The MT Interview: David Smith of Jaguar Land Rover

Can the Jaguar Land Rover boss steer the luxury car maker through the industry's troubled times?

by Andrew Saunders
Last Updated: 31 Aug 2010

It's a torrid time to be in charge of any car company, let alone a niche maker of luxury models like Jaguar Land Rover. Its CEO is a former Ford Europe finance head who helped sell the firm to Tata of India and now finds himself in the driving seat. Can he keep the wheels on the tarmac?

As baptisms of fire go, David Smith's has been a scorcher. The edited highlights of his inaugural year in the driving seat of Jaguar Land Rover (JLR) include: being parachuted into his first CEO-ship after the death of his predecessor, Geoff Polites; having to extricate Jaguar and Land Rover from the close embrace of former parent Ford and into a rather more arms-length relationship with new Indian owners Tata; and figuring out how to manage the fact that the public has dramatically fallen out of love with buying new cars, particularly the kind of big, brash and environmentally unfriendly SUVs and luxury saloons his company has always produced.

Oh, and to do all that while having to cope with the worst collapse in the global economy for 50 years. Only the City has been hit harder by the recession than the automotive industry, whose ongoing travails threaten to lay waste to large chunks of the real economy, in just the same way as those of the investment banks and hedge funds did to the financial sector.

So, a pretty vertiginous learning curve then, before the global financial system went into meltdown last autumn. 'Even in a benign environment, this would have been a challenging period,' says Smith, a former CFO of Ford Europe, who played a lead role in making last year's £1.15bn Tata deal work. Not least because the transition out of Ford - of which Jaguar had been a part since 1989 and Land Rover since 2002 - was going to be ticklish and complicated. It was expected to have taken up to two years, even if the you-know-what hadn't hit the fan. 'But with the shock from the market, it has been very tough, we've had to move quickly and take some hard decisions. I described it as a dangerous period back in October and, unfortunately, I've been proved exactly right.'

It certainly has been a hazardous time, not least for the 850,000 people who work in Britain's car and car-parts factories. Production of new vehicles has been cut at a swingeing rate and jobs along with it, the inevitable reaction of companies struggling to cope with what have been the worst conditions for decades. Sales in the UK have been down 30% month-on-month since last autumn, a grim situation echoed across much of the rest of Europe and the US.

In a business where new models take years to bring to market and production schedules are carefully planned months in advance, managing such dramatic declines in demand is bound to be traumatic. Honda, Nissan, Vauxhall, BMW - all the big names with operations in the UK - have cut hours, jobs, pay or all three as a result.

Jaguar Land Rover, of course, has not been spared. Indeed, as a niche player in the luxury sphere, it's operating in one of the hardest-hit markets of all. Sales of luxury cars in the vital US market fell by 50% after the collapse of Lehman Brothers last September - an event that Smith describes as 'the absolute catalyst' of what was to follow. Jaguar sales overall were down 30% year-on-year in March, Land Rover's by an even more gruesome 37%. Smith turns briefly wistful as he recalls the first half of 2008, when the firm made £326m in profit. 'We were achieving nice results in volume growth and profitability. Then we hit the brick wall in October.'

In January, 450 jobs went, and the firm's 15,000 workers in three factories - Solihull and Castle Bromwich in the West Midlands, Halewood on Merseyside - have had their pay frozen and are effectively on a four-day week. JLR's size makes it especially vulnerable. In an industry where firms making a million cars or fewer a year are regarded by many experts as too small to survive, JLR's production - just under 300,000 in 2007 - barely registers on the radar. But small and foreign-owned though it may be, JLR is still the UK's largest automotive employer. Smith has been diligently pursuing government aid of up to £800m in talks since last November.

This is no easy task, since it has been widely pointed out that JLR's new owner, Ratan Tata - worth an estimated $50bn - is perfectly capable of footing any bailout bill himself. Neither is the Government, and business secretary Lord Mandelson in particular, known for looking kindly on the motor industry. But although there's more than a touch of the maths geek about Smith - bespectacled, unassuming, shy - he's clearly no pushover. Clever, analytical and extremely determined, he looks you in the eye and doesn't give up until he has made his point.

