Ford profits vs JLR profits

[TStag]

Last year JLR banked about 2 billion USD on volumes of 370 000 units. Last quarter Ford banked 1.6 billion USD on much much greater volumes. Now bearing in mind their relative sizes Fords decision to sell JLR looks awful.

 

Ivke always said Allan Mullaly has done a good job overall at Ford. But selling JLR was a terrible idea.

[wildosvt]

How much was dumped into them to get to this point? Are they in the clear yet?

[RichardJensen]

I'll get back with more on this later.

 

Suffice to say:

 

JLR is cash flow negative, margins are decreasing, JLR has barely repaid any of TATA's investment in them, and most interesting and concerning:

 

They have borrowed on multiple occasions in order to fund ongoing operations.

 

http://www.guardian.co.uk/business/2013/feb/14/jaguar-land-rover-profits-fall

Edited May 28, 2013 by RichardJensen

[RichardJensen]

Also, only a fool would trust Indian public accounting.

[Edstock]

I don't trust EU accounting.

 

I wonder how the Germans manage to do all the tooling necessary for all their variants. MINI, for example. The original, and the Clubman variant exploded into 5 or 6 more (maybe more, I haven't counted).

[RichardJensen]

In five years of ownership, JLR has paid a one-time $240M dividend to TATA.

 

Last year, Ford Motor Credit paid a $600M dividend to Ford Motor.

 

I think Ford made the right call

[RichardJensen]

Since TATA bought JLR, they've booked a net total of roughly £3.5B in "profit".

 

They have paid £150M back to TATA in the form of a dividend.

 

Their net cash position at the moment is £437M

 

Folks, that's not good. JLR is in debt up to its eyeballs, and has taken on that debt based on the idea that topline growth will continue apace, with minimal impact on margins. I don't think those are realistic projections.

[RichardJensen]

Another thought on JLR:

 

It appears that little if anything has changed in Gaydon. JLR's balance sheet suggests that management there believes that they should always be backstopped by a parent corporation that can bask in the paltry returns (1.5% annually) that require an enormous commitment of funds.

 

It would be one thing if JLR were holding back profit from TATA in order to bolster their balance sheet to sustainable levels, but they have not done so. £437M net cash is absurdly low for a company that must meet billions of pounds per year in obligations.

[twintornados]

But best of all...T-Stag is back!!! Now, if we could only find Ford Jellymoulds.....

[jpd80]

Is there any way of finding out how much internal debt Jaguar land Rover has?

I'd say they have racked up massive product development costs that Ford was

keen to avoid and the biggest tell tale is the lack of return back to Tata.

[RichardJensen]

No. There are only oblique references. Total liabilities and assets are provided annually, but not broken down in any detail.

 

In, I believe, the FY 2011 annual report, Jaguar's described as having a net negative cash position. They sold about $500M in notes last year.

 

The bottom line indicator that something's up is the discrepancy between reported profits and cash position.

 

Yes, they're investing in physical plant which eats up cash without decreasing capital (if you spend cash--an asset--on acquisition of another asset, you aren't altering your capital, therefore, you're not affecting your income even though you are spending cash).

 

But even at that, things seem fishy. They won't provide their coverage ratios, they don't provide debt:equity ratios. They disclose new borrowings in bits and pieces.

 

They're building a plant in China and another in Britain, so that does account for *some* of the discrepancy between cash and earnings. I'll also say the British plant seems kind of stupid--why not keep buying engines from Ford and, oh, I don't know, contribute those hundreds of millions of dollars to TATA's bottom line instead?

 

Apparently they can turn a profit buying engines from Ford, so why not keep buying engines from Ford and build the plant at some future date? Why build it *now*, when you're having to issue debt to pay for such things?

 

Also, they're gearing up to spend a fortune on a new lightweight aluminum platform, and man does that seem like a disaster waiting to happen. Recall that JLR hasn't engineered a platform independent of Ford since 1987 (XJ40)--and that effort was so bad that it forced them to sell out to Ford in the first place.

