Monday, October 9, 2017

The Fountain of Youth, New Coke, and Jaguar-Land Rover's Ludicrous Quest



Alexander Carabitses

The vehicle that you see before you is the face-lifted, 2019 Land Rover-Range Rover Sport.  It features some design and powertrain tweaks, with the biggest piece of news pertaining to the latter being the addition of a plug-in hybrid powertrain. As always, the Range Rover Sport is a more athletic version of a proud British icon that Jeremy Clarkson once perfectly described as being, "The best of the best."  The vehicle's ability to project a confident stature that can only come from a British car is a trait that I admire about Jaguar and Land Rover's products and one of two reasons why I've never outright criticized the brand for its business moves.  The second reason is, simply put, they haven't done anything stupid, even if selling Jaguar crossovers that could potentially take Land Rover's market share and customers was an initial risk.
(Image credited to Land Rover Jaguar)

Now, that all changes as the company has announced a questionable business move that I cannot see ending well.  It was reported by Bloomberg that JLR is looking to acquire more assets that will benefit its portfolio, including technology companies (presumably automotive based) and more automakers.  This makes sense, as acquiring the know-how necessary to engineer autonomous cars and expand the company's market share is a great idea.  However, the company specifically expressed interest in buying another luxury automaker that will "Fit with its current portfolio." A few days before this report came out, Autoline Detroit mentioned that the prices of Jaguar's new performance-oriented models possibly serve the purpose of reaffirming that Jaguar is a luxury brand.  If that is even partially the case, I can only imagine the looks of horror that JLR's marketing officials had on their faces when they found out that upper management essentially implied that JLR, specifically Jaguar, isn't a luxury brand.
(Image credited to Jaguar)

Fortunately for these marketing people, I know that Jaguar is a full-fledged luxury automaker.  Unfortunately for upper management, this knowledge makes their plan completely ludicrous.  Why would the company want to create internal competition for itself?  Remember, JLR is not Volkswagen A.G., meaning that there can't be a separate group of product planners and board of directors for each brand.  Any luxury brand that JLR buys will have to be integrated into the much smaller company, which could potentially cause problems if the brands are pinned against one-another.  In the past, I've heard the following argument in support internal competition: "Well, either way, the parent company wins."  To that, I laugh because the parent company does not win when one brand is flourishing and the other one is struggling in the marketplace or when the internal morale within a company is at a low (because of poor integration). And a parent company is especially not happy when one investment turns into a financial failure.  This is why I question Renault-Nissan's purchase of Mitsubishi and PSA's purchase of Opel. Sure, market share increased in both instances, but what happens when a Nissan Rouge Sport goes head-to-head against a Mitsubishi Eclipse-Cross or when an Opel Insignia goes head-to-head against a Peugeot 508?  Some will also make the argument that Hyundai-Kia manages to compete for the same buyer without a problem.  While this is true, an executive at Hyundai-Kia once said that the two brands "hate" each other.

Internal competition most often does not work, because when a pre-existing brand is forced to share resources with a new sister brand that it has always competed with, us vs. them mentality prevails.  The pre-existing company feels like it is being forced to share information with a competitor or that it is being deprived of resources because of the addition of the new brand.  In the end, the brands try to outdo one-another, which most often leads to one brand outselling the other, which leads to a loss of morale for the brand that's being outsold, and the cycle continues.

JLR's former parent company, British Leyland, suffered from internal competition that bled throughout every aspect of the company for years until it mercifully met its demise.  In that instance, poor integration of a plethora of brands caused the problem. VW Group, which I mentioned earlier, basically follows the Alfred Sloan philosophy of "A car for every purse and for every purpose", as each brand targets a different clientele and price point.  However, Reuters recently reported that the Volkswagen brand wants to reduce Skoda's various profitability advantages in manufacturing and R&D.  This is to curb, what VW feels is internal competition.  What's worrying is that in this instance, the two brands are technically supposed to compete in two different segments of the market and are better integrated than the British Leyland brands ever were.  Imagine what will happen to a much smaller JLR, with or without good integration.  

Another thing that makes this announcement even more baffling is that there aren't any luxury brands for JLR to buy.  Alfa Romeo and Maserati are rumored to be for sale, but even if that's the case, why would JLR want to buy two brands that require a great deal of investment as they struggle to regain relevance in the marketplace? If one puts those two Italian brands aside, there isn't anything left.  In many ways, it would be more likely for JLR and parent company, TATA (who is most likely instigating all of this), to be bought up by a larger automaker.  I personally feel that, in the midst of Toyota and Mazda's new partnership, Jaguar-Land Rover missed an opportunity and should have at least considered purchasing Mazda a few years ago, as this would have broadened the company's market share on a global scale.  Plus, despite being a useful mainstream brand, Mazda's cars have a premium feeling to them and are great to drive; both of these characteristics would tie in well with JLR's portfolio.

Then again, JLR recently announced that it would launch a new family of vehicles called Road Rovers, which sound like they could be a family of Volvo S60 Cross Country type vehicles or a return of the once beloved Rover brand.  Either one sounds odd and random, but if they are marketed as mainstream or, at the most, near-luxury vehicles, it could work.  However, we don't know if it will work until we see what they've come up with, in 2020. 
(Image credited to Volvo)
(Image credited to Rover)

Jaguar-Land Rover is a great company and their products are some of the world's finest.  However, the company's new quest to buy a luxury brand makes about as much sense and will probably be as successful as New Coke from a business standpoint; finding a luxury automaker to buy in the first place will be the equivalent of Ponce de Leon's quest for the fountain of youth. Hopefully, the company realizes this sooner, rather than later.

Thank you for reading and have a good week. 

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