China's fall makes the ride ahead rough for JLR

Experts say JLR needs to ramp up its distribution and reach in China to be able to reverse the fall and post growth

A slowing economy has pushed luxury car demand in China on a slide with June recording the country’s first monthly drop in automotive sales in over two years.

Two of the top-three luxury car makers in China posted a fall in sales in the first quarter this year as measures like the anti-graft drive initiated by the government there started to take a toll on luxury spending.

Tata Motors-owned Jaguar Land Rover, which until the last financial year (FY10-15) posted a compounded annual growth rate of 47 per cent in China, has witnessed a fall steeper than the others.

In the first quarter, the two British brands recorded a fall of 33 per cent with sales of 21,920 units during April-June.

In fact, June recorded the worst fall in sales since the Mumbai-based Tata Motors took over the reins from Ford in 2008.

In comparison Audi, the market leader with sales of only about 140,000 units during the first quarter, posted a fall of 2.5 per cent.

Another German heavyweight, BMW, recorded flattish performance during the same period clocking 115,000 unit sales.

The world’s oldest automobile brand, Mercedes-Benz, however, remained an outlier recording a growth of 26 per cent, selling a little over 87,000 units during the quarter.

Subdued demand condition will not augur well for Tata Motors at a time when the company and its Chinese partner have pumped in Rs 2,800 crore (Rs 28 billion) for a local manufacturing facility.

Tata Motors depends almost entirely on JLR to generate profits even as its stand-alone business is on a path to slow recovery.

Last year, at a consolidated level, Tata Motors recorded a net profit fall of 0.3 per cent to Rs 14,059 crore (Rs 140.59 billion) against Rs 14,104 crore (Rs 141.04 billion) posted in 2013-14.

Further, where China contributes between 20 per cent and 25 per cent of JLR’s worldwide sales, the company enjoyed far superior margins there compared to the rest of the world due to high pricing.

But last year, JLR, among other luxury car makers, was forced to cut prices by an average of 200,000 yuan ($32,300) following an anti-monopoly probe launched by China state planner.

Price was also slashed after the Range Rover Evoque started local production.

Following the steeper-than-expected fall in sales this year, JLR was forced to make adjustments to its sales targets for China whose share in its global sales fell to 19 per cent by the end of June quarter from 28 per cent posted in the same quarter last year.

China sales
Company	Apr-15	% Change	May-15	% Change	Jun-15	% Change	Q1 2015	% Change
Mercedes	27,069	21	27,562	20	32,507	39	87,138	26.44
BMW + Mini	37,976	0.6	37,457	-4.2	40,174	0	1,15,607	NA
Audi	45,296	0.2	47,410	-1.6	47,831	-5.8	1,40,537	-2.5
JLR	8,289	-20.89	7,389	-32	6,242	-46	21,920	-33.4
Source - Companies; % Change is YoY

Without providing details, a JLR spokesperson said, “We are making a series of strategic adjustments across our business in China to ensure a sustainable and healthy business as we enter into a new phase for JLR.

We regularly review and adjust our sales targets and recommended pricing to reflect current market conditions.”

Experts say JLR needs to ramp up its distribution and reach in China to be able to reverse the fall and post growth.

But dealer strength of JLR in China is less than half compared to its rivals. JLR has 190 authorised dealers in China, while Mercedes has more than 400, BMW and Mini has nearly 550 and Audi has more than 400.

While a couple of models in JLR’s portfolio are on their way out the company states that by end of the year a total of three models under both the two brands will be under production at the joint venture plant.

Also by end of the year the plant will have an aluminium body shop paving the way for lighter, sportier and fuel-efficient models.