By acquiring the Jaguar firm, Ford Motor Company added a prestigious luxury car to its range as part of plans to increase its European sales of high-priced cars.
After several weeks of speculation about the future of Jaguar P.L.C., the company was acquired by the Ford Motor Company of Detroit, Michigan, in November, 1989. During the period directly before the sale, both Ford and General Motors had attempted to acquire or make a deal with the British maker of automobiles.
Ford’s efforts to gain control of Jaguar began on September 19, 1989, when Ford announced that it was buying shares in Jaguar. The move was not solicited by the target company, which did not comment at the time. The chairman of Ford of Europe, L. Lindsey Halstead, said at a news conference that he had just informed Jaguar chairman Sir John Egan that Ford was interested in buying 15 percent of Jaguar stock and that the conversation between the two had been friendly. Under the terms by which Jaguar had been privatized in 1984, 15 percent ownership was the maximum allowed for a single stockholder until the end of 1990.
At the time, Ford was the fourth-largest auto manufacturer in Europe, with about 12 percent of the market; Jaguar was the eleventh-largest. Ford’s interest in Jaguar was not limited to the possible larger market share; Ford wished to make progress specifically in the luxury car market. It appeared that a name associated with luxury was indispensable in efforts to combat competition from Japan. As well as General Motors, other companies interested in Jaguar were Chrysler, Volkswagen, and Volvo.
The possibility of a takeover of Jaguar at this time was heightened by the company’s poor performance in 1988 compared with the preceding few years. Sales came to 51,939, up 8 percent, but sales in the United States were down 9 percent. A falling dollar helped make sales in the United States only 45 percent of the total, compared with 65 percent in 1986. Earnings were down by $77 million, to $49 million, and the company was expected barely to break even in 1989.
These results were disappointing, especially given that the company, under Egan, had done well since privatization. Jaguar had been sold by the government-owned British Leyland in 1984 and had prospered. It had even produced a car that won the Twenty-Four Hours of Le Mans, a racing achievement that recalled the company’s glory days of the 1950’s, when it had won five times. The weakened dollar had hurt the company in the late 1980’s, thus prompting bids from outsiders.
Ford initially declared that it sought a long-term relationship with Jaguar but wished to preserve Jaguar’s independent operation. Jaguar regarded Ford’s move as unfriendly. Jaguar’s stock rose on the London Stock Exchange from $6.40 the day before Ford’s announcement to $9.18 four days later.
The restrictions on the purchase of Jaguar stock made it look as though arbitragers and other companies would have the chance to bid the price up over several months. Jaguar shares were up to $11.77 on October 6, when Ford received clearance from the U.S. Federal Trade Commission to buy up to 15 percent of Jaguar stock. On October 10, 1989, General Motors
Ford’s plans for Jaguar were that the combination of Jaguar’s skills and name with Ford’s resources would permit a large increase in Jaguar’s production. Ford’s finances would support a greater range of models. Jaguar, reporting a $4.5 million operating loss in the first half of 1989, was unable to undertake ambitious expansion in what Ford thought was a promising European market for higher-priced cars.
Ford continued buying Jaguar stock, in both London and New York, and on October 17, during the largest fall in share prices since the crash of 1987, purchased millions of shares, doubling its holdings to 10.4 percent of the company. This frenzy of stock purchasing went on while an agreement was expected between Jaguar and General Motors on some joint ventures. Jaguar, acknowledging the need for a cash injection, was keen on such a deal.
As talks between Jaguar and General Motors continued, Ford continued to buy shares. By October 24, Ford held 12 percent and announced that it would make a bid to buy Jaguar outright when restrictions that applied until the end of 1990 were lifted. Ford filed notice of this plan with the U.S. Securities and Exchange Commission. Ford’s share of Jaguar rose further to 13.2 percent on October 29. General Motors and Jaguar were still talking about an operating agreement.
A surprise announcement by the British government on October 31 indicated a willingness to lift the restriction of 15 percent on shareholdings in Jaguar. It was believed that the restrictions were causing uncertainties about the future. The promarket administration of Prime Minister Margaret Thatcher believed that the market should not be restrained by regulation and proposed that the restriction be lifted if at least 75 percent of Jaguar stockholders agreed to amend the company’s articles. Pending the announcement, trading of Jaguar stock was suspended. On resumption, the stock price rose from $11.77 to $13.71 in anticipation of a bidding war between Ford and General Motors.
The bidding war did not last long. On November 2, Ford announced plans to acquire Jaguar for about $2.38 billion. The careful plans laid by Jaguar and General Motors were rendered pointless by the British government’s announcement permitting a far larger holding than General Motors had ever envisaged. General Motors not only declined to make a counteroffer but also stated that the price offered by Ford was unjustifiably high, at about twice the value per share of the stock a few weeks earlier.
On behalf of the purchasers, Ford of Europe’s chairman, L. Lindsey Halstead, acknowledged that the company was paying a premium but justified the price by claiming that a billion-dollar investment in Jaguar could achieve a tripling of sales. Sir John Egan announced that Ford had promised Jaguar considerable autonomy, including the maintenance of its present headquarters and manufacturing, its own board of directors, and a separate dealer network. Speculation ended on the stock markets with Jaguar shares in London down to $12.99. Jaguar stockholders would meet before the end of the year to approve the deal.
