Booming sales at Jaguar Land Rover boost Tata Motors profits
Wednesday 11 August 2010
Booming global demand for British-made Jaguars and Land Rovers is helping push Indian owner Tata Motors back into profit.
The parent group reported net profits of 19.9bn rupees (£272m) for the three months to the end of June yesterday, compared with a loss of 3.3bn rupees in the same period last year. Revenues shot up by 64 per cent to 271bn rupees, the company said.
The Birmingham-based Jaguar Land Rover (JLR) division is playing a key role in the parent company's recovery, as demand for luxury brands returns on growing global economic confidence.
JLR was bought by Tata Motors for £1.5bn in 2008 and in the first 10 months after the takeover the Birmingham-based luxury car maker produced just 167,000 vehicles and recorded £280m losses. But JLR's net income for the quarter to the end of June came in at £221m – a significant turnaround from last year's £64m loss – and sales topped 57,000 vehicles compared with less than 40,000 last year.
"The premium car sector in a number of countries is clearly improving," a spokeswoman for JLR said yesterday. "We are cautiously optimistic, but the automotive business remains a challenging environment at the moment."
In JLR's established markets, the picture is rosy enough. Land Rover sales grew by a healthy 26 per cent in Europe and by 54 per cent in the UK over the year to the end of July. And while the Jaguar marque is performing less well – with less than 1 per cent growth in Europe and a 3 per cent drop in sales in Britain – the dip is explained by the ending of production of the X-Type and the lag before the launch of the new XJ model. The impact of the XJ is already starting to be felt, with British Jaguar sales up by 16 per cent in July alone, the company said. But steady improvements in traditional European and US markets are dwarfed by stellar growth in emerging Asian markets. Eye-watering growth rates in India – with Land Rover sales up by 1,500 per cent and Jaguar by 1,040 per cent – may partly be explained by the fact that JLR is a new entrant in the Indian market and any increase in sales is from a very low base.
But Chinese sales have catapulted the Middle Kingdom to third place in the company's global league. More than 14,000 vehicles were sold in China between January and July, with Land Rover's sales rocketing by 122 per cent and of Jaguar's by 86 per cent. In terms of volume, the performance is beaten only by the 26,500 vehicles sold in the US and the 37,000 sold in the UK home market. The scale of the opportunity in China is such that JLR is changing its business structure to run operations there as a "national sales company" rather than simply as an importer. The long-term investment strategy for the region also includes plans to manufacture both Jaguars and Land Rovers locally, Tata Motors chief executive Carl-Peter Forster confirmed yesterday, although the group said production would be for the domestic Chinese market only and would not affect production levels in the UK, where all the company's cars are currently made.
In the short term, the surge in demand is putting pressure on JLR's supply of engines, which was cut by 100,000 units during the recession. The company is in talks with Ford to negotiate extra supplies to meet rising demand, Mr Forster said. JLR, which employs 14,500 people in Britain, has cut some 2,000 jobs since the financial crisis hit in 2008. But the group is now hiring another 1,000 staff at its Halewood factory, following the decision to build the new Range Rover "Evoque" at the Liverpool plant.
The company is also reviewing the operations of its two other factories – in Solihull and Castle Bromwich in the West Midlands – with a view to consolidating the two smaller operations into one large plant. The decision on which factory will remain open is expected later this year. The company says no jobs will be lost in the move.
While the forecast for sales in fast-growing Asian economies is strong, the outlook in the British market is altogether patchier. So far this year, sales of luxury saloon cars have risen every month. And while total new registrations dropped by 13 per cent last month, dragged down by the withdrawal of the government's scrappage incentive earlier this year, sales of premium brands still rose by nearly a fifth, according to the Society of Motor Manufacturers and Traders (SMMT). But the forecast for total sales over 2010 as a whole is only slightly more than two million vehicles, far below the 2.4 million cars sold in the UK in 2007.
Top marques race ahead
Jaguar Land Rover is not the only company benefiting from a steady upturn in demand for luxury cars. Pendragon, Britain's largest car dealership group, yesterday reported a 48 per cent increase in profits for the first half of the year, boosted by strong performance at its Stratstone premium chain.
Stratstone, which focuses on top-end marques such as Mercedes and Ferrari, saw revenues up by 24 per cent at £672m and profits up by 11 per cent at £93.9m over the six months to the end of June. By contrast, FTSE 100-listed Pendragon's Evans Halshaw chain – which sells mid-range brands such as Ford and Vauxhall – reported profits flat at £123m. And Pendragon's commercial van and trucks business, Chatfields, is having an even tougher time. The division – which sells and services Iveco, LDV and DAF vehicles – saw revenues drop by 31 per cent and gross profits by 27 per cent as uncertainty over the economic outlook continues to depress businesses' capital investment plans.
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