While we await events or at least someone to quack the story, we speculate upon the probabilities surrounding a possible PSA / JLR marriage.
There is a commonly quoted saying which states that if something looks like a duck, walks like a duck and quacks like a duck, there is a strong probability that it is in fact an amphibious biped. Apply this reasoning to the speculation currently swirling around Jaguar Land Rover’s Warwickshire headquarters, and to the untrained eye it does appear that its Gerry McGovern designed outdoor water feature must be teeming with waterfowl.
A number of years ago, while on a factory visit to a JLR plant, Ratan Tata, when asked by an employee how long the Tata founder envisaged retaining the JLR business, he allegedly replied unequivocally, “Forever!” Of course events can make the most fervent declarations moot, so we ought not blame Mr. Tata for making what may prove to have been a rash pronouncement – undoubtedly he meant it at the time.
Meanwhile however, the unconfirmed reports of a putative partial or full sell-off to Groupe PSA continue to waddle and quack like a pond full of Mallard. Officially, all we have had are denials; from Tata, who have restated their commitment to the JLR business, from PSA’s Carlos Tavares, who has expressed vague interest, but little more and from JLR’s Ralph Speth, who states that he has met with Tavares, but didn’t discuss ownership.
But to return to the duck pond, we know that JLR’s recent commercial woes (in particular its China Crisis) taken in conjunction with a parent with troubles of its own (not least a set of restive shareholders), probably means that there is truth in the rumours, insofar as talks taking place. What they will result in however, is another matter entirely. But assuming Tata do wish to offload, what could a merger or takeover by PSA mean for either party?
On the face of things there doesn’t appear to be all that much in it for PSA, given that they operate in a very different sector of the market, meaning that there would be little parts commonality in terms of powertrains or platforms which could be employed to share costs. Furthermore, a merger would further expose the PSA business to a UK which remains poised on a knife-edge over a chaotic and damaging exit from the EU, with all that could imply.
Further still, in addition to the headache of managing (or shutting) Vauxhall’s underutilised UK plants, PSA would also find themselves post-takeover having to take painful and expensive decisions on those of JLR, several of which are operating well short of capacity, owing to lack of demand for the vehicles built there. Of course, similar arguments were propounded prior to PSA acquiring the GME businesses in 2017, so it’s possible that Mr. Tavares sees possibilities others have missed.
However, what JLR does offer PSA is a pre-existing and experienced distribution, dealer and parts network across the United States, a market which Tavares has vowed to enter with the Peugeot brand in a couple of year’s time. Furthermore, JLR, assuming it can be returned to financial health, could prove a valuable profit centre in a sector of the global market where PSA needs to enter in order to remain a viable player.
Another aspect is the potential for the DS Auto brand. Currently saddled with underwhelming mass-market architectures and powertains, its fortunes could potentially be enhanced (along with its credibility) by an engineering tie-up with JLR.
Meanwhile in Warwickshire, there seems to be little cause for optimism. With scant new product to bolster a dispiriting 2018, Jaguar Land Rover’s fortunes are unlikely to take a significant upward trajectory during 2019. In addition, the carmaker’s restructuring plans are not as yet paying dividends, meaning the business remains vulnerable to further headwinds. What is evident is that CEO, Dr. Ralph Speth, while obviously in possession of considerable qualities, has presided over what can only now be termed as a failed growth strategy.
Certainly, should a merger/takeover with PSA take place, his position is likely to be under threat. But what could Tavares bring, aside from financial nous and a (arguably) larger safety net? What is clear is that any PSA takeover would see a similar stringent cost drive take place to the one lately enacted at Opel/Vauxhall.
What this could mean in terms of jobs and/ or factory closures is obviously a matter of speculation, but it would certainly be likely to entail a curtailment of unprofitable model lines – bad news for brand Jaguar, given their current commercial situation. But while Jaguar remains a car brand with significant potential, the current JLR management have failed to execute it in anything like a convincing manner. It’s been said that Carlos Tavares is a product-led CEO, which suggests he would be unlikely to simply slash and burn. However, while it has been clear for some considerable time that the limping cat requires vision, so too does the Land Rover side of the coin.
For whoever gains control of JLR, (notwithstanding Tata retaining some or all of the business), there is considerable work to be done to ‘future-proof’ the carmaker, with perhaps the biggest and most urgent being that of perceived quality. JLR currently languish close to the bottom of most reliability surveys and whether or not this is an accurate reading of affairs, it’s clear that this is a perception which has become stubbornly embedded. There also remains perplexing issues around product overlap, which suggests a lack of clear-sighted product strategy.
Of course, none of this may come to pass. Ratan Tata may decide to hold to his promise and retain the JLR business. However, the current dripfeed of speculation and insider leakage suggests a similar situation to the one some twelve years ago when Ford, despite repeated denials were in fact negotiating with Tata over the sale of the JLR business. And one thing we know all too well when it comes to Jaguar at least, is that history has an awkward habit of repeating.
So at the risk of further labouring the waterfowl analogy, all of the reasoned signs appear to point towards the abductive.