The wider significance of the acquisition of Jaguar by Ford is seen in the importance to Ford of the distinctive products of Jaguar, in the trends in the motor industry as a whole, and in the fortunes of Jaguar following the acquisition. The strategic aim of Ford in acquiring Jaguar was to strengthen its business in the luxury car market, at first in Europe but also in the United States.
Jaguar’s most popular model was the Sovereign, a six-cylinder, 223-horsepower sedan selling in Europe for about $47,000 and, with the name XJ6, for about $43,000 in the United States. Another version was on sale for about $40,000, and the convertible XJS was priced at $57,000. Work was in progress on the development of a sports car, the F-type, which would be a long-awaited successor to the E-type Jaguar, the classy and romantic hallmark of the Jaguar name until it was dropped in the 1970’s. Despite stiff competition from Japanese entrants into the luxury car market, Jaguar was still proving that its special cachet could prompt buyers to pay high prices for its cars. The technical characteristics of Jaguars were matched by others, but the cars’ Old World styling—including wood-grain dashboards and soft leather seats—was an attraction that overruled strict concerns with performance.
The value of an established luxury image was further made clear to Ford by the mediocre results of its own attempts to market a luxury car. Ford’s Scorpio model, made by the Merkur division in Germany, was selling in Europe for about $38,000 but did not have a prestige image. The same could be said for General Motors, with its Cadillac Allante. These ventures were not as successful as forecast. Together with the mediocre reception of the Toyota Lexus LS 400 and the Honda Acura Legend, these failures suggested that a luxury image such as that of Jaguar was a crucial factor for success.
Ford thus hoped to acquire a major presence in the luxury car market by purchasing a company with a respected brand name. This was part of a trend in the motor industry generally. The large companies were either consolidating by acquisition or seeking out joint ventures in order to strengthen their positions in world markets. A particular focus was the luxury car market in Europe. Ford itself, aside from its interest in Jaguar, had already acquired the Aston Martin Company of Great Britain. This company, although of high pedigree, was minuscule and could not be the basis of the kind of market thrust that Ford desired. Ford had also unsuccessfully tried to buy Alfa Romeo, a respected Italian company. At the time of its overtures toward Jaguar, Ford was also negotiating a link with Saab of Sweden, which produces cars for the affluent.
Other companies were part of this trend. General Motors made a deal with Lotus Group, and Chrysler bought Maserati and Lamborghini. Fiat had an arrangement with Ferrari. The luxury car companies in these cases, however, were tiny. It was only Jaguar that offered a relatively large operation. Although in need of cash, Jaguar was not in as much trouble as Saab and Volvo, which were desperate to find partners. In the context of the trends at the time, the Jaguar company was a good and substantial prospect for a buyer interested in the luxury car business. Ford evidently thought that the prospects justified a premium price.
In March, 1990, Egan announced his retirement from the Jaguar chairmanship. Taking his place was William Hayden, a Ford executive. This was soon after Jaguar in the United States had recalled thirty-eight thousand sedans for attention to the brakes. At the same time, major problems had arisen with productivity and labor relations at the firm’s operations in the West Midlands of England. Performance had come nowhere near to justifying Ford’s optimism. Sales of Jaguar in 1989 dropped by 10 percent, to forty-seven thousand, then slid further in 1991, to twenty-five thousand.
In early 1992, Hayden’s retirement was announced. His successor, Nicholas V. Scheele, expressed a determination to improve the reliability of Jaguar, which, despite quality improvements brought about by Ford, was still not widely trusted. Ford had some success in the goal of improving Jaguar’s reliability reputation, but by the early twenty-first century, the price Ford paid for Jaguar had not yet been justified in sales.
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Banham, Russ. The Ford Century: Ford Motor Company and the Innovations That Shaped the World. New York: Artisan, 2002. Comprehensive, lavishly illustrated corporate history includes discussion of Ford’s globalization through acquisitions such as the Jaguar purchase. -
Flint, Jerry. “The Hole in Ford’s Doughnut.” Forbes, November 13, 1989, 50-54. Outlines Ford’s failure with the Edsel and other efforts to capture market sales in high-priced cars. -
_______. “Luxury Doesn’t Come Cheap.” Forbes, January 22, 1990, 72-75. Discusses Jaguar’s products and the price paid by Ford for the company. Attempts to assess the value of a “classy” image and name. -
_______. “Save the Cat.” Forbes, September 16, 1991, 191. Presents an update on the performance of the Jaguar company during an overall slump in the automobile business. -
“Jaguar: Le Mans or Lemon?” Economist 317 (October 20, 1990): 87-88. Describes the labor disputes and technological problems that beset Ford’s acquisition of Jaguar. -
Maremont, Mark, Thane Peterson, and Lori Bongiorno. “Jaguar: Quality Is Up, but Not Sales.” BusinessWeek, April 27, 1992, 117. Describes improvements in quality control at Jaguar after acquisition by Ford. -
Maremont, Mark, and Dave Woodruff. “Can Ford Make a Tiger Out of Jaguar?” BusinessWeek, October 29, 1990, 71. Discusses problems at Jaguar after the takeover by Ford. -
Michaels, James W. “What’s an Image Worth?” Forbes, January 22, 1990, 8. Editorial addresses the importance to a company of intangibles such as image and name. Comments on the price Ford paid for Jaguar. -
“Stalking the Cat.” Economist 310 (February 25, 1989): 66. Explains Jaguar’s need for a cash injection at the time of the acquisition. Gives background on cooperation between large companies and small, prestigious firms.
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