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Automotive Industry

The Premier Group's Problems

Automotive Industries, August, 2001 by Maryann Keller

Ford has locked itself into a portfolio-management game for its PAG brands.

More than a decade ago Ford Motor Co. acquired Jaguar in a landmark deal that saw the crown jewel of the British auto industry given over to the American giant that had long coveted the tarnished, but venerable, luxury brand. Out of control expenses and horrible quality had doomed Jaguar, which desperately needed to be rescued. For a little more than $2 billion, Ford became the owner of antiquated factories, employees who made their work quotas by mid-morning and cars, as former Jaguar Chairman (now Ford NAO boss) Nick Scheele once told me, that had more than 400 defects per vehicle, ranging from spots in the paint to mechanical problems.

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Ford proved to be a generous, if not benevolent owner, pouring billions of dollars into facilities, training and product. Ford was careful to preserve elements of Jaguar that defined its image and worked hard to gain employee confidence.

In the 10-plus years since Ford took over, Jaguar has improved dramatically in all measures, especially quality -- it ranked second behind Lexus in the most recent J.D. Power survey. Jaguar had only 108 defects per 100 vehicles compared to 85 for Lexus. Not only was it the only Ford brand above average, it was the only Ford brand that improved year-to-year. Its quality is above its peers in the luxury sector -- BMW's at 119 defects per 100 vehicles and Mercedes-Benz's at 129 defects per 100 -- and manufacturing productivity has dramatically improved.

With all of this good news, the real question is, why hasn't Jaguar been able to translate this into higher sales and a larger share of the fast-growing U.S. luxury vehicle market?

In 1990 Lexus sold only 63,534 vehicles, Mercedes 78,375 and BMW 63,646 compared to Jaguar's 18,723 units. In 2000 Lexus, Mercedes and BMW sales were up 224.3 percent, 162.3 percent and 142.0 percent respectively, while Jaguar's increase trailed at 134 percent. Through the first half of 2001, Jaguar volume fell 9.9 percent while Mercedes was down only 0.2 percent and BMW and Lexus posted impressive gains.

Jaguar is now offering zero security deposit, zero down and first month free on all lease deals, which may help sales, but certainly not profits. The deals are more generous than those of its rivals. The recent Automotive Lease Guide residual values showed a significant drop from 61.0 percent to 56.0 percent after three years for the Jaguar S-Type, which was supposed to challenge the BMW 3-Series and Mercedes C-Class.

The simple answer is that Jaguar doesn't have the products to compete against the growing array of models from its larger rivals, all of which now have crossover and light trucks in their line-ups. Moving operations to Irvine, Calif., isn't going to change anything and only focuses on the fact that Ford has to manage a portfolio instead of maximizing the potential of one brand. Lexus started from zero at the time of the Jaguar takeover and now leads the luxury field. Lexus is proof that it may be easier and cheaper to build from scratch than to repair and build. But Ford believed otherwise by acquiring Volvo and Land Rover.

Instead of fixing one brand and allowing it to take full advantage of market shifts, Ford has locked itself into a portfolio-management game for all of its luxury brands, all of which are worse than Jaguar in recent sales performance, residual value retention and quality.

Moving a bunch of European brands to California where they are at least eight hours away from development and production staffs in Europe, while trying to integrate them into the Premier Auto Group, fix quality and cost problems, and define the scope of each brand in a quickly changing market are burdens not shared by Mercedes, BMW and Lexus. Frankly, I'd rather be in their shoes.

MARYANN KELLER is a veteran auto industry analyst and author of the books "Rude Awakening: The Rise, Fall And Struggle To Recover At General Motors" and "Collision: GM, Toyota and Volkswagen And The Race To Own The 21st Century."

Automotive Industry

The Premier Group's Problems

Automotive Industries, August, 2001 by Maryann Keller

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