Reliance On Ford-Peugeot Engines Cost Sales In Recent Upturn
Jaguar Land Rover’s decision to build a €400 million engine plant in Britain will allow it more flexibility in its engine production, a lack of which led to the company missing out on sales generated by the bounce back in sales in 2010, according to Moody’s Investors Service.
In a report, Moody’s, the U.S. bond rating agency, said JLR’s previous owner Ford supplies most petrol engines and a joint Ford-Peugeot venture makes its diesels, in deals expiring in 2020.
“In 2010, limited engine availability constrained JLR’s volumes at a time when sales were bouncing back from the 2008-2009 lows. The decision to build engines in-house in the U.K. will bring the required efficiencies and cost savings to the company, and reduce its reliance on a third-party vendor,” said Moody’s.
Moody’s said JLR has started assembling the Land Rover Freelander in India and is looking to source more parts and components from emerging markets, with the ultimate target of sourcing 30 per cent of components from such locations.
Counter intuitive
“This strategy offers lower labour costs, savings on import duties and a natural hedge against vehicle sales in those countries. At first sight, a plant in the U.K would run counter to this trend. However, the British pound has weakened versus currencies in JLR’s fast growing markets,” Moody’s said.
One of the new engine’s, expected to be half the size of the around four litre motors JLR uses, would be suitable for parent company Tata Motor’s future models too.
Meanwhile Deutsche Bank, in a report on Tata, said China sales are crucial to JLR because gross margins there are three times the company average elsewhere.
Neil Winton – October 5, 2011
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