Have US HealthcAre Costs Sunk Jaguar

There is no doubt that the US automakers are in trouble, GM, Ford and Chrysler are all giants struck low. Chrysler was recently sold to private equity partners Cerberus Capital Management and both GM and Ford have been struggling to reduce their cost base. The big weight around their necks are the historic costs of pensions and in particular, in the US, health insurance costs which have always been a major part of contact negotiations with the powerful United Autoworkers Union.

What changed the structure of the US auo industry was the arrival of the Japanese, first Honda then, Toyota and Nissan locating plants on green field sites far away from the historic centre of the industry in Detroit. With new employment practices, state of the art plant and workers from outside the traditional auto industry culture they where able to create an industry with a much lower cost base.

This year Toyota overtook GM as the world's largest auto makers and in the last financial year struggling to adjust to this new environment Ford lost £6.5billion. With sales falling across all its product range US commentators warn that this summers contract negotiations between Ford and the United Auto Workers could be brutal with the Union determined to defend the system of job banks which keeps idle workers on the payroll to maintain contracted US employment levels.

Ford synonymous as a mass market brand had pursued a strategy of trying to take the company up market in search of higher margins. This was partly achieved by buying 'up market brands' like Mercury and Lincoln in the US, Sweden's Volvo and Aston Martin, Jaguar and Land Rover in Britain.

Initially they sought to integrate these businesses into the Premium Automotive Group. The hopes that integration woulkd reduce costs whilst maintaining brand values have only been partly met. In the UK Land Rover has probably been the most successful in Ford ownership. BMW, the previous owners, had developed a new product development and introduction process at Land Rover. This resulted in the new Range Rover, The Range Rover Sport and the Discovery 3, which have all been well received by customers.

Aston Martin too has a good product range but it is always going to be a small prestige brand. Ford sold the marque to Prodrive and there is no reason the brand cannot continue to be a player in the very high value auto market allow at low volumes.

Jaguar is however in a much more difficult position. There was a great deal of heart searching when the firm left its historical home in Coventry. For many industry commentators however that plant closure was too little too late.

Jaguar seems to have managed to get both its product strategy and its production strategy wrong. The vehicle that was to be the flagship for the company was the X-Type the "baby jag" that was to take on BMW.

The car was a retro design looking back to the Mark 2 "Inspector Morse" style. The Morse program was very popular when the car was being designed. The Rover 75 launched very close to the X-Type also looked back to what was perceived to be the golden age of British car design in the 1950's and costs where cut by using Ford components under the bonnet sadly whilst a lot of people said they liked this style of the vehicle not in sufficient numbers to sustain either model and no one wants to pay extra for a Jaguar that looks like a Rover.

The X-Type never reached the 250,000 levels of production that may have justified having a production strategy that included a third plant at Halewood on Merseyside. Whilst Jaguar manged to increase production across the product range from 50,000 to 150,000 this was not enough to support three production sites. Halewood with its supply chain up and down the M6 may have been closer to the USA the main market for Jaguar than Castle Bromwich, in Birmingham, but not close enough.

The introduction of new product in Jaguar has been too slow and the production base too expensive. With the US as their main market a rising pound and sinking dollar means that the argument that Jaguar, like BMW, should produce cars in the US rather than Liverpool has never been stronger.

Jaguar and Land Rover are both iconic recognisable global brands but to compete globally they need the global volumes they need to be profitable - that means they need to be produced globally. At the very least in Asia, the US and in Europe.

The current owners have clearly run out of patience and cash. The new owners if they are to turn around these companies and retain the 50,000 jobs that are dependent on them will need both cash and patience but they will also need flair and ambition if these iconic brands are to become the world beaters they deserve to be.

At least however much we complain about the National Health Service UK healthcare costs will not be a mill stone around the necks of the new owners.