Sunday 18 November 2012

£1bn China boost for JaguarLandRover

JAGUARLANDROVER (JLR) has clinched a deal with Chery Automobile to build a new vehicle manufacturing plant near Shanghai, due to open in 2015.

Significantly, the vehicle manufacturing facility at Changshu will be alongside a state-of-the-art research and development facility and a new engine plant that could be modelled on the new engine plant now in the initial stages of construction in Wolverhampton, UK to produce the ‘Hotfire’ engine range.

Chery Automobile is China’s sixth largest car manufacturer but the country’s largest exporter.  Last year it sold 650,000 units. Total car sales in China last year was 18.5 million.

JLR is owned by TATA Motors which has revealed plans for a £10 billion expansion plan over the next five years; the link with Chery is part of that expansion plan. JLR has said that the output from the plant, which in the first phase is set to make 130,000 units a year, will be in addition to existing output – and not a replacement for any UK production unit. It is understood that 60 per cent of the plant’s output will be Land-Rover-badged vehicles.

JLR’s sales to China have increased by 85 per cent in 2012 so far as sales hit 47,975 units in the first eight months of the year. The new facility is set to meet rising demand for the company’s output of 4x4 vehicles. Most likely products sourced from the facility could be either Defender/Freelander or Evoque models. Imported cars currently carry a 25 per cent duty. Later, Jaguar cars could be manufactured on site.

Significantly, the £.1.billion deal includes the creation of a new and separate range of vehicles which will benefit from the expertise developed by JLR in the UK. The vehicles will be developed by JLR and Chery and will be targeted specifically at the Chinese market.

JLR’s £10 billion expansion plan is set to add momentum to the company’s expansion plans which could allow the company to double its sales by 2020. The company will continue to focus on 4x4 sports utility vehicles – SUVs.

        Executives have already pointed to 40 new JLR product launches over the next five years. Land-Rover's products are divided into luxury, leisure and utility; it is expected that in the Land-Rover-badged leisure sector there could be at least five new models.

        This gives an indication of the challenges facing facilities engineering, manufacturing and product engineering in the years to come. The challenge will be about the management and implementation of change in the UK at the same time that developments will be taking place on the other side of the world. Finding the right people, in the right numbers to manage this change will be a huge challenge. 

Notwithstanding that, the potential market for SUVs – if they continue to expand at the present rate – could hit 22 million by 2020 and, if the company takes three per cent of this market that could suggest an annual production of over 600,000 a year. The four-product range of Defender, Discovery, Freelander and Range Rover could all be expanded.

                                 Aluminium pressings

Significantly, JLR is putting the finishing touches to a new aluminium press shop at Solihull, the ‘home’ of Land-Rover. This is in addition to the Caste Bromwich press shop with its line of Schuler presses which feed high-quality aluminium panels directly to the Castle Bromwich body shops building Jaguar cars.

Expertise established at Castle Bromwich has provided engineers at the Solihull facility with aluminium pressings' know-how, although of course Solihull does have its own comprehensive press shop, a left-over from its days when it formed part of the BMW family.

Both Discovery and Range Rover could benefit from greater use of aluminium technology.

However, as already mentioned, the greatest strain in all of this will be undertaken by engineering – that includes both vehicle and manufacturing engineering. Already the strain is beginning to show as some companies in the automotive sector have been feeling the pinch. Not only are they losing seriously articulate and extremely competent engineers to JLR, but these companies in the automotive supply chain are finding it hard to recruit the right calibre of engineer to replace those who have left. This in turn impoverishes the capability and the resourcefulness of the supply chain.

        An added burden of the process is the wage-inflation which moves along silently and almost unseen with this migration of people within a growing industry. The wage-inflation hits small companies which then find it increasingly difficult to compete and hold their place in the supply base community.  

The manufacture of aluminium panels, for example, requires particular knowledge in terms of pressings manufacture and joining technology. This understanding by engineers in the UK is limited to a relatively few engineers at this point.

Chinese car maker Chery is not likely to be interested in this technology at this stage, but it may not be long before it encroaches into this area. European press makers like Schuler and Muller-Weigarten (part of the Schuler group) have particular expertise in this technology and they could benefit from JLR’s adventure into China.

From the point of view of JLR’s engineers, most notably at Whitley and Gaydon, and to some extent those at the Warwick Manufacturing Group (WMG), the next four years truly will be an adventure.  Even supply-chain engine technology development companies like AVL and Ricardo, and test equipment specialist such as Horiba Automotive, could benefit from the fall-out from China.

       In addition, the West Midlands supply chain must be hoping that they too can share in some of the action that is set to unfold in the coming years.

       As with any joint venture, it is up to each party to maximise its opportunities from the participation, as well as ensure that jointly two and two make five. In this case, in which there is also a huge cultural divide, it may be a case of which beneficiary is the most shrewd that determines the eventual 'winner'. Whatever, each side has a lot to learn from the other. It could be a truly 'ground-breaking endeavour.

       However, it may never be possible to quantify the real difference in 'true' cost of manufacture between the two sides for a near-equivalent product; each is coming from a different starting point.
                                               New UK engine plant

Meanwhile, JLR’s new engine plant in Wolverhampton, Staffordshire costing £355 million will produce a new engine every 36 seconds. Steel supports for the new building are now being put in place. Production of engines is expected to begin in 2014.

The plant will produce 300,000 engines a year and employ 750 personnel. According to senior purchasing manager Alan Edwards, the plant will support some 3,000 jobs in the supply chain. The total investment in the new engine programme will be £1 billion.

Last year JLR spent £4.5 billion in its total supply chain with some 60 per cent of that spent in the UK and 50 per cent in the West Midlands. It is expected that some suppliers will locate facilities nearby to supply components ‘just-in-time’.

Edwards has noted that JLR needed to ‘take control’ of its own engine supply because current suppliers were not able to meet its growing demand. Ford is a major supplier of engines to Land-Rover. Ford not doubt will be adjusting its own product planning accordingly.

‘There may be satellite engine facilities in other countries but the engine plant on the i54 site will be the home of our engines,’ he has said.

The frugal ‘Hotfire’ four-cylinder engines are the focus of intense research with some of the work being undertaken in UK universities like Warwick and Loughborough. Lord Professor Lord Kumar Battacharyya is chairman and founder of the Warwick Manufacturing Group (WMG) which has close links with TATA Motors and JLR.

The new engine facility will occupy 828,000 square feet and JLR has the option to take additional space on the business park. Indeed, there is even space for a second engine plant to the south of the present location.

A new £36 million slip road will be constructed to link the new plant with the M54 motorway.

According to Dr. Ralph Speth, chief executive of JLR, the new four-cylinder ‘Hotfire’ engines will combine higher performance vehicles with reduced emissions. Increased emphasis on emissions for the new engine range will provide further work for Horiba Automotive, a preferred supplier of test equipment to JLR.

The UK-based automaker reported pre-tax profits of £1.1 billion last year on revenues up 51 per cent to £9.9 billion. TATA Motors, controlled by Ratan Tata, acquired the company from Ford Motor Company in June 2008 for £1.5 billion and now employs 21,000 people. It has hired 3,000 people this year including 350 graduates. Both BMW and Ford must be wondering how, why and where they went wrong.

In February 2012, Land Rover produced its one millionth Discovery – the vehicle was launched in 1989. Discovery is produced at the Solihull plant which has been the focus of much investment, including pressing facilities.

It does not seem all that long ago that JLR was talking of closing one of its UK plants with Solihull then the focus of attention. All that is a thing of the past since TATA Motors has taken control. Everyone at JLR must surely hope the wind continues to blow in a favourable direction.