How JLR nearly turned a profit in final quarter

How JLR nearly turned a profit in final quarter

The focus on high-end models meant that JLR got a £293 million boost from what car makers call the ‘mix’ – ie selling higher-priced versions. It also saved money on what’s called variable marketing, which includes discounts. No need to entice people to buy your cars when there’s such a shortage that every model built finds a willing customer, and most are built to order anyway. JLR spent just 1.6% of revenue on variable marketing, compared with around 5% normally.

The negative hits to the bottom line included higher manufacturing costs, as JLR wasn’t able to enact efficiencies with the manufacturing capacity only at 60% (car factories are more efficient when they run closer to capacity).

Also affecting finances was the fact that, now all the work is largely finished on the MLA High platform underpinning the Range Rover and Range Rover Sport, it had to book more of its R&D cost as an expense.

Under accounting rules, if engineers are working flat out on a new platform, the company can ‘capitalise’ those costs – ie book them as an asset, rather than an expense. That will increasingly happen “over the next three to six months”, said Mardell, when more engineers are working on the forthcoming EMA platform for smaller Land Rovers and the Jaguar electric platform, known as Panthera internally.

JLR also had to deal with that old bugbear of unreliability, which cost it £33 million for the quarter for recalls on “pre-2018 model year” cars. The incredible boost in revenue per vehicle meant that JLR hit a break-even point for just 73,000 vehicles for the quarter, meaning anything sold over that would be profit. It got tantalisingly close at 68,200.

Given it has booked losses on sales of far more than that in the past, it proves that, one, the company’s Refocus cost-saving strategy is working, and two, that if you’re forced to make fewer cars, then selling the most profitable ones is not a bad strategy. A lesson that nearly all car makers, not just JLR, have learned in an extraordinary year.