It's a high-stakes game - failure could lead to JLR running out of cash before the end of the year. But last month he won a tense first round, securing a £340m loan guarantee from the European Investment Bank after the Dark Lord Mandy himself agreed to the Government's underwriting it. Smith is adamant that JLR needs more, and his desire for speedier progress is clear. 'The EIB money is a start, but just because it has been approved doesn't mean we've got the cash. Nobody has yet. We're pioneering, but it can be frustratingly slow.'

It's not all bad news, though. Sales in emerging markets have borne up relatively well, with JLR products outselling both Mercedes and BMW in Russia and Brazil. And with both GM and Chrysler on the brink of collapse, there may be opportunities for smaller and more fleet-footed firms after all. 'Our size should give us advantages if we can find our way to them. As a smaller company, we can be more agile,' he says.

Take the firm's swift response to last autumn's downturn. 'Last year we made most of the decisions which our rivals are making today,' he says. 'I'm not saying we did everything right, because actually running a business was new to most of us, but we did get everyone in the business thinking about cashflow, when previously that wasn't a watched or even fully understood metric.'

There can't be many other chief execs in any sector who can boast (or would want to) that they have personally coached their top team in cashflow management. Smith has, devoting no fewer than 20 half-day sessions to the subject.

He is also pleased as punch - and no doubt hugely relieved - with the deal JLR has struck with its unions. Staff have agreed to the pay freeze and shorter hours in return for a guarantee of no more job losses for two years. 'It's fantastic that they were so realistic,' he says. 'We got a really good agreement, we got it quickly and without any disruption or fuss in the papers.' Small wonder he's so chipper. It could very well have been fatal for JLR had it become embroiled in a 1970s-style industrial relations stand-off.

Not everyone shares Smith's rosy take on the deal. Hardened automotive types suggest JLR needs only two of its three factories and missed a golden opportunity to decommission one. 'Even in the good times, it doesn't make enough cars to justify three factories. I was surprised it didn't take the chance to close one,' comments an industry watcher - with the ageing Land Rover plant at Solihull a favourite for the chop.

Others take the even more sceptical line that JLR's owner is intent on moving assembly operations to India, where it could be done for a fraction of the cost, leaving only components to be produced here as a figleaf for the brands' 'Made in Britain' tagline.

This is not an agenda you can expect Smith to sign up to. He's a local boy, born and raised in Solihull, now living with his wife and three kids in Leamington Spa, not far from JLR's Gaydon HQ, where he is based. He studied economics at Cambridge and was just about the only one of his fellow graduates not to go into banking or accountancy. Given his obvious braininess and facility with numbers, he could probably have made an absolute fortune in the City, but he says he never even considered it. 'My father was a metallurgist and I wanted to go into industry.'

Naturally undemonstrative, he's enormously proud of the industrial heritage of the region, and is at his most fervent on the subject of his firm's skilled and highly motivated employees. 'There's huge passion among the people here, it's almost tribal sometimes,' he says, as if he can't quite believe that he is now the one in charge of all this fizzing, bubbling human energy. 'My job is to try and release all that stuff.'

That's a task that must seem daunting to someone more used to controlling the organisation using financial rather than emotional levers, but Smith shows every sign of enjoying it. 'You have to walk a tightrope between creativity and discipline,' he says. 'We're not Google yet, but we do want to be a bit more like it, more dynamic, more innovative, more risk-taking - but without throwing away the disciplines that have delivered on things like quality, for example.'

On the Castle Bromwich assembly line for Jaguar's latest model, the XF, morale seems to be high, despite the short-time working. The site is a historic one, producing Spitfires and Lancaster bombers during WWII and turning out Jaguars of all shapes and sizes since, including those 1980s icons the XJ saloon and the XJ-S coupe. Traces of camouflage paint can still be seen on some of the buildings, a striking contrast with the high-tech, highly automated activity within. If your idea of a car factory is a lot of blokes with spanners screwing the oily bits together, you're in for a disappointment. There are almost as many robots as people involved in the process today, and everything is spotlessly clean.

