It’s not easy being an automotive executive these days, but spare a thought for one in particular.
While life for Auto-industry bosses everywhere is, to put it mildly, challenging, the situation facing Jaguar Land Rover CEO, Dr. Ralph Speth appears to be steadily worsening. According to a recent Financial Times report, JLR will announce up to 5,000 job cuts across the UK business in the new year as the carmaker implements a three-year ‘Project Charge’ restructure – a drive to slash costs and retool the business for a rapidly deteriorating commercial landscape.
Faced with mounting costs, paralysing uncertainty owing to the ongoing Brexit omnishambles, weak demand for diesel-engined vehicles across Europe and the adverse effects of worsening trade tensions between China and the US, JLR find themselves, even by motor industry standards, in a fairly iniquitous set of circumstances.
Earlier this year, Speth stated that he expected the business to break even in the financial year to April 2019, a reversal from earlier predictions of profitability. At an October investor presentation, he proposed that JLR would seek ‘quick-win’ non-product-related savings and divestments, in addition to savings in purchasing and logistics. Additionally, production at Castle Bromwich and Solihull plants were scaled back, agency staff were cut, while production of the Discovery model was relocated to the newly inaugurated JLR facility in Slovakia.
It’s difficult to see how all this could possibly have come at a worse time for the JLR board. US sales are down, with the exception of models like Land Rover’s Discovery and Range Rover Velar. The previously strong-selling Evoque is in the process of being run-out in anticipation of a new-generation model to go on sale in the spring. Similarly, European sales have been adversely affected by the backlash against diesel, and changes to EU emissions regulations (both of which have affected the entire industry).
Meanwhile, with revenues falling like ninepins, investment in new product must continue apace, with Speth outlining to investors that JLR plans to introduce a hybrid or electric version of every model they currently produce by 2020. Furthermore, in addition to the recently announced Jaguar I-Pace (deliveries of which rumoured to have been delayed owing to hardware issues) and Range Rover Evoque II, Land Rover is likely to introduce the new Defender SUV towards the latter part of 2019. And while the latter model is unlikely to add a great deal to JLR’s volume, it will be of massive reputational significance.
As an almost entirely UK-based auto business, the spectre of the UK leaving the EU on WTO terms this coming March represents a greater existential threat than it might to any rival carmaker. Even in the best-case scenario, the likely hit should the UK exit without a deal or a viable transition period are potentially catastrophic.
Earlier this year, amid much dismissive posturing from leave-supporting MPs, Speth publicly warned the government of the threat to jobs and investment should they fail to agree an exit deal, but with parliament now turned inward upon itself, few appear to be listening. Either way, should the FT be correct in their reporting, those 5,000 lost jobs will not be coming back to the Midlands.
As the headwinds mount, the financial community are now turning fire, with Automotive News reporting yesterday that S&P Global Ratings have further downgraded parent, Tata Motors’ long-term rating – its second such in five months. JLR’s Euro-denominated bonds too have fallen in value.
But not content with pulling the rug from under Dr. Speth’s feet, analysts, Evercore ISI have also been teaching him, in common parlance, how to suck eggs, stating in a note to investors this week, “The company needs to consider whether it’s spreading itself too wide and whether competing with the Germans in the tough premium sedan segment is a viable strategy,” citing higher research and development spending relative to sales and lower economies of scale, relative to rival carmakers.
There is of course more than a grain of truth in this, given that Dr. Speth and his board have made several questionable investment and product decisions, many of which have impacted in a negative manner upon JLR’s bottom line, to say nothing of Speth’s reputation for sound judgement.
However, one thing Evercore’s statement does suggest is that the investor community may have run out of patience with the oft-promised, but seemingly distant as ever brand-Jaguar recovery. However, given that in 2014 rival investor-analysts, IHS Automotive predicted the commercial success of Jaguar’s XE model, one does have to question the usefulness of these self-appointed soothsayers.
JLR needs to cut costs, reduce capital expenditure and turn around its China fortunes, and it needs to execute all of this in perhaps the most unprecedented set of commercial and political circumstances in recent memory. To do so will require enormous skill, the commitment of the entire JLR workforce and a sizeable dollop of political good fortune – none of which are givens. Dr. Speth has up to now been viewed as a highly competent manager, but his sternest test awaits. Much hinges on whether he can pull it off, but the task is, to put it mildly, an unenviable one.