Jaguar Landover: A Traditional English Car Manufacturer in Indian Hands-A Good Deal? An Evaluation

In 2013 Jaguar Land Rover has been bought by Indian car manufacturer, Tata Motors Ltd. Since then, many suspicious eyes lay on JLR. This evaluation is meant to analyse, whether being bought by Tata was good or bad for Jaguar Land Rover as a traditional British company. For this, a brief introduction of the company is given. Then cost behavior will be analysed. After, JLR’s budgeting process will be reviewed. In order to gain insight to the financial metrics a firm’s performance analysis will be conducted and capital spending will be viewed. Last, a competitive analysis will be done and a balanced scorecard sketch will be given. Adding all of these particular analyses to an overall puzzle will give (especially comparing these findings with market and competition) a reliable answer where Jaguar Land Rover is standing today and if the take-over through Tata in rough times was the right measure for both sides. Figure 1: Geographic service area. Citation: Fiedler FFH-J (2018) Jaguar Landover: A Traditional English Car Manufacturer in Indian Hands A Good Deal? An Evaluation. J Account Mark 7: 292. doi: 10.4172/2168-9601.1000292

On the Chinese market (Jaguars biggest market) in the first half of 2014, Jaguar Land Rover (short: JLR) ranked fourth place behind German car manufacturer Audi, BMW and Mercedes-Benz, selling sixty-thousand cars [4].

Illustration 2:
In Europe, including UK, in 2016 until August JLR has sold one-hundred-forty-three cars, having a market share in 2016 of 7.8% [5]. Europe has relegated China from the first place, concerning sales-growth and importance. In China, JLR just accounted for 12.5% of the car sales in 2016 (ibid).

Illustration 3: a) Size measured by revenue
In 2011 JLR had revenue of 9,871 bn. GBP [6]. Sales revenues where constantly rising to 22,208 bn. GBP in 2016 (Figures 3 and 4).

Illustration 4:
Employees: According to the company Website JLR employs thirty-eight-thousand employees directly and further two-hundredseventy-five-thousand employees are associated with the company through dealers and business partners (ibid).

Market capitalization:
In the FY2014 JLR possessed total assets of 15,589 bn. GBP and total equity of 5,864 bn. GBP. Ursa [7] states, that JLR (100% owned by Tata Motors Ltd.) approximately accounts for 90% of Tata Motor's share value [7]. According to Yahoo Finance the current market capitalization of Tata Motors Ltd. Is 26.28 bn. USD, which equals 18.25 bn. GBP [8]. If we take the assumed part of JLR in Tata's market cap of 90%, JLR comprises a current value of 16.43 bn. GBP.

Mission Statement and Strategic Objectives
On the Website of Jaguar Land Rover, the mission statement is predominantly set: 'At Jaguar Land Rover we are driven by a desire to create class-leading products that deliver great customer experiences" [3]. Another remarkable fact is that Tata is re-investing most of JLR's operating cash flow [7]. In 2014 2.7 bn GBP of the 3 bn. GBP in Operating Cash Flow where re-invested (ibid). One major goal is to strengthen R & D to get a competitive advantage through technological advancement.

Behavior of expenses of the business
Raw materials account for forty-seven percent of the vehicle production costs [9]. Approximately twenty-two percent of the automaker's operational costs depend on steel (ibid). From 2008-2013 the steel price went down from 15.2 Euros per metric ton to 4.8 € per metric ton. This equals a decrease of 68.43%. Mainly because of this decrease of the steel price manufacturers gross margins rose steeply.
On the other side, due to constantly tightening regulations for vehicle emissions and a high innovative pressure on the market's costs for R & D are perspicuously rising ( Figure 5).

Relationships between sales volume, costs, and profit
In 2014 we can see an increase of sales volume by 16%, a rise of costs by 23% and a huge increase of pre-tax profit by 49% (Table 2). So in 2014 there was an over-proportional influx in profit. In 2015 sales volume slowed down, increase was just 6%. Costs went up by 12%, this could be caused by the stiffness of the cost side, not reacting to sales decrease that quickly. In 2015 we can also see an under-proportional increase in pre-tax profit by 5%.

Break-even point analysis
According to analysts, Jaguar Land Rover needs annual sales of one-hundred-thousand vehicles to reach the break-even point, due to high fixed costs (Table 3)

Operating leverage
According to Forbes, automotive companies generally have a high operating leverage, therefore being sensitive to fluctuations in sales volumes (Table 4) [5]. The change of sales by 1% had an impact on the change of operating income of 57% in 2013. In 2014 due to a higher Degree of Operating Leverage (short: DOL) an incremental change of sales would result in a three times higher change in operating income, in this year the automotive manufacturer JLR was very sensitive to sales changes. A high DOL suggests a major part of the costs being fixed costs in that year, which needs that in 2014 JLR was supposed to sell more cars. In 2015 the DOL was 83%, which means that a change of sales by 1% would result in a change in operating income by 0.83%. In the years 2013 and 2015 there apparently was a higher part of variable costs, generating smaller profits on incremental sales, but requiring lower sales than in 2014.