 

We're told that JLR has all these resources available in Gaydon, but where are they getting the funds to spend at the same level as VW, BMW and MB?

 

This is Tesla all over: You have to issue debt (or in Tesla's case, more stock) in order to raise funds for new development, and you can't keep going to that well. People will eventually stop buying new shares, or they will eventually stop lending you working capital.

Edited May 29, 2013 by RichardJensen

[RichardJensen]

Or in the case of Ford, they'll stop recapitalizing your business unit.

 

I wish Ford had been able to do something with JLR; but that required an acknowledgement by JLR management that they could not be what they were before being bought by Ford.

 

It's a clear, logical reality:

 

Your company cannot survive as an independent. That's why it was for sale.

 

Insisting that you retain your independence as a business unit will not be successful, because your independent business unit is no more viable than your independent company.

 

Eventually, your new owner will get tired of spending money on you.

Edited May 29, 2013 by RichardJensen

[jpd80]

So I wonder just how much patience (and cash) Tata really has.....

[Gnostic]

Record loss looms at Tata as buyers shun Nano

http://www.detroitnews.com/article/20130529/BIZ/305290031/1148/auto01/Record-loss-looms-Tata-buyers-shun-Nano

[jpd80]

A lot of J/LR's growth is happening in it newer lower priced vehicles, Frelander and Evoke.

I think this is having a strong bearing on J/LR's difficulty to self fund its ongoing product development

needs and expansion plans in China. How this affects J/LR's position long term is anyone's guess

but the last thing anyone should be doing is looking a J/LR's profits in isolation to on going costs.

Edited May 29, 2013 by jpd80

[Deanh]

A lot of J/LR's growth is happening in it newer lower priced vehicles, Frelander and Evoke.

I think this is having a strong bearing on J/LR's difficulty to self fund its ongoing product development

needs and expansion plans in China. How this affects J/LR's position long term is anyone's guess

but the last thing anyone should be doing is looking a J/LR's profits in isolation to on going costs.

yup, and Fords actually making income from JLR......all those eco-boost engines in their best seller.........snicker.....

[RichardJensen]

I can't imagine it will be easy for JLR to update their EUCD implementation in the Land Rover CUVs.

 

Will they buy into a new platform from Ford? That would be the smart, rational, "this is our place in the world" action, so they probably won't do it.

[Deanh]

I can't imagine it will be easy for JLR to update their EUCD implementation in the Land Rover CUVs.

 

Will they buy into a new platform from Ford? That would be the smart, rational, "this is our place in the world" action, so they probably won't do it.

Rich, thats mirroring the "better than anyone else" attitude JLR had when they had British ownership, they couldnt come to terms with the thought outside help could improve the product...it was VERY arrogant and created a rift between Ford and their own engineers when Ford entered the foray....I wonder if the holier than thou attitude remains under "Indian" rule?.........................

[mackinaw]

I haven't followed this thread but just saw this in Automotive News:

 

 

"MUMBAI (Bloomberg) -- Global vehicle sales at Jaguar Land Rover rose 19 percent to 116,340 in the three months ended March 31, Indian parent company Tata Motors said.

Jaguar Land Rover revenue rose 22 percent to 5.05 billion pounds ($7.6 billion) in the quarter. Profit was 378 million pounds ($571 million)."

 

Read more: http://www.autonews.com/article/20130529/COPY01/305299948#ixzz2UjIrt1Ph

[Edstock]

Rich, thats mirroring the "better than anyone else" attitude JLR had when they had British ownership, they couldnt come to terms with the thought outside help could improve the product...it was VERY arrogant and created a rift between Ford and their own engineers when Ford entered the foray....I wonder if the holier than thou attitude remains under "Indian" rule?.........................

 

Well, the 5.0 Mustang in its next IRS-equipped iteration might be sold in Europe. The point is, Europeans might consider high-power Mustangs as alternatives to V-8 Jags and such, especially if Ford sets up an SVT/Shelby outfit in Europe or works with one of the German tuners.

