Is the jinx finally off Jaguar?

Business Week October 10, 1994
IS THE JINX FINALLY OFF JAGUAR?

At a Sept. 26 reception in London's Mayfair district, customers of a local Jaguar dealership quaffed champagne as they eyed the British carmaker's first new model in eight years. The guests loved the curvy restyling of the XJ sedan, but even these loyalists wondered if it was free of the mechanical glitches that have often made owning a Jag an exercise in upper-class masochism.
"I've had a dreadful experience with my current car," confided Martin S. Harrison, whose Jaguar was in and out of the shop for five years before it ran smoothly. "Only time will tell if this one will be more reliable."

Ford Motor Co. certainly hopes it will be. Since buying Jaguar Cars Ltd. for $2.6 billion in 1990, it has spent plenty more to streamline factories and absorb heavy charges for massive layoffs. Total investment by Ford so far: almost $4 billion. Total profits: none.

As the first new product to come out of Jaguar since the takeover, the XJ sedan must reverse that dismal trend. The company also plans to roll out a new sports coupe in 1996, followed by a smaller, higher-volume sedan to rival BMW's 5-series car in 1997. But before all that can happen, explains Jaguar Chairman and CEO Nicholas V. Scheele, "we've got to return Jaguar to the black on the back of this car."

A SLEEK BODY.

Fortunately for Scheele, analysts think the XJ will increase Jaguar sales by 7,000 cars in 1995, to 39,000 worldwide, and turn at least a small profit on estimated sales of $2.2 billion (charts). They figure the XJ, which succeeds the eight-year-old XJ6 and will probably account for 85% of sales, will attract buyers with a redesigned body. The rounded styling harks back to the first Jaguars designed by Sir William Lyons, the company's founder.

Just as important, a 249-horsepower engine, designed for greater reliability and strength, should be a big selling point. Jaguar has overhauled the car's temperamental electrical and cooling systems and changed some 2,000 parts.
"This is not just a face-lift," says D. Garel Rhys, director of the Center for Automotive Research at Cardiff University. "It's a major reworking." A limited-production version of the sedan, the XJR, sports a 326-horsepower engine.

The profitability of the XJ, which will sell for $53,400 and up in the U.S., will also benefit from Ford's leaner production methods, which have lowered the breakeven point at Jaguar from 50,000 to about 35,000 cars a year. Ford has replaced the 40-year-old, two-track assembly line at the Browns Lane plant in Coventry with a single line that can produce 25% more cars. Ford's buying clout also has lowered the cost of parts for Jaguar. Besides its regular quality control, Jaguar now has special teams scour 1 car in 10 for problems.

The efforts have been slowly paying off, even before the new XJ was launched. Jaguar's sales in the U.S., its single biggest market, jumped 22% in the first eight months of 1994. True, they were fueled by special leasing deals and other incentives. But Jag's share of the top tier of the American market has nearly doubled, to 9.9%, from 1992. More important, Jaguar's ranking in the J.D. Power Associates Inc. 1994 customer satisfaction index has jumped to 10th, ahead of BMW and Mercedes-Benz, and up from 25th three years ago.

Although it's too early to gauge customer reaction, Jaguar's dealers are hoping the new model will bring back the glory days. They also appreciate Ford's zeal. When members of Jaguar's U.S. National Dealer Advisory Council were asked for input on the new XJs in 1992, they insisted the carmaker needed to boost quality, says Martin P. Bennett, owner of Thoroughbred Motorcars Inc. in Nashville and head of Jaguar's National Dealer Advisory Council. "Fortunately, we were pushing on an open door," he says.

STRATEGIC RISK.

Still, Jaguar faces plenty of challenges as it battles its way back into the crowded luxury market. BMW and Mercedes will both begin producing in the U.S. soon, lowering their costs and bringing them closer to their key market. Jaguar itself is likely to build its small, higher-volume sedan, code-named the X200, on a Ford platform, and shift most of the production to the U.S. This strategy increases the risk of cheapening the Jaguar brand, but Scheele swears that drivers won't be able to detect any difference.

A larger question is how long it will take to prove that Jaguar was a good investment for Ford. Most analysts believe that even if the new XJs are a big hit, Ford won't realize a decent return on its $4 billion until the turn of the century--at the earliest. Some competitors are more skeptical. "Jaguar is a great name in the auto industry," says the chairman of a rival German auto company. "But I wonder if Ford will ever get its money back." Ford and its rivals will soon start finding out.