Traditional process
According to Wyles, Jaguar runs six facilities for R & D, manufacturing and assembly in the UK, serving over 200 markets.  Inc./Dec. In % 5% 49%   Jaguar is further setting up a Joint Venture in China and more facilities in various countries. Asked about JLR's success after the takeover through Tata, Ratan Tata replied: "I think the general change that I see in JLR now is that everybody has enthusiasm about what they are doing and has confidence and faith in the direction of the company. We are not the magicians, they are the magicians" (ibid).
In fact, the company's spirit was the major reasons for the roaring success after 2008.
Actually the traditional budgeting process for the divisions was like below mentioned until the implementation of a new, integrated approach in 2013 (ibid): • Functional units had their individual processes • There were many parallel decision-making forums and there was a lack of focus on the outcome

New approach (Integrated Business Planning)
Due to the limitation of the old approach for a rapidly growing company like JLR, they embarked on a ERP project in waves from 2009 on (ibid). ERP platform was implemented in 12 months.
In 2013 PWC was hired to implement an integrated business approach, having the following aims (ibid): • Standardized key planning resources across functions Due to the integrated ERP approach, budgets and strategic goals had been aligned, especially creating the chance to individually, as well as collectively measure the company's/ divisions performance. Earnings per share: Earnings per Share for Jaguar Land Rover cannot be taken separately as JLR is a 100% daughter of Tata Motors Ltd. (Bajaj, 2012). As Ursa [7] states, JLR (100% owned by Tata Motors Ltd.) approximately accounts for 90% of Tata Motor's shares value [7]. Therefore, here the EPS for Tata Motors is regarded, assuming that Tata's EPS equals JLR's EPS.

Capital Investment Analysis Capital expenditures
According to Jaguar Land Rover for 2014 the long term capital spending target is 10 -12% of the revenue in line with the premium market competitors [11]. In the financial year 2014 Jaguar invested 2.5 bn. GBP in capital (ibid). Approximately half of the capital investments were made for R & D Investments (45%) and the other half were made for tangibles fixed assets (55%), such as equipment, tools and a joint venture in China (ibid).
Investments were carried out to substantially develop new products in prospective as well as existing markets. Exploring new powertrains and technological advancements was made in order to meet customers and regulatory expectations. Also capital investments were so high due to increasing demand for JLR cars in the UK and abroad. JLR is convinced that the high capital investments are effectively contributing to high growth for the company in near and far future (ibid).
Growth in sales and increased profitability along with a strong cash and liquidity stance supported the aforementioned strategy. In 2014 free cash and investment and interest were robust and stronger than expected, supporting the capital investment strategy (ibid).
For 2015 JLR increased its capital expenditure and R & D investment in by 14.43% [12]. CAPEX and R & D meanwhile rose to 3.147 bn. GBP [12]. This comes along with the plans expand production capacities in the UK, China and Brazil [11]. R & D sank in 2015 by 5% to 40% and CAPEX rose by 5% to reach 60% (ibid). Still the free cash flow remained to be positive due to increased sales, higher than expected [1].

Capital projects
According to Grandhi there is a secret plan of Jaguar Land Rover to cut £ 4.5 bn of company costs and to sell 1 million cars per year until 2020. This should be realized by cutting jobs to save cash, similarly measures will be taken to slow or stop hiring for new positions [13]. Additionally, supply chains will be reviewed for better efficiency and the companies wants to share core skeletons for Jaguars and Land Rovers to spare money (ibid).
Another current project of JLR is to create loop-value-chain.

Three key competitors
Observing the US market for luxury cars gives a good picture of the main competitors of JLR in the premium segment ( Figure 6). The three main competitors for JLR in the U.S are Mercedes Benz (GER), Lexus (JPN) and Audi (GER). As JLR held a market share of around 5% of the U.S car market, it was far off from Audi (9.6%), Lexus (16.4%) and Mercedes-Benz (17.7%).

