Is PSA about to buy Jaguar Land Rover?

IT’S NO great secret that Jaguar Land Rover has been struggling of late.

Since recording a $4.8bn profit in 2015, a combination of a slump in Chinese demand, market rejection of diesel models and uncertainty over Brexit has seen it record some spectacular losses.

In February, the company announced losses of $6.3bn for the third quarter of 2018. Parent company Tata’s patience, and financial largesse, will only stretch so far and a potential suitor is said to be circling – PSA Groupe.

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The manufacturer of Peugeot, Citroen, Vauxhall and Opel and, by extension, supplier to Holden of cars like the Commodore and Astra, is said to be about to make an offer for JLR.

“Post-integration documents” circulating amongst management of the two businesses have been leaked, according to industry sources. These identify cost-saving benefits of integrating certain functions and PSA has form here.

The French company’s CEO, Carlos Tavares, spent years as Carlos ‘Le Cost Killer’ Ghosn’s right-hand man during the financial rehabilitation of Renault. This year PSA-owned Opel–Vauxhall recorded its first annual profits in two decades after swingeing cost cuts that included major job losses.

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Unions on Thursday questioned what impact a deal could have on JLR’s staff, who are already being subjected to 4500 redundancies as part of a $4.65bn plan to reverse losses.

The two manufacturers adopted divergent stances on the news of the prospective purchase. Tata stonewalled in an issued statement. “As a matter of policy, we do not comment on media speculation. But we can confirm there is no truth to these rumours.”

PSA didn’t bat the rumours away entirely. A spokeswoman for PSA Group said the company was “open to all opportunities that would create value on a long-term basis”, but also noted that there was “no hurry” for PSA to make such a significant purchase.

Tavares has made it clear in the recent past that he considers JLR an attractive target, but didn’t want a deal to prove a “distraction”. In an interview with Autocar India in April, he reiterated the belief that there was a natural complementarity between the two companies. There’s space for at least one premium brand sitting above DS in the PSA portfolio and the company was “considering all opportunities”. Indeed, the purchase of JLR would also give PSA a ready-made toehold into the North American market.

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In order to understand the relative financial muscle of the two companies, consider that last year, JLR’s revenues stood at $45.8bn against PSA Groupe’s massive $119bn figure. In the last quarter of 2018 JLR shifted 144,600 units versus 995,100 by PSA.

Jaguar Land Rover is far from the financial basket case that Opel appeared when PSA handed General Motors $3.5bn in 2017. Its brands are well respected, it has invested significantly in future technology and it has been the first mainstream car manufacturer to seriously take the fight to Tesla in the premium EV sphere with its World Car of the Year-winning Jaguar I-Pace crossover. If PSA can make Opel work, it can certainly bring the best out of JLR.

Dr Charles Tennant, former Land Rover chief engineer, and who also served as also a director of Tata Motors’ European Technical Centre, see the purchase as “inevitable”. In an interview with the CoventryLive, Tennant was certain that the sale would go ahead.

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“This comes as no surprise at all and we should not take any notice of either Tata Motors or Jaguar Land Rover denials at all. They are obliged to deny it until the ink is dry on the contract,” he said.

“I advised Lord Bhattacharyya - who until his sad passing was himself advising Ratan Tata on Jaguar Land Rover strategy - last year that Jaguar Land Rover was in a death spiral of its own making, and that Tata would need to fund massive losses and investment now or sell up.

“Well the falling sales and losses at Jaguar Land Rover have just escalated since then and Tata have been very quiet whilst considering what best to do for them. Clearly Tata have looked at what the £2.5 billion cost savings plan will deliver in the context of future sales and profit forecasts, and perhaps they can see a cliff edge ahead,” he said.

“It is now inevitable that Jaguar Land Rover will be sold off, and I think Peugeot could be a very cohesive new owner. They have the need and cash to do it.”