Jaguar Land Rover profits down on slowing demand in China
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Profit fell 33 percent to 302 million pounds (US$465-million) in the three months ended March, the biggest decline since the quarter ended March 2013. That contributed to a worse-than-estimated drop in earnings at its parent, India’s Tata Motors, which also faced a prolonged slump in demand for commercial vehicles in its home market. Shares of Tata Motors declined.
The result underscores the reliance of global automakers on China to drive profit growth and the extent of the slowdown in luxury demand after the government’s campaign to stamp out graft and extravagance. Jaguar Land Rover said the introduction of new models, and conditions in China and Russia, may lead to lower margins this year.
“We see a certain slowdown in the market and we read that many competitors are going to reduce prices,” Ralf Speth, chief executive of Jaguar Land Rover, said on a call with investors. “I can assure you that we will not be the very first ones to reduce prices because we’re convinced we bring color to the Chinese market.”
Jaguar Land Rover’s retail sales volume declined in the quarter, with deliveries in China falling 20 per cent. The company is seeing a changing Chinese market with more pricing pressure in more segments than in the past, Jaguar Land Rover chief financial officer Kenneth Gregor said on a separate call.
China’s slowing economy has prompted BMW to cut production and prices in the country. Intense competition is putting pressure on prices, and the automaker doesn’t expect this trend to be reversed in the short term, Friedrich Eichiner, chief financial officer of BMW, said on May 6.
“We see a certain slowdown in the market and we read that many competitors are going to reduce prices,”
General Motors cut its prices in China after reporting a decline in deliveries there last month, joining Volkswagen in stepping up discounts. Foreign automakers have also come under increasing pressure from local brands that are gaining market share by offering cheaper sport-utility vehicles.
Besides discounts, foreign automakers are offering incentives such as subsidized insurance, zero down payment, interest-free financing and higher trade-in prices, according to Sanford C. Bernstein.
Passenger-vehicle sales rose at the slowest pace in five months in April, with most of the expansion coming from local brands. Vehicle sales in China this year may rise by less than the 7 per cent projected in January, the China Association of Automobile Manufacturers said last month.
Jaguar has said it plans to unveil 12 new products, including upgrades and variants, this year. A new version of its XF sedan will be introduced in 2015 and the F- PACE crossover in 2016, Speth said yesterday.
“Jaguar Land Rover is more dependent on China than any other original equipment manufacturer, thanks to extraordinarily high pricing,” Max Warburton, an analyst at Sanford C. Bernstein in Singapore who rates the Tata Motors stock the equivalent of a hold, wrote in a note to clients today. “Slowing premium growth, deteriorating pricing, and falling dealer profitability in China are all issues.”
Questions & Answers
Q.What specifically caused Jaguar Land Rover's profit decline?
What specifically caused Jaguar Land Rover's profit decline?
Profit fell by 33 percent due to a slowdown in Chinese auto demand and a 20 percent drop in retail deliveries in China. This contributed to a larger earnings fall for its parent company, Tata Motors.
Q.How does Jaguar Land Rover plan to address the challenges in the Chinese market?
How does Jaguar Land Rover plan to address the challenges in the Chinese market?
Jaguar Land Rover's chief executive stated they will not be the first to reduce prices. The company plans to unveil 12 new products this year, including upgrades and variants, with a new XF sedan in 2015 and an F-PACE crossover in 2016.
Q.Are other automakers also experiencing difficulties in China?
Are other automakers also experiencing difficulties in China?
Yes, BMW has cut production and prices, and General Motors and Volkswagen have increased discounts. Foreign automakers face pressure from local brands and are offering various incentives, such as subsidized insurance and interest-free financing.
Q.Why is Jaguar Land Rover particularly vulnerable to the Chinese market slowdown?
Why is Jaguar Land Rover particularly vulnerable to the Chinese market slowdown?
An analyst noted that Jaguar Land Rover is more dependent on China than other original equipment manufacturers due to its exceptionally high pricing. Slowing premium growth, deteriorating pricing, and falling dealer profitability are key concerns.
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