Is Jaguar an Endangered Species?
A dense crowd eyed the new Jaguar XF four-door coupe as it was unveiled at the Frankfurt Auto Show (BusinessWeek.com, 9/10/07) earlier this month. Under hot, glaring spotlights, skeptics circled the car slowly with furrowed brows, castigating the design under their breath as "Lexus-like." Enthusiasts praised the four-door coupe's classic proportions and contemporary lines, jumping behind the wheel to check out the interior. "It's a very interesting car. It will either be loved or hated—there is no middle ground," says Garel Rhys, professor of automotive economics at the University of Cardiff in Wales.
The modern-looking XF is a bold and risky bet. But there was little strategic alternative. After 18 years of failed attempts to revive Jaguar and billions of dollars in losses (an estimated $715 million last year alone), parent Ford Motor (F) gave its designers greater freedom than ever before to reinvent the look of one of the world's most heritage-rich automotive brands. With sales in a tailspin and no turnaround in sight, Ford gave the nod to make Jaguar decisively modern. "Jaguar is playing its last card—and it's the modern card," says the chief of design for a European premium automaker, who studied the car at the show and asked to remain anonymous.
The break with its design heritage comes at a particularly delicate moment. Due to Ford's $12.7 billion loss in 2006 and a shrinking market share in the U.S., Chief Executive Alan Mulally announced in June it was exploring the sale of Jaguar and Land Rover, two of Ford's three remaining premium brands. Ford sold Aston Martin last year for $848 million to a consortium led by motor racing entrepreneur David Richards, and analysts believe it may sell Volvo as well—exiting the premium car business altogether.
Upmarket and Into the Future
Potential bidders for Jaguar and Land Rover include private equity groups Cerberus Capital Management, which recently bought an 80.1% stake in Chrysler; Ripplewood Holdings; and One Equity Partners (One Equity's managing director is former Ford CEO Jacques Nasser), as well as India's Tata Motors. Fiat Auto Group, which has a production joint venture with Tata in India, said last week it would provide management assistance if Tata won the bid for Jaguar and Land Rover.
Ford expects to wind up the sale of Jaguar and Land Rover as a unit by yearend, so Jaguar's new owner will be betting on the design shift heralded by the XF before it's clear whether the car is a hit. Auto-design experts generally praised the strategic decision to break with a retro look for Jaguar—as well as the brand's move back upmarket, after a series of experiments with cheaper vehicles simply diluted brand appeal. Sticker price for the XF remains unconfirmed, but is widely expected to start at around $70,000 in the U.S.—well above the $48,300 starting price of its predecessor, the retro-looking S-type sedan.
At the same time, experts say the design leap should have been even bolder and more distinctive. "Although it brings Jaguar two design generations forward, it is still one half-step behind the competition," says Sam Livingstone, a London-based auto-design strategy consultant and director of the industry paper Car Design News. Livingstone described the XF design as less technologically advanced than Audi, BMW (BMWG), or Mercedes (DAI).
Opting for the Middle Ground
While the XF echoes the classic proportions Lexus has mastered so well, its silhouette in particular is bland, complain car designers. "It's not capricious enough. Jaguar has to stand out," argues Lutz Fügener, professor of transportation design at the Technical University in Pforzheim, Germany, who says the car resembles a Mazda 6 from the side. "It strives too much to appeal to mass-market tastes. Jaguar…should be surprising in its design."
Edgier Jaguars are part of the plan. "As we go forward, Jaguar will become more assertive. It's about time Jaguar showed its claws," says Chief Designer Ian Callum, who says his team produced eight full clay models for management to consider. "We felt it was better to give a large choice, since we were moving away from the past." Callum certainly isn't saying so, but this suggests that Ford's management was not willing to embrace the most radical design options, instead opting for the middle ground.
One big design change is the face of the XF, which has a horizontal grille, a radical departure from the classic ovoid of the S-Type. But the new face of the XF is not entirely without precedent. The inspiration was the 1968 XJ6 and its ultramodern-looking (for that era) grille, which fascinated Callum when he was a 14-year-old boy passionate about car design. "If we didn't make a statement with a new face, we risked not being noticed," he says. "And if you know the history of Jaguar, that's not a problem. Jaguar often changed its grille."
"Jaguar Is About Elegance"
Callum insists he isn't fazed by those who criticize the XF for resembling a Lexus GS. Both the Lexus (TM) and the XF emulate a sports car profile, he explains. "The XF is an emotional car that's extremely rational," he says. "Lexus has a coupe-type profile, but that's where the similarity ends. Our profile is executed much better than the Lexus."
Auto analysts argue that the XF, including its Lexus GS-like silhouette, could alienate some Jaguar enthusiasts even as it appeals to a broader base of consumers. The real question is how its new owner will position the ailing brand in the crowded field of premium and luxury cars. "The XF will appeal to people who like classic proportions but contemporary lines—and to people who hate all the bells and whistles inside German and Japanese cars," says Christoph Stürmer, senior analyst at market researcher Global Insight in Frankfurt. "It has a simple, fine interior. Jaguar is about elegance. The rest is getting the marketing right."
But it won't be easy for Jaguar to escape head-to-head competition with the German automakers, which are pouring billions into research and development every year, churning out new niche models and crossovers, and reaping economies of scale with huge volumes. Jaguar XF, with its aluminum chassis and several engine options (ranging from 207 horsepower to 298 horsepower) goes up against Mercedes' CLS, BMW's 5 Series and Audi's A6, as well as the Lexus GS. "Jaguar's DNA is at the sporty end of the market," says Rhys. "There isn't any option but to face the Germans. They can't hide."
Eyed By Private Equity
A winning design is just the first step in Jaguar's quest for survival. Analysts say the brand will need several billion dollars in up-front investments for product development, and in the long term, an automotive partner with deep pockets to provide technology, purchasing, and platform synergies. Ford paid $2.5 billion for Jaguar in 1989 and invested more than $10 billion in the automaker, which never turned a profit. "The investment required to revive Jaguar will dwarf the purchase price," says Morgan Stanley (MS) analyst Adam Jonas. Analysts figure bids for Jaguar and Land Rover together will come in at around $1.5 billion.
With sales of only 71,000 cars last year, down 17%, and a forecast by J.D. Power & Associates for a plunge in sales to 54,900 vehicles this year, Jaguar is an endangered species. Even if sales return to their previous peak of 120,000 and a new owner restores its profitability, the British brand cannot survive independently, analysts say. Private equity buyers are betting they can turn Jaguar's operations around and sell it at a profit to another carmaker. Upstart Tata, which is on a steep learning curve making low-cost cars, is eager to glean automaking expertise from established brands and a global footprint.
As the sale of Jaguar moves toward its conclusion, Callum's job is to help introduce the new XF to global buyers. Next stop: the Los Angeles Auto Show in November where the XF makes its U.S. debut. One L.A. dealer already called Callum to thank him for reinventing Jaguar, adding that he booked orders for eight XFs the day the car was unveiled in Frankfurt. "This car is just the start of the journey," says Callum. "We will go further and push the boundaries."
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