It's all in the name of quality, says one worker. 'It's not so long since a Jaguar was the kind of car you wanted your neighbour to own,' he says, 'so you could enjoy looking at it without having to pay the repair bills. But these days, quality is better than it's ever been, and the new XF is the best car we've ever made.'

The logistics of modern car manufacture are also an eye-opener. The days of huge bins full of door handles and door mirrors, radiators and exhaust pipes are long gone. Everything arrives 'just in time' to keep stock levels at an absolute minimum, with many items shipped in from suppliers in 'plug in and go' units to simplify final assembly. Keeping it all going must be enough to give the plant manager an ulcer, and it highlights how dependent manufacturers are on a whole range of smaller, specialist suppliers.

Smith is worried about them. 'The supply base is very fragile,' he says, explaining that suppliers rely on all their customers to keep going, and so are particularly badly hit by the current downturn, which has slashed demand right across the board.

He thinks that scrappage plans such as those in Germany and France, where the government subsidises new car purchases by paying cash bonuses for scrapping old ones, are a good idea. 'It would help suppliers by putting volume through the system,' he says, although he doesn't think many people will be trading in their old smoker for a new Jag or Range Rover.

But the real threat to suppliers in the UK comes from another form of European government grant. 'Subsidised short-time working in the Netherlands and Germany means that up to 65% of the cost of workers who would have been laid off is now picked up by the state. So jobs are moving overseas, to countries where firms are being subsidised to over-produce parts which will end up back in the UK,' he says. 'We may never recover from that. We have to sort this out. We can't have it happening again.'

For Smith, a Ford lifer who spent 25 years criss-crossing Europe promoting the interests of the blue oval, transition to Tata ownership has been a challenge and something of a liberation. 'Ford did a huge amount for both Jaguar and Land Rover,' he says. 'But, ultimately, the businesses needed a new dynamism and confidence to achieve full potential.' Indeed - Ford's disposal of JLR was essentially a fire-sale, forced on the troubled giant by the need for cash and management time to devote to its core US business.

After his part in pulling off the immaculately timed sale to Tata (six months later and the financing would not have been available), Smith was all lined up to be CFO. But it was not to be. His predecessor Geoff Polites died of cancer, and Smith found himself in the hot seat in June last year.

He reports directly to Ratan Tata, and JLR is run as a funded but quasi-autonomous subsidiary. 'We are still learning how the relationship with Tata will work,' he admits. 'It's clearly more personal and based on individual relationships. There will still be connections between us and other Tata businesses, but they will be on a project basis, not as merged companies.'

Negotiating the way to this new state of affairs is no mean task. The companies were tightly integrated into the Ford machine, and extracting them is a slow, complex and painstaking process - just the kind of fiddly, multi-dimensional jigsaw puzzle you can imagine Smith relishes. 'We're pulling companies that were embedded in Ford back out again and switching our financing to other providers,' he says. 'And the IT is an absolute hydra. It's going to be the most difficult part; everything else is on schedule.'

What about the boss himself? What's he like? 'Ratan Tata is very interested in the business,' comes the diplomatic reply. 'The designers love him because he's an architect and is not only quite capable of telling them what he thinks, he can say it in the right language too.'

Beyond that, he says, Tata Group's involvement in the business is pretty positive (you wouldn't really expect him to say anything else, would you?). 'They provide challenges but don't micro-manage. It's about raising the management's view of what we can achieve, but letting us find our own way there.'

Of course, Tata has its own difficulties at the moment, trying to restructure its huge debts and make a success of the Nano, the cheapest car in the world at under $2,000. The Nano is pretty much the antithesis of JLR's upmarket products, a latter-day 2CV designed to get the Indian masses off their scooters and onto four wheels at minimal expense.

Has the focus of the wider group shifted away from JLR as a result? Smith says not, before adding: 'But they have encouraged us to move forward in developing the long-term funding plan. We will get into a much more commercial set of loan arrangements using our own balance sheet.' In other words, the sooner JLR can wash its own face, the happier Tata will be.