[RichardJensen]

I haven't followed this thread but just saw this in Automotive News:

 

 

"MUMBAI (Bloomberg) -- Global vehicle sales at Jaguar Land Rover rose 19 percent to 116,340 in the three months ended March 31, Indian parent company Tata Motors said.

Jaguar Land Rover revenue rose 22 percent to 5.05 billion pounds ($7.6 billion) in the quarter. Profit was 378 million pounds ($571 million)."

 

Read more: http://www.autonews.com/article/20130529/COPY01/305299948#ixzz2UjIrt1Ph

 

 

Right.

 

That's not bad.

 

Except that their margin's decreasing as their sales grow; and they've borrowed extensively with the expectation that margins would remain constant as revenue grew. That's why they're getting pinched.

 

And, arguably, they've borrowed *instead* of working with a company like Ford.

 

For instance: They borrow money to build a factory instead of continuing to buy engines from Ford.

 

Also, they'll borrow money to fund development of their new platforms instead of doing a JV with Ford.

 

It's pretty much what they did when Ford owned them: They liberally availed themselves of Ford's cash, and made scant use of Ford's engineers.

[TBirdStangSkyliner]

None of the great minds of the world have yet to figure out a foolproof plan for how corporations in rapidly developing countries should invest incredible cash reserves when they are amassed. Maybe TATA should have started from scratch a luxury Indian marque instead of buying a legendary one and slowly moving production to more cost effective locations. Maybe they should buy prime real estate, movie studios, Michael Jackson, and ski areas like the Japanese did. Even China has issues with what to do with unreal piles of cash.

[RichardJensen]

TATA spent very little on JLR: $2.3B to Ford and an initial investment of about $1B right off they bat. They've also provided collateral for a few loans that have been spent on JLR.

 

The issue isn't whether JLR is profitable, it clearly is right now.

 

The issue isn't whether TATA has done a better or worse job managing JLR, the appear to be managing JLR the same way Ford did.

 

The issue is JLR's management. It is reminiscent of farmers who, able to turn a decent profit on rented land will borrow to the hilt to purchase land at peak values, in order to eliminate the stigma of being a rent payer.

 

JLR is not a viable independent. They need to stop behaving as though they are. If they can turn a profit buying Ford engines, don't borrow money to build an engine plant.

 

If they can negotiate with Ford to develop new product off Ford's C4 architecture, don't borrow money to overhaul EUCD.

 

If they can negotiate with BMW, MB or Audi on a new lightweight full size platform, don't borrow money to do it independently.

 

JLR has borrowed extensively, on the expectation that topline and bottom line growth will continue in lock step. Indications are that this is a gross miscalculation.

 

---

 

So, in a nutshell, rather than being a profitable small car company that still has to work with outside partners, JLR is bent on becoming a large independent car company, and that plan seems to be incredibly misguided.

Edited May 30, 2013 by RichardJensen

[Moosetang]

It took a ton of money to make the beautiful new Jag products happen, money Ford didn't have to spare with its core lineup needing those development dollars. Without the sale, the two brands would have struggled along in the same or worse shape they were pre-sale and Ford would have had it that much harder to turn itself around. The JLR sale helped both companies, hopefully TaTa can carry on long enough to get its investment back fully and we'll have many years of JLR to come.

Edited May 30, 2013 by Moosetang

[Deanh]

Right.

 

That's not bad.

 

Except that their margin's decreasing as their sales grow; and they've borrowed extensively with the expectation that margins would remain constant as revenue grew. That's why they're getting pinched.

 

And, arguably, they've borrowed *instead* of working with a company like Ford.

 

For instance: They borrow money to build a factory instead of continuing to buy engines from Ford.

 

Also, they'll borrow money to fund development of their new platforms instead of doing a JV with Ford.

 

It's pretty much what they did when Ford owned them: They liberally availed themselves of Ford's cash, and made scant use of Ford's engineers.

bingo, their biggest enemy is their own egos........