Ford Tries Reining In Land Rover

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With the launch of the new LR3, the British SUV maker Land Rover enters a critical stage that will likely determine its long-term viability.

That, in turn, will have a strong impact on the turnaround plans of Ford Motor Co., which purchased the British marque from BMW AG in March 2000 for $2.9 billion. Cutbacks in Land Rover’s long-term sales goals could pose a challenge for Ford, which has been counting on its upscale European brands — collectively known as the Premier Automotive Group, or PAG — to provide a third of its global profits.

Workers at a key Land Rover plant could help meet that goal as they ready a plan to scale back production costs, with a proposal due in management’s hands in a matter of days.

Center of gravity

The British maker’s first product developed entirely under Ford’s ownership, the new LR3 “is the center of gravity for our brand,” said Sally Eastwood, Land Rover’s North American Marketing Director, during a recent preview of the new SUV.

The replacement for the aging Discovery model — the Disco name will continue to be used outside the U.S. — the LR3 has some tough challenges ahead. It’s entering an increasingly crowded segment that is starting to feel the impact of rising petroleum prices. That’s forcing automakers to increase incentives, trim production, and pinch margins.

At the same time, the weak American dollar has forced Land Rover to launch the new SUV at a base price of $44,995, compared to what insiders acknowledge was an earlier goal of coming in just below $40,000.

While Ford brought what Eastwood called “barrels of cash,” and the sort of engineering resources desperately needed to develop the new LR3, Land Rover officials admit their American parent is now talking payback.

In the wake of PAG’s second-quarter $362 million loss, nowhere is that more apparent than at the brand’s assembly plant, Solihull. As first reported in July, PAG chief Mark Fields has given workers and management alike a mandate to slash production costs. An initial proposal was not deemed sufficient and an alternative is due within a matter of days. Job cuts are a distinct possibility, and Fields told TCC that he would consider moving production, if necessary.

Of course, the picture will be markedly brighter if the new SUV delivers anticipated sales, and Land Rover Managing Director Matthew Taylor has forecast the LR3 will yield a 30-percent increase over the old Discovery.

The biggest challenge, Taylor admitted, is gaining traction in the U.S., the world’s largest SUV market. “If we can’t cut it in your market, we’re not going to be a successful business.”

The struggle to survive

Even before Ford acquired the company, Land Rover was struggling to transform itself from a low-volume niche brand to something more mainstream. It has been slowly growing a network of Land Rover Centers, dealerships equipped with off-road test tracks to give potential customers a feel for the capability of products like the LR3.

Yet that rugged image has been offset by Land Rover’s position in the quality cellar, according to studies such as the oft-quoted J.D. Power Initial Quality Survey. Eastwood found some silver in the report’s dark clouds, noting that though Land Rover remained near the bottom, it did post the second-biggest improvement of any company in 2004. And she insisted the LR3 will further lift the brand’s score when the 2005 Power report is released next year.

There’s little question that without a big improvement in quality, Land Rover sales will lag expectations — even with the addition of the LR3 and another new model in the pipeline, which is expected to be dubbed the Land Stormer.

Ford acquired the British marque at the peak of what has been dubbed merger mania. Since then, Land Rover’s strategy has been significantly revised. “The ambition,” acknowledged Taylor, “is no longer to double sales in five years.”

That would have required the brand to stretch itself too far, Land Rover officials insisted. At one point, Ford was pressing the subsidiary to use its Explorer as the starting point for the new LR3, though in the end, both sides agreed on the need to stick with a unique platform.

With the realities of the market, including the issue of exchange rates, a more modest sales goal of 170,000 vehicles a year is still possible, said Taylor, “and in our wildest dreams, we might get up to 250,000.”

But in the immediate future, Land Rover needs to get the LR3 off to a good launch. It needs to hold down production costs and ensure it hits ambitious quality targets. With concessions from the factory floor, the automaker hopes it will at least live up to Ford’s scaled-down aspirations.

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