Risks as Big as your Appetite

Jaguar Land Rover is Britain’s largest car-maker.  The Indian conglomerate Tata bought it from Ford in 2008 and it was initially very successful.  However, it has made losses in four of the last five quarters, has written down £3.1bn (about one-third the company’s value), and is cutting 4,500 jobs in the UK.

A few years ago the CEO reminded analysts that as a smaller company than most manufacturers (about a quarter the size of BMW, and tiny in comparison to the likes of Toyota and GM), it gets hit sooner and harder by global trends.  Volvo, which was also sold by Ford (to Chinese company, Geely) and which is a similar size,  says the outlook is tough, but it has not suffered in the same way as JLR.

JLR’s strategy has been to take on BMW across the whole of the range, with several models in each price bracket e.g the Jaguar F-Pace SUV, the Range Rover Evoque and the Land Rover Discovery Sport.  The Range Rover Velar similarly competes with their own, lower-end Land Rover Discovery and caused sales of the Discovery to fall 40%

It also had a dependency on diesel and on China; both of which have been blamed for JLR’s current situation.  And whilst all car manufacturers have been hit by the slowdown in Chinese growth, JLR’s sales were hit much harder and fell by half in the last quarter, something that was put down to poor management.

Whilst Volvo exploits a niche with a limited range of models, JLR has made big bets on a multi-brand range against very established competition.  Clearly, it has had the risk appetite to do this; but if you choose to make big bets, you have to fully understand the risks (e.g. dependencies, economic outlook, cannibalisation across brands), otherwise you can lose big, too.

Source: Financial Times website.

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