SHAKING UP JAGUAR Since Ford bought the company, the cars with the flowing lines no longer face extinction. Quality has improved, but it still has a long way to go.
By Alex Taylor III REPORTER ASSOCIATE Wilton Woods

(FORTUNE Magazine) – LIKE ANY CAT, Jaguar has had more than one life. After nearly expiring in the early 1980s, the British luxury car maker clawed its way back with a much heralded turnaround. In 1989, Ford Motor bought the company for $2.5 billion -- then had to put in another $700 million to keep it running. Last year Jaguar lost $400 million -- nearly $18,000 on every car it sold. Because of Ford, Jaguar no longer faces extinction. But will it ever catch up with its global competitors? And will it ever pay back Ford's investment? Definitive answers are several years off. A weak worldwide market for luxury cars ensures that Jaguar won't make a profit until 1995 at the earliest. Jaguar's story has two lessons for managers. First, never confuse prestige with profits. Second, turnarounds are like home renovations: They often take twice as long and cost twice as much as you figured. For all that, Jaguar has achieved substantial efficiencies in manufacturing and product development. Over the next five years, it plans to introduce three new cars along with its first-ever V-8 engine. Sales are running about 18% ahead of last year, and in the U.S. (which accounts for 40% of total sales), Jaguar managed to sell more than twice as many cars in July as it did in July 1992. There has been one major embarrassment -- the fast-fading appeal of its XJ220 supercar. Before starting assembly in 1989 of the hulking 217-miles-an- hour speedster, which has an astronomical sticker price of $600,000, Jaguar took $75,000 deposits from 350 buyers for the car. (It was not available in the U.S.) Now that the market for such exotic racers has collapsed, some of them want their money back. Jaguar, which has produced 150 XJ220s, has threatened to sue about 80 of its reluctant customers. Founded in 1922 as a manufacturer of motorcycle sidecars, Jaguar enjoys an image that dwarfs its achievements. The brand is as recognizable on Tokyo's Ginza as it is on Manhattan's Fifth Avenue, and the cars themselves are widely admired for graceful lines, silky engines, and supple ride. But Jaguar remains a midget compared with other luxury car makers. It sold only 22,478 worldwide in 1992. While that's 15 times as many as Rolls-Royce (see box), it's only a tenth as many as Cadillac and one-twentieth the volume of Mercedes-Benz. Ford has moved cautiously -- perhaps too cautiously -- in overhauling Jaguar. Big auto companies have a history of destroying the identity of boutique manufacturers by introducing common parts and corporate designs. With its huge investment at stake, Ford is particularly fearful of diluting Jaguar's bloodlines. Says Alex Trotman, head of Ford's worldwide auto operations: ''We want to be very careful to preserve the unique identity of Jaguar, so we tread very carefully in using our manufacturing expertise and so forth.'' One looks in vain for any traces of Ford's blue oval around Jaguar's plant in Coventry, or even for a large number of European Fords in the parking lot. The population of Ford executives is thicker: Three of Jaguar's top eight managers came from Ford, including the heads of operations and engineering, and Jaguar's chairman, Nick Scheele (pronounced SHAY-la), 49, is the engaging former boss of Ford Mexico. Scheele hosts Ford's top U.S. brass in Britain three times a year and also goes to Detroit every two months or so. To get Jaguar healthy, Ford has first had to raise the quality of its two primary models to the level of competitors. While jokes of yesteryear (''Jaguar owners need two cars: one to drive and one for spare parts'') no longer apply, Jaguar still finishes miles behind the others. In its 1993 survey of new-car quality, J.D. Power & Associates found Jaguar had an average of 1.67 defects per car vs. 0.66 for Lexus, the industry leader, and 0.95 for Mercedes-Benz. The quality problems are deep-rooted. The XJ6 sedan, which sells in the U.S. for $49,750 and up, has been troubled since it was introduced in 1986. As Jaguar's first new car in 11 years, it overwhelmed the company's engineering capabilities. It was cobbled together from 20,000 parts -- four times more than a Lincoln Town Car -- and required in excess of 400 man-hours to build -- ten times more than the Lexus LS400. Besides many assembly problems, the XJ6 suffered from fragile components and a balky electrical system. Adding | insult, critics claimed the XJ6 was homelier than its predecessor. In the other stall of Jaguar's garage is the XJS coupe, which dates all the way back to 1976 and is politely referred to by a company official as a ''problem child.'' The aging though still elegant XJS was originally scheduled to be superseded several years ago by a new model known internally as the F-type, but Jaguar couldn't decide whether it was building a sports car or a heavier, more expensive grand touring car. Ford killed the program in 1990, and the XJS is now finally due to be radically redesigned in 1996. Still, Jaguar has made remarkable progress since Ford took over. Measured by Ford's quality assessment system, defects have been cut 77% on the XJ6 and 87% on the XJS. In the past Jaguar waited to learn about reliability and assembly problems when reports came in from dealers, which could take up to a year. Now technicians wring out 25 newly built cars per week. Among other tests, they jiggle the cars to detect squeaks and rattles and drench them in water to identify leaks and electrical problems. When defects appear repeatedly, the engineering department goes to work on design changes. Jaguar has also mobilized a flying squad of 25 inspectors whose mission is to fix assembly problems ''on the next car'' coming down the line without going through engineering. Ford manufacturing experts, who have helped make the company's U.S. plants among the best in the world, have dragged Jaguar's factory into, say, the 1980s. The number of man-hours required to assemble a car has been reduced from an average of 418.6 two years ago to 251.9 now. By 1997, Ford hopes to cut that number further, to 126 -- still very high by Japanese and U.S. standards. Jaguar has also reduced inventories of parts from 20.9 days last year to 14. It plans to reach 6.9 days in 1998. ALONG WITH improvements in quality and productivity has come a stiff cost- cutting program. Jaguar's payroll has been chopped nearly in half -- from 12,000 in 1990 to 6,500. Says Scheele: ''We've taken 40% to 50% out of every department except product development,'' where 1,000 engineers remain. But Jaguar still needs to build and sell 35,000 cars annually to break even, and its production this year is expected to reach only 29,000. After fixing the current model range and redoing operations, the next challenge for Jaguar will be to develop new models. Coming a year from now is a redesigned version of the XJ6 that cost $240 million to create -- lots of | money for a low-volume car. Jaguar had neither the time nor the capital to produce an all-new version, but it has replaced more than 1,000 parts and restored some of the flowing lines and elegant styling of earlier models. For Jaguar to really pay off for Ford, it needs a high-volume model cheaper than the XJ6 for Britain's market for executive cars, which corporations dole out to managers. So it is working on a sedan about the size of a BMW 540i, due in 1998 and code-named the X200. Jaguar hopes to sell 50,000 by the end of the decade, which could boost its total sales to about 100,000. That could tax the present plant, leading Ford to build the car in the U.S. with Ford components, which would save money and put Jaguar closer to its largest market. Trotman, however, discourages such speculation. Says he: ''We've discussed all sorts of alternatives, but we're very anxious to keep the Jaguarness of Jag.'' Counting the purchase price, accumulated losses, and spending for new models, Ford may invest more than $5 billion in Jaguar before it makes a dime. Executives argue strenuously that Jaguar will produce a long-term payoff and that Ford couldn't have created a comparable luxury brand on its own, though of course Toyota did exactly that with Lexus. Credit Ford with saving a unique piece of automotive history and treating it with reverence -- at least so far. And credit Ford's shareholders with exceptional patience. Their payoff from Jaguar won't come until well into the 21st century -- if then.