to the crucial North American market.

The new owners will have to figure out how to reverse the steady sales slide, and wean the brand off parts-sharing arrangements with other Ford products, but it’s clear that Jaguar does offer strategic value to a number of carmakers.

The brand does have other things going for it, such as consistently high scores in JD Power’s influential customer satisfaction surveys. Ultimately, then, even though the Ford-Jaguar relationship may not have clicked, it’s clear
that there’s life in the old cat yet.