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Jaguar Starts To Claw Its Way Back

International Business: BRITAIN


But can Ford recoup, even with quadrupled production?

It has been a long ride back for Jaguar PLC. Since recession and quality glitches hit sales in 1992, the British maker of luxury cars has climbed back to profitability--thanks largely to huge investments by its parent, Ford Motor Co. Now, a remade Jaguar is set to expand aggressively. It plans to launch two new models over the next four years, including a "baby Jag," and more than quadruple annual production to 200,000 cars. "We're profitable, we've improved," declares Jacques A. Nasser, Ford's president of automotive operations. "Now is the time to go for growth."

A surge in volume may be the only way Ford can recoup its investment. Including the $2.6 billion it paid for Jaguar in 1989, Ford is believed to have spent almost $6 billion. Nasser won't confirm that figure and claims he has no payback target. "That's history," he says. "Now we've got to run the business with the cards on the table." Still, Jaguar needs to make more than a quarter of a million cars a year for Ford to get its money back, estimates D. Garel Rhys, professor of motor economics at Cardiff University Business School. By expanding into smaller models, Jaguar hopes to lure more customers from rivals BMW and Mercedes-Benz--which annually sell roughly 700,000 cars each. "We aim to be fully competitive with them around the world," vows Jaguar Chairman and Chief Executive Nicholas V. Scheele.

The first of the new models is a midsize luxury car, code-named X200, that will be launched in early 1999. It will be smaller than Jaguar's current XJ sedans and will inherit the graceful lines and refined power plant of the company's classics. The X200--which will cost about $650 million to develop and put into production--will vie with the BMW 5 Series, which starts at $39,740, and the $41,640 Mercedes E Class. Pricing the car at $37,500, according to a Standard & Poor's DRI estimate, Jaguar hopes to sell 40,000 copies a year.

NEW BABY. Two years later, Jaguar plans to bring out its "baby Jag," the key to its global plan. Development costs will top the X200's, and DRI puts its price at $29,300. Code-named X400, the car will compete with the $27,600 BMW 3 Series and Mercedes C Class, which goes for $32,600 in Britain. Jag expects annual X400 sales of about 100,000. With its current sedan, the XJ, starting at $56,200, Jaguar hopes the lower-priced cars will draw younger buyers.

Some analysts think Ford should have expanded the Jag line years ago, but Scheele differs. "Jaguar had to learn to crawl and then walk before it could run," he says. He also says a consumer shift to premium brands in everything from Scotch and ties to executive cars makes the time right. "Upscale image manufacturers have won back a huge proportion of the executive-car sector," agrees John Lawson, analyst at Salomon Smith Barney in London.

Some analysts question Jaguar's ability to quadruple output without running into more problems. "It will be the right product at the right price, but will they be on par in quality and reliability terms with BMW, Mercedes, and Audi, who all set high standards?" asks Peter Schmidt, market watcher for Automotive Industry Data. Depending on talks over government grants, Jaguar plans to produce the X400 at Ford's plant in Halewood, England. That would mean getting the plant, where Ford builds Escorts, ready for luxury-car production. For its part, Jaguar must fire up a dealer network that is more accustomed to thinking luxury than sales volume.

Still, Ford's track record with Jaguar over the past few years has been improving, even if at a high cost. Sales rose 12% last year, to an eight-year high, helped by the new XJ8 sedan and the XK8 sports car (chart). XK8 sales, at 15,000, bettered the record of its famous ancestor, the E-Type--and Jag's forecast of 12,000. In the U.S., Jaguar was fifth in the most recent J.D. Power Customer Satisfaction Index, from 25th in 1991. The company says it has operated in the black for the past three years.

Many analysts think the road is open for Jag to achieve a reputation comparable to that of Mercedes and BMW. "Jaguar is a powerful and emotive brand, and Ford is a capable vehicle engineer," says Salomon's Lawson. "There's plenty of scope for Jaguar--if the price and style are right." Jaguar has made some smart moves, but its new models will have to be big sellers for Ford to recoup its billions.By Heidi Dawley in London and Keith Naughton in DetroitReturn to top

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