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Jaguar Comes Roaring Back

24 March 1999

Ford Puts British Automaker on the High Road : Jaguar Comes Roaring Back

In the annals of the automobile industry, Ford Motor Co.'s purchase of Jaguar has to rank as a truly long-term investment. Bought a decade ago for £2.5 billion ($4.07 billion) as a vehicle to take Ford upmarket, Jaguar instead took Ford to the cleaners. While Jaguar's image spoke of sportiness and refined English luxury, its lineup consisted of two tired, defect-ridden models.

Recession at home and the expansion of Japanese luxury brands like Lexus and Infiniti in the United States would have driven the company to the wall in the early 1990s if it were not for Ford's patience and deep pockets. But today, the cat is back on track. Jaguar sales, which bottomed at a mere 20,000 in 1992, roared back to a record 50,220 last year.

On Wednesday, Jaguar launches the S-type, its first all-new model in more than a decade and the start of a crucial expansion aimed at giving the company the product range to compete effectively against the likes of Mercedes-Benz AG and Bayerische Motoren Werke AG.

"People are at last starting to see Jaguar on the radar screen," said Nicholas Scheele, the longtime Ford executive who has steered the comeback over the past seven years. The turnaround also has broader implications because Jaguar's revival served as a model for Ford's recent $6.5 billion purchase of Volvo AB's car division.

Ford last Friday appointed Wolfgang Reitzle, the former No. 2 executive at BMW who was jettisoned in a recent boardroom shake-up, to take charge of all of Ford's premium car brands and become chairman of Jaguar and Volvo Cars, while Mr. Scheele will become head of marketing and sales at Ford of Europe.

Mr. Reitzle told workers in Coventry on Monday that he wanted Jaguar to be the fastest-growing luxury car brand in the world, and many analysts think he is the right man for the job. In 1989, Ford launched its takeover with little idea of the problems at Jaguar.

After three years of plunging sales, the company was losing $1 million a day when Mr. Scheele arrived at Jaguar's Browns Lane plant outside Coventry in 1992. Mr. Scheele went to the water booth at the test track, where cars are tested for water leaks and found new cars scoring in the 90s. That seemed good according to U.S. practice, where results are scored on a scale of 100, but the test engineer pointed out that at Jaguar, the score meant a vehicle had 90 leaks.

Mr. Scheele began a top-to-bottom overhaul of Jaguar's facilities and procedures. The plant's assembly track, already second-hand when installed in the early 1950s, was replaced. Mr. Scheele also imported Ford's Quality One program, which involved workers in redesigning the production process to stamp out defects. And he slashed the bloated work force in half, to a little more than 6,000.

"We had to fix the basics first, and then put ourselves in a position to grow," Mr. Scheele said. The results have been little short of revolutionary. Jaguar, which in 1991 ranked 35th out of 36 in J.D. Power & Associates' quality survey, last year ranked in the top five, along with Lexus, Infiniti, BMW and Acura. Sales have surged in step with quality.

Now comes the hard part: preserving quality and brand exclusivity while introducing new models and embarking on an unprecedented step-up of production. Jaguar hopes to quadruple sales to 200,000 a year within four years. That is modest compared with BMW's sales of 700,000 and Mercedes' 900,000 last year, but is still an ambitious target for a company that took a decade to exceed its 1988 sales peak of 49,495.

The S-type is a critical first step, taking Jaguar out of the rarefied top end of the luxury category into the heart of the market. The new model will compete with the BMW 5 series and the Mercedes-Benz E class. It has a base price of $42,500 for the 3.0-liter V6 version and $48,000 for the 4.0-liter V8

"Jaguar now has a more sustainable business model for the luxury car business, one that does not depend on a $60,000 entry-level model," said Nicholas Colas, automotive analyst at Credit Suisse First Boston in New York. "You really do need an entire product range to be competitive."

The S-type aims to marry Jaguar tradition with sophisticated new features like a voice-activated, climate-control and audio system. It sports the brand's famous sleek curves, wood paneling and leather trim, and its elliptical front grill revives the look of Jaguar's 1960s S-type.

With its smaller size and price tag and easier handling, the S-type is designed to appeal to younger drivers and women - a vital market for a brand that sells mainly to males in their 50's today. Early reviews in the automotive press have been positive, and the company has already taken 18,000 orders, or half of this year's planned production. But Jaguar will need to prove that its newfound quality extends to the S-type.

"Typically, new-model launches are a struggle," said Chance Parker, director of product research at J.D. Power. "Let's face it, Jaguar is not in the habit of doing many new product launches."

The S-type also is a limited competitor, with no station-wagon version to match the BMW 5 series or the Mercedes-Benz E class, and fewer engine options - most important, no diesel. That is a big disadvantage in many European countries and leaves Jaguar particularly dependent on the U.S. market, which generates 40 percent of sales.

Diesel remains "a big open question," Mr. Scheele acknowledged, but he said any decision on model and engine variations was still a few years off. An even bigger challenge lies ahead with the planned launch of a so-called baby Jag, dubbed the X400, in the year 2001.

This entry-level model will compete with the BMW 3 series and the Mercedes-Benz C class, and Jaguar hopes to sell as many as 100,000 a year at a price starting around £20,000. But the company is going outside its base in the British Midlands to build the car at Ford's Halewood plant in Liverpool, which currently churns out Escorts. Getting that plant up to premium quality standards is "a real test for management," said Colin Couchman, an analyst at Standard & Poor's DRI global automotive group. Jaguar admits the challenge.

"We have recognized we have to do something fairly dramatic," Mr. Scheele said.

"We are going to get there, and we're not going to produce a Jaguar until we get there."

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