Few cars have as much riding on them as the new, British-made Range Rover. As Land Rover's top-line model, the Range Rover has epitomized posh sports-utility vehicles since its 1970 debut, years before Lexus and BMW knew what SUVS were. And a lot is expected of a car that took five years and $1.4 billion to develop. But it looks as if the Range Rover with a base price of $61,000 can handle the pressure. Advance orders in Britain have hit 1,790, and production has been boosted 17% to 700 units a week even before its March 15 launch. Worldwide the company expects to sell 30,000 Range Rovers this year, double last year's total.
The Ford Motor Co., which bought loss-making Land Rover from BMW for $2.6 billion in 2000, must be relieved. Especially since Ford, which lost $5.45 billion last year, is making Range Rover and other luxury European models central to its latest restructuring plan. By 2005, the U.S. automaker wants its Premier Automotive Group (PAG) Land Rover, Jaguar, Volvo and Aston Martin, plus Lincoln, its upmarket American marque to contribute 35% of its profits, up from a current 13%. To accomplish that, overall sales of the five brands must soar 51%. That's a tough goal, but PAG president Wolfgang Reitzle is confident. "We have a robust strategy in place, as well as a convincing and unique setup of premium brands, all with a very distinct profile."
Ford's recent strength has been U.S. truck sales, but that's a market that's losing pep. So it makes sense to turn to its premier line cars that don't sell in huge numbers but have high prices and wide margins to more than compensate. "Only with premium brands can you make margins of around 8%" in an industry where the average is 3% to 4%, says Phil Dunne, auto consultant at A.T. Kearney in London.
To bolster profitability Ford is planning some component sharing among the PAG models, a risky tactic. "You don't want customers saying a Jaguar is just a dressed-up Ford," Dunne says. To avoid that problem, Ford is sharing only those parts customers can't see or touch, like electronics. Says Harry Roegner, PAG spokesman: "Electronic architecture makes up a third of the cost of a car, and in the future it will be 50%. Do you see that cabling and wiring?" In another economy move, Ford is consolidating the backroom operations of Land Rover, Jaguar and Aston Martin.
Still, Ford needs to sell more PAG cars, and that "all depends on consumers," says Garel Rhys, an industry expert at the Cardiff Business School. "The cars have to be aspirational." Demand has to be kept high and slightly ahead of supply. Rivals like Mercedes-Benz, BMW and Lexus have moderate to expensive models under one brand, but with its PAG cars, Ford offers a similar price range divided among four brands. Reitzle says his products fit into every premium niche and still retain their exclusivity. While competitors are stretching and possibly overstretching their brands from the top to the bottom of the premium market, PAG can use Volvo to tap the (relatively) lower end while Aston Martin caters to the very wealthiest buyers.
Land Rover faces some hurdles, however. For one thing, it's starting in a hole it lost $250 million last year, though it hopes to break even in 2002. And while Range Rover is in a class of its own, Land Rover's lower-priced suvs (in the $22,700 to $49,000 range) are battling in one of the industry's most competitive segments. Then there's that $1.4 billion investment to recoup. Sales alone won't do the job. But Range Rover's cachet could yield a "halo effect" that boosts sales of all Land Rover models even a lower-priced "baby" Range Rover that Reitzle envisions.
Aston Martin, James Bond's favorite sports car, currently starts at $150,000 but is planning an "entry level" model at $92,000. As for the other PAG marques, Jaguar turned a profit of $100 million last year, its first since Ford acquired it in 1989, and sales are improving. Volvo, the family car of choice, made $700 million and remains the group's workhorse. Indeed, Ford is a quintessential American company that grew huge by creating the mass automobile market. Ironically, its future now rests in large part with a handful of low-volume, élitist cars made in Europe.