Comparison of the basis for competition
Cost: Comparing the two main competitors on the American market, Mercedes-Benz and Lexus (no separate financial information for Lexus, included in the financial statement of Toyota), one can see, that the average selling prices of approximately 47.000 GBP for Mercedes-Benz and Jaguar are nearly similar. As there is no data for Lexus, the values for Toyota have been taken. Toyota's average selling price in GBP is significantly lower with 23.703,78 GBP, being almost 50% below the selling prices of Jaguar and Mercedes-Benz. As the selling price of Mercedes-Benz is in average 0.3% below the selling price of JLR and the cost of production in average is 1.91% higher for Mercedes-Benz than for JLR, the comparative cost advantage of JLR to Mercedes-Benz is 2%. The cost advantage of JLR to Toyota is 1.31%. In the cost ranking of the three brands observed, Jaguar takes the best rank, Toyota the second and Mercedes-Benz the third rank (Table 6).

Capital intensity:
Comparing the invested capital in GBP in 2015 to the three competitors' revenues in 2015 it is noticeable, that as Mercedes-Benz only re-invested 3% of its revenue, Toyota already invested 8% of its revenue. Jaguar Land Rover invested 17% of the revenue in the company. It may be assumed, that a large part of the JLR's current success is due to the high capital investment (Table 7).
Branding: According to Bhasin Jaguar Land Rover is synonymous with smooth, fast and luxurious vehicles. Jaguar has no low cost cars, like BMW or Mercedes-Benz. Jaguar is further preferred by people spending a lot of time in their vehicles (ibid). In the 1940s and 50s Jaguar created sports vehicles which caught the eye. Still Jaguar is seen as a symbiosis of supportiveness and luxury. Moreover, their cars became an integral part of the motor sport industry for decades. Hence, it can be said that Jaguar Land Rover is only located in the premium segment.
Mercedes-Benz is also located in the premium segment, according to Stephen Zoeller [14]. Through market segmentation, Mercedes-Benz accomplishes to maintain its premium image while gaining younger customers. Smaller and "younger" models (CLA) are introduced, which do not compete with the high-class premium models like S-class.    In the Lexus brand guideline, it is stated: "Great brands live in people's hearts and minds we stand for more than premium luxury automobiles" [15].
The four key words of the company's brand guideline are (ibid):

4) Personality
One can notice that all of the three regarded brands are aiming at a premium segment, offering unique and high class cars with a great degree of personalization.

Comparison of performance metrics
Revenue growth: Concerning revenue growth, it can be said, that from the four observed car manufacturers Jaguar had the second largest revenue growth with 12.90% in 2015 right behind Mercedes-Benz (15.09%) ( Table 8).
EBIT: Regarding EBIT, Jaguar took the third place (8%) competing with the direct competitors behind Mercedes-Benz (13.20%) and Lexus (*due to no separate financial statement for Lexus Toyotas is regarded) (9%). Audi took the last place with 5.3% in 2015. Market share: Measuring the market share Mercedes-Benz takes the first place with a world-wide market share of 2.59%, Audi the second place with 2.49%, Lexus the third place with a market share of 0.90% and JLR the last place with a market share of 0.64%. Therefore, JLR is the smallest of the observed competitors in this sample.

Return on equity:
Market share growth: Mercedes-Benz had the highest market share growth in 2015 with 13.40%, Lexus had a market share growth in 2015 of 12%. JLR took the third place with an increase of global market share by 6.7%. The last place took Audi with a global market share growth of 3.6% in 2015.

Balance Scorecard Sketch
Balance Scorecard Sketch shown in Figure 7.

Conclusion
Starting with a rough stance of Jaguar Land Rover in 2008, when it was taken over through Tata Motors Ltd. today one can claim, that JLR is one of the most profitable car manufacturers in the world, offering a bunch of new products and innovation. Through the takeover Jaguar Land Rover has not lost its shimmering lustre of the past, even more it gained prestige in the last years under the regency of Tata, along with German CEO Ralph Spaeth. Cost analysis shows overall increasing cost, which goes along with massive investments and results in the growth process and significantly rising sales. The budgeting process has been changed for the good through an integrated approach with the help of PWC, the firm's performance analysis shows excellent results. Capital investments are high and resulting in the aspired enormous growth, on the other side JLR accomplishes to regularly create positive free cash flows, even with the massive capital spending. The capital project 2020 is ambitious, but manageable, regarding JLR's huge success implementing new strategies. Compared with the competition in the premium segment JLR is very well off, selling more and more cars and generating huge revenues. Still the company lives up to the responsibility to be a good employer and invests enormous amounts in R & D, as well as facilities. I can just conclude that Jaguar became one of the most profitable and fastest growing premium carmaker in the world, creating excellent cars with a high prestige, perpetually supporting innovation and social responsibility. All indicators suggest that there could have not been a better opportunity for Jaguar Land Rover than being taken over by Tata Motors in 2008.