“During a crisis, cash is king since getting money from banks during these times is nearly impossible. This makes it even more challenging to balance things out in the right way.” – Dr Ralf Speth, Chief Executive Officer of JLR.
Jaguar Land Rover will invest aggressively in new products and technology over the next 3-5 years even as the slowdown in Europe continues to be a matter of concern. Tata Motors bought out these two British from Ford Motor Company for $2.3 billion in 2008. Today, they are among the largest revenue generators to the Indian automaker.
Dr Ralf Speth, Chief Executive Officer of JLR, told Business Line that it was not the easiest of decisions to invest in a downturn as any company would have to leverage wisely between growth and liquidity.
“During a crisis, cash is king since getting money from banks during these times is nearly impossible. This makes it even more challenging to balance things out in the right way,” he said.
Some companies opt for the safe route of cash conservation in difficult times while others try and find a way in between marginal investments while steering clear of product creation.
“The third route involves saving wisely while not interfering with the (product) development process. When the crisis is over, the company concerned emerges a lot stronger with new products. I personally am in favour of this option though it finally depends on how long the slowdown lasts if we have to maintain the R&D momentum,” Dr Speth said.
From his point of view, it is imperative for JLR to be flexible and save in every way possible while giving top priority to product development. “This is what the market will demand when the slowdown is over. We should be financially cautious but still push forward with new products. The world has seen a lot of crises and we need to be constantly optimistic,” Dr Speth said.
This, however, does not take away the fact that the recent events in Europe are a huge cause for concern to carmakers especially when nobody has a clue on what lies ahead.
“I am very worried about 2012 and what is even more disconcerting is the unpredictable scenario. Just when we thought the worst was over post-Lehman, we are now up against this crisis,” he said.
US, emerging markets
The silver lining in the cloud is that the US is beginning to show some signs of recovery though Japan could still stay relatively flat in 2012. Eventually, JLR is pinning its hopes on emerging markets like India, China, South America and Russia with products like the Range Rover Evoque, Sport, Discovery and XJ.
China, in particular, has been the best piece of news in 2011 with sales of over 42,000 units which accounts for nearly 16 per cent of the company's global volumes of 2.45 lakh vehicles. In contrast, sales from its traditionally reliable markets like the UK, North America and Europe fell to sub-20 per cent levels. This could just get worse if the slowdown continues through 2012.
Upbeat on India
Dr Speth was as upbeat about JLR's prospects in India, a market where its owner, Tata Motors, is one of the oldest auto brands. “We think India has the potential to grow like China in the coming years. The team has done a great job in developing the overall base and I am very satisfied,” he said.
There are concerns that the India story could be derailed during 2012-13 thanks to the Europe crisis. However, global carmakers do not share this pessimistic outlook especially when the rest of the world is in a semi-paralytic state.
“If India has a problem with 7.9 per cent GDP growth, I think seven per cent would be fantastic in Europe though it may not be achieved in the next ten years. Obviously, there is a different perception of what a crisis means as emerging markets will eventually offset negative growth in one or more industrial nations,” Dr Speth said.