So much for high finance. What about the cars? Surely credit-crunch economics and the threat of climate change have put pricey super- saloons and gas-guzzling off-roaders off limits for most people? Never mind that SUV drivers are increasingly regarded as anti-social nuisances by a substantial chunk of the population.

He bridles slightly. He doesn't like the Chelsea tractor argument, because he doesn't think it's fair. They don't guzzle gas, he says implacably - many of the company's products are among the most economical in their class. And they aren't any bigger than rivals, either. That may be so, relative to their direct competitors, but in absolute terms a 5.0 litre Range Rover is still a pretty huge and thirsty vehicle. You won't see many larger in the average supermarket car park.

But Smith is wising up to the fact that JLR will have to work harder on the eco-friendliness of its products, not least because the government aid he's so assiduously pursuing comes with green strings attached and must be used to finance new, low-carbon models. 'I know they are perceived as big and uneconomical, and even if they are not, perception is at least as important as reality. We have to get through that, but we won't talk our way out of it. We have to deliver the product. Great products, an outstanding customer experience and going from being a participant in environmental innovation to being a leader in it - that's where I want to be in five years' time.'

Smith is not your stereotypical larger-than-life metal-basher. Yes, he likes cars - he's driving the latest tarmac-tearing supercharged Jaguar XF-R today, the fastest car the company has ever made - but he's not a boy-racer. He knows that getting ahead of the eco-curve means leaving behind the most dinosaur-like of petrolheads. 'We've got a full diesel-electric hybrid SUV three or four years away that will do 50mpg. We're starting work on plug-in hybrids, and we're looking at a different kind of powertrain, where the electric motor is the main drive with a small fuel-based engine to charge it up. That could run on diesel, petrol or something else.'

He rejects accusations that the motor industry has been the author of its own misfortune by being slow to innovate and failing to make the kind of cars that people want to buy. 'The industry has reduced tailpipe emissions pretty substantially, and it will do so again. Regulation is the spur, but competition is the biggest driver. We have to do it because we will not be competitive if we don't.'

He's thoughtful and inclusive, describing his leadership style as coaching. 'I trust the functional heads to be the experts in their area, while I try to provide overall strategic leadership.' Disarmingly, he admits that he has struggled with some aspects of the leadership role - not something many CEOs would own up to in public. 'I have had to take a higher profile, and there has been some learning and personal discomfort involved in that. But I can do it when I need to.'

He retains his FD's slightly geeky love of detail too and is no-one's idea of a 'hero CEO' in the Richard Branson or Steve Jobs mould. But although his presence may not fill a room, he has a gentle charm and a sharp intellect and he listens to what other people say. He's totally straight and it's hard not to like him for it.

It's an approach that makes a refreshing change from the braying over-confidence of those former 'masters of the universe' in the banking sector, which helped get us into this mess in the first place. In a world brought low by smoke, mirrors and financial chicanery, Smith's brand of old-fashioned, upfront and analytical leadership is very much the flavour of the moment. His mantra, he says, is simple. 'I always try to do the right thing.' You know what, it might just catch on.


1. To secure a package of state and commercial funding sufficient to keep Jaguar Land Rover afloat until the end of the recession

2. To convince his masters at Tata Group in India that car manufacturing in the UK really does have a long-term future

3. To start walking the walk as well as talking the talk on developing more environmentally friendly Jags and Range Rovers

1961: Born 28 March, Solihull, West Midlands. Studied economics at
Christ's College, Cambridge
1983: Joins Ford graduate trainee scheme as a pricing analyst
2005: Director of finance, Ford Europe
2007: Leads £479m sale of Aston Martin by Ford to Kuwaiti-backed
syndicate headed by Dave Richards of ProDrive
2008: Appointed CEO, Jaguar Land Rover in June, after leading the firm's
£1.15bn sale to Tata Motors of India
2009: Secures £340m loan guarantee for JLR in April from the
European Investment Bank

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