The Jaguar Land Rover Debacle
Jaguar Land Rover (JLR) produces some of the most exquisite and high-end luxury vehicles in the world. The company is famous for producing vehicles which can handle off-road driving while simultaneously making a style statement when driven within the city.
The problem is that all of a sudden Jaguar Land Rover (JLR) finds itself in the middle of a cash crunch. If many analysts are to be believed, the cash flow situation is so bad that the company may not even make it to the next year!
In this article, we will have a closer look at the grim financial situation facing Jaguar Land Rover (JLR) as well as the reasons that have taken the company to these devastating lows.
The Fall of Jaguar Land Rover (JLR)
Jaguar Land Rover (JLR) has been posting quarterly losses for over a year now! This time the loss posted was close to $350 million. However, this massive loss is not really the reason for the tense atmosphere at Jaguar Land Rover (JLR).
The real reason is the gigantic $3.1 billion impairment that the company had to take upon its assets. This impairment is so significant that it has almost wiped out the existence of the company even though this is a notional loss and has no effect on the cash flow.
More than 50% of the $3.1 billion in write-downs represents tangible assets. These are factories and machines that the company expected to use in order to produce more vehicles. However, it seems like a lot of this equipment has become outdated due to rapid advances in technology. Also, given the weak demand in China which is the company’s biggest market, Jaguar Land Rover (JLR) does not need to produce as many vehicles in the first place.
The research and development expenses at the company have also gone horribly wrong. The other 50% of the $3.1 billion markdowns is from the intangible assets which were created by amortizing the expenses of the research and development department.
The problem with these write-downs is that none of them happened overnight. It appears as though insiders in the company were well aware of what is going on. They have just chosen to reveal it to the general public at a very opportune time. Also, many investors have questioned why Jaguar Land Rover (JLR) has continued to pay hefty dividends to its parent company, i.e. Tata Motors, even though a cash crunch was on the horizon.
This is the reason that the investors' trust has also been lost which serves as a double whammy. Investors want to get away from Jaguar Land Rover (JLR) as fast as they can. It is, therefore, no surprise that the shares of Tata Motors fell by 18% following the impairment announcement. The company has lost over 60% of its value in the past year as investors are trying to flee a sinking ship!
Reasons for the Downfall
There are several analysts who believe that Jaguar Land Rover (JLR) was doomed to fail a long time ago. It is only because the Tata group, the Indian conglomerate, took it over that the company has been able to survive for so long. This fact was also admitted by the management of the Jaguar Land Rover (JLR) Company. It seems like Ford Motors exited the company at an opportune time whereas Tata Motors now has to clean up the mess.
Some of the reasons behind the fall of Jaguar Land Rover (JLR) are as follows:
To sum it up, Jaguar Land Rover (JLR) seems to be having more financial troubles than it can handle. It would be a miracle if the company was able to survive in the long run.
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