All car manufacturers are addicted to volume, chasing increased market share through differentiation, believing increased total volume is the best strategy for success. New product niches are continually identified or imagined and the proliferation of new brands, models and variants and the rate at which these are replaced has become an epidemic. But because sales in the largest, established markets are more or less static and new models are produced specifically for developing markets, volumes per variant and economies of scale are decreasing whilst complexity is increasing. Meanwhile the market and legislation places ever-increasing demands on quality, safety, economy, emissions, specification and value. So price pressure is cascaded throughout the entire supply chain and we have seen extensive use of Chapter 11 and restructuring in the first tier suppliers. Common powertrain, platform and architecture strategies have not yet produced the savings necessary to offset the cost of new model proliferation and car manufacturers’ profits have been weakened.
More collaboration and consolidation (parts and plant sharing) will be necessary and manufacturers and first tier suppliers must co-operate to produce cars profitably in lower volumes at various global locations to access developing markets, reduce costs and the impact of currency exchange rates fluctuation.
Continued Ford support and revenues from the existing product range and the promising Jaguar XF should provide JLR’s new owners with a reasonably sustainable business in the short term. Cash generation for investment in new lightweight, lower emissions models will be the first priority. Avoidance of short term pain and consequences of restructuring will remain in the headlines but critically it will be the implementation of a long term winning strategy based on collaboration, consolidation and excellence in producing and selling new models in profitable volumes that will determine JLR’s long term success.
Tata (already collaborating with Fiat), Mahindra and Mahindra and Cerberus (private equity owners of Chrysler) are all established car manufacturers reported to be JLR bidders offering synergies of collaboration and consolidation that other private equity bidders would need to establish. Alternatively new private equity owners could focus JLR on fewer, higher value models with long life-cycles (like Porsche) but this would mean the subsequent sale or deletion of models, putting jobs at risk and damaging Ford’s position with the labour unions whose support it so badly needs right now, so this is unlikely. Perhaps Ford would also consider a potential turnaround of JLR by Cerberus assisting a strengthening of Chrysler in North America and Europe to be an intolerable and avoidable humiliation. Mahindra and Mahindra are reported to be only interested in Land Rover and are working with private equity firm Apollo Management which would take on the Jaguar brand post deal. Again Ford would choose to avoid immediate separation of the JLR brands leaving Tata as favourites at this time.
So what does this mean for JLR’s UK supply chain in the long-run? Well, it depends on whether one sees opportunities or threats. Is your organization ambitious or passive? Collaboration could mean more competition from JLR’s new owner’s or partners’ suppliers and consolidation could mean more parts and plant sharing so there will be fewer unique parts and plants to be supplied. Does that paint a bleak picture for the future? Or will you use these external forces in your organization to inform your strategy and internal actions. The opportunity is to be a collaborator and consolidator, to be a key part of JLR’s future and to expand your horizons and penetration into JLR’s new owners’ and partners’ organizations. You have limited time to work-out your winning strategy, but it can be done. The real question is: Do you have the ambition?
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