Trade tensions and a slow Chinese car market are not the cause.
Here are the facts. Jaguar Land Rover is currently seeking $1 billion in emergency funding to help it cope with a $4 billion write-down. That funding needs to be in place within 14 months, which isn’t much time. JLR lost a total of $354 million in the final business quarter of 2018, leading to the cancellation of the Range Rover SV Coupe and Land Rover Discovery SVX. About 10 percent of its workforce, some 4,500 jobs, has also been cut.
The Tata-owned, UK-based automaker previously blamed its financial woes mainly on "challenging market conditions in China,” such as reduced sales and the country’s trade dispute with the US. Brexit is also a factor. Turns out, however, that’s not the whole story.
Automotive News Europe has uncovered what could turn out to be the real problem: quality control issues.
Back in 2014, JLR began production at a joint venture with China’s Chery Automotive at a facility in eastern China. From 2015 to 2017, five JLR vehicles – the Land Rover Evoque and Discovery, and Jaguar XFL, XEL, and E-Pace – were assembled there for the Chinese market. Local production was very convenient for JLR because it allowed for necessary vehicle modifications for the Chinese market. JLR was also able to avoid paying a 25 percent tariff. Sales surged in China and things were looking good. Or so it seemed.
Product quality was never properly addressed and customers began reporting a number of defects. In 2017, JLR issued 13 recalls for China alone. All involved engine, instrument panel, airbags, and battery defects.
A total of 106,000 vehicles were recalled, equivalent to over 70 percent of its 2017 sales. Again, all vehicles were built in China, so the argument JLR tried to make blaming US-China trade tensions doesn’t hold up. Furthermore, Audi, BMW, Mercedes-Benz, Volvo, Lexus, and even Cadillac posted solid sales growth in China last year.
To summarize, JLR’s reputation in China has taken a major hit because of ongoing quality issues that have yet to be resolved. The market is there for high-end luxury cars and SUVs, but Chinese buyers are not stupid. They won’t buy a specific brand because of, say, heritage, only. Consumers, no matter where they live, want a quality product and JLR China failed to deliver. It’s now paying the price.