Jaguar quality up, but not sales

BusinessWeek April 27, 1992
THESE REPAIR JOBS ARE TAKING A LITTLE LONGER THAN EXPECTED

Two years ago, General Motors Corp. and Ford Motor Co. both courted Britain's Jaguar Cars Ltd. By bidding $2.6 billion, Ford won Jaguar. To recoup, GM snared 50% of Sweden's Saab Automobile for $600 million. But as recession and increased Japanese competition have hurt sales, both Ford and GM are reshaping their European catches.

JAGUAR: QUALITY IS UP, BUT NOT SALES
Marcia McErlean, owner of a plant nursery in Staten Island, N.Y., had persistent electrical gremlins in her 1988 Jaguar almost from the day she drove it home. Yet two years later, she bought a second Jag, because the dealer said the cars no longer had such problems and gave her a sweet deal--about $40,000 for a model carrying a $60,000 sticker price. Although the second car has had fewer defects, they're still too many for McErlean. "I wouldn't purchase another Jaguar," she says.

That's bad news for Nicholas V. Scheele. On Apr. 1, the tall, amiable 48-year-old moved into the driver's seat at Jaguar. Scheele, one of the few Britons in Ford top management and a veteran of Ford's efficient Mexican operations, was handpicked by Chairman Harold A. Poling. His task: salvaging Ford's investment, which so far has been little short of disastrous. Hammered by the recession, Jaguar car sales have slipped by nearly half, and the company is piling up losses with no end in sight (chart).

Scheele, who needs to boost sales some 50% simply to break even, is stuck with two ageing car models and no replacements due before late 1994. He must shepherd the company through its most ambitious new-product program ever. And he must convince consumers that Jaguar's dismal quality image has been reversed.

"We have to persuade people that there's a big difference from four or five years ago, that you don't need to buy two Jaguars because one's in the garage all the time," says Scheele.

The only way Jag will ever start spinning out money for Ford--and pay back its investment of $3.5 billion and mounting--is with new products. None was in the works when Ford took over. But it quickly launched a design program, and the first fruit will be an updated version of the $45,000 XJ6 four-door sedan, with improved engine and a more rounded, aerodynamic exterior. Then, in 1996, comes a replacement for the XJS sports car. The current $60,500 model dates back to 1976. But the biggest leap is planned for late 1998, when a new executive sedan--priced below the XJ6--is scheduled to go on sale. Under Ford's plan, that's the car that will boost Jaguar's volumes--and start producing megaprofits.

ROOF ON A HOT TIN CAT. Thanks to Scheele's predecessor, William J. Hayden, a tough-talking Ford veteran who spent his career in manufacturing, Jaguar already looks sleeker. Despite Jaguar's small size, Hayden says, its culture was stifling initiative. Marketing didn't talk to engineering, and managers were afraid to speak up. Hayden discovered what he calls "gross inefficiency and indiscipline in manufacturing." The breakeven point, Hayden adds, "was higher than any number Jaguar had ever produced."

Now, it's a different Jaguar. After two years of hammering home Ford's quality message, Hayden reduced assembly-line defects by 80%. In the U.S., Jaguar says, warranty repairs on 1991 models were down by 15% from the year before and have fallen by 25% on '92 models. Other improvements have helped boost productivity by 35%. And by linking with Ford to buy parts, Hayden has cut Jaguar's purchasing bill by 12%. But there's a long way to go. Hayden figures it still takes three times longer to assemble a Jaguar than a high-end Ford. One tiny example: A sunroof on a Jaguar takes 28 minutes to build, vs. 6 minutes at Ford.

Labor relations have also made a huge shift. The old Jaguar had been hampered by acrimonious management-labor relations and by restrictive union practices. When workers reached their daily quotas, for example, they just stopped work. All that was swept away in a contract signed in late 1990. "Our members have a new realization that they are the company, that customer satisfaction starts inside the factory," says Chris Liddell, a union leader.

Translating the factory gains into car sales is another matter. In the U.S., where Jaguar sells about 40% of its output, competition is coming from a revitalized Detroit and new Japanese luxury marques. Lexus, Toyota Motor's luxury brand, sold more than four times as many cars as Jaguar in the U.S. last year. Indeed, Scheele says, Lexus is now "the key competition."

Thanks to improved quality, Jaguar is finally able to enter the fast-growing leasing business. For years, resale value on a Jag was much lower than on a comparable Mercedes-Benz. So if Jaguar matched Mercedes' per-month price on a lease, it would be stuck with a car worth much less than a comparable Mercedes at the end of the lease. But Jaguar is now so confident that its new cars will hold their value that it started offering leases last year. Leasing now accounts for a quarter of its U.S. business.

`SEX APPEAL.' Scheele forecasts a rebound in production this year to 27,500, up from just 23,000 last year--but far short of the record 49,000 cars Jag produced in 1987. Still, even the reduced breakeven point is about 35,000, which Jaguar executives admit won't be reached until 1994 at the earliest. But the crucial test will be the rollout of the new models.

"This company has never, ever launched anything on time," says Hayden. The only new model introduced in the last decade was the XJ6, he adds, "and that was late and badly done." With three model launches timed inside six years, the potential for trouble is huge.

Despite Jaguar's problems, some analysts think Ford's investment may pay off.
"Jaguar has a mystique, a certain sex appeal," says Christopher W. Cedergren, a senior vice-president at AutoPacific Inc., a California consultant. "A lot of buyers would like to have a Jag but have been reticent because of doubts about their reliability." If that can be taken care of, he adds, "I'm optimistic." Now all Scheele has to do is turn that dream into reality.

Mark Maremont in London, with Thane Peterson and Lori Bongiorno in New York