Interview with JLR North America CEO Andy Goss

[aneekr]

Automotive News writer Diana T. Kurylko interviewed Jaguar Land Rover North America CEO Andy Goss. Goss' commentary provides some insight into JLR NA's strategies five years after Ford Motor Company sold the brands.

 

link to article - Automotive News

 

Some highlights:

• Land Rover sales are constrained by supply
• F-Type launch is May 20; North America expected to take 50% of worldwide production
• New plant under construction in England for four cylinder engine production
• 60% of JLR North America dealerships are "channeled" (i.e., both Jaguar and Land Rover brands at a single location)

 

 

[jpd80]

Five years after being sold from Ford and they are still constrained in a major market,

that tells me Tata has focused heavily on expansion in other markets like China.

[twintornados]

Cue T-Stag in 5....4....3....2....

[TStag]

I don't need to tell you I was right you all know it now! Last 3 years JLR have banked about 4 billion GBP in profits, how much was the company sold for? Should have shut Lincoln and Mercury and invested the savings in JLR

[RichardJensen]

I don't need to tell you I was right you all know it now! Last 3 years JLR have banked about 4 billion GBP in profits, how much was the company sold for? Should have shut Lincoln and Mercury and invested the savings in JLR

 

TATA spent $3.3B on JLR in 2008 ($2.3B to Ford, $1B to recapitalize).

 

In five years, JLR has returned $240M to TATA.

 

That's $48M per year on a $3.3B investment.

 

That's a 1.5% ROI.

 

And even that is unlikely to be sustained: http://www.guardian.co.uk/business/2013/feb/14/jaguar-land-rover-profits-fall

Edited May 29, 2013 by RichardJensen

[RichardJensen]

Also, try figuring out the math on this one:

 

JLR pays a £150M dividend to TATA, books roughly £4B in profits over 4 years, and somehow only has £437M net cash on hand?

 

That's not good. That indicates that JLR is still in debt up to its eyeballs.

[TStag]

JLR is expanding like crazy fuelled by debt but covered by profit. And frankly it's working. They won't have to maintain the investment forever. This is what Fords US managment didn't understand but JLRs Indian management does. When TATA bought JLR KPMG advised on this strategy and by all accounts it paying off.

[RichardJensen]

JLR is expanding like crazy fuelled by debt but covered by profit. And frankly it's working. They won't have to maintain the investment forever. This is what Fords US managment didn't understand but JLRs Indian management does. When TATA bought JLR KPMG advised on this strategy and by all accounts it paying off.

 

Basically, this is all wrong.

 

TATA doesn't report JLR's coverage ratios, but with only £437M net cash position and only a £150M dividend paid, I'm going to guess that the coverage ratios are *atrocious*, and JLR's ability to borrow cheap is going away, with the parent company's woes and their own declining margins.

 

Further, the only difference between TATA & Ford regarding JLR is that the cash dump into JLR is borrowed funds under TATA, whereas it was cash spun off from North American ops under Ford.

 

I can tell you that Ford's practice placed JLR's future at much lower risk.

Edited May 30, 2013 by RichardJensen

[twintornados]

JLR is expanding like crazy fuelled by debt but covered by profit.

 

[NickF1011]

They won't have to maintain the investment forever.

They won't? Does JLR have some sort of magic fairy self-modernizing factory that automatically updates platforms and powertrains all by itself with no investment?

[jpd80]

JLR is expanding like crazy fuelled by debt but covered by profit. And frankly it's working. They won't have to maintain the investment forever. This is what Fords US managment didn't understand but JLRs Indian management does. When TATA bought JLR KPMG advised on this strategy and by all accounts it paying off.

J/LR is expanding thanks to Freelander and Evoke, vehicles that have less ROI attached, the nett effect is that J/LR increases revenue

but achieves insufficient profit to carry the hefty cost of delivering more new and ever increasingly expensive vehicle projects.

 

J/LR will eventually be very profitable but at the moment the Profits announced are a facade intended to conceal significant internal debt.

Edited May 31, 2013 by jpd80

[RichardJensen]

J/LR will eventually be very profitable

 

The only way they could be very profitable would be by working within their limitations, not by using credit to pretend they don't exist.

 

It's like this:

 

JLR are like a guy that makes, say, $90k per year. He can afford a very nice house or a very big house, but not both.

 

BMW is like a guy who makes, say $500k per year. He can afford a very nice house that is also very big.

 

 

Now what happens if $90k/year guy decides he is unhappy with a nice house, and decides he wants a nice big house like $500k/year guy?

 

Say he goes out and borrows his max to build a big house, and then in a couple years when the market has gone up, borrows more against the increased equity, in order to make his big house much nicer. Now he's got a nice big house, but he's also got a far higher debt service ratio than $500k/year guy.

 

$500k/year guy sees $90k/year guy's house, and on seeing that it's a lot like his, he thinks, "Gee, my house isn't as big as I thought it was," so he adds on another couple thousand square feet with a wave pool and lots of granite countertops and whatnot.

 

$90k/year guy sees that and does what exactly? Borrow more money?

 

BMW, MB and VAG will be able to outspend JLR.

 

-----

 

Or to put this in a totally different framework: This is why, unless Ford screws up big time, Toyota will never be able to match Ford's profitability AND investment in the F150. Toyota would have to pull in hundreds of millions of dollars from other profitable platforms to match the investment funding that the F150 delivers on its own.

Edited May 31, 2013 by RichardJensen