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Big test for UK luxury carmaker under Indian owners

By Rhys Jones and Henry Foy

SOLIHULL, England/MUMBAI (Reuters) - Jaguar Land Rover has roared to health in the four years since it was bought by India's Tata motors, but now comes the hard part for the luxury British automaker: proving it can build new models without former owner Ford.

Since Tata took a $2.3 billion gamble to buy JLR from Ford at the height of the financial crisis, it has discovered a formula for success, surprising skeptics by winning new customers in Asia.

The firm, with sleek saloons favored by British Prime Ministers and luxury SUVs born of desert and jungle combat, now has factories working around the clock in England, bucking the trend of hard times for European auto-makers.

JLR said on Monday it had sold 357,773 vehicles in 2012, 30 percent up on a year earlier, and would create 800 jobs at its Solihull plant in central England to keep up with demand.

British-based managers credit their new Indian owners with providing the capital needed for JLR to expand - especially in China - while avoiding the sort of overseas micro-management that they say stifled the company under Ford.

Tata's funding allowed JLR to launch products from a fully-loaded development pipeline inherited from Ford.

But whether it can continue that success - and unlock its future potential - depends on learning how to update its portfolio on its own, including achieving ambitions to develop in-house engine and transmission technology by 2015.

JLR has yet to release a model designed under Tata's ownership. It still buys many of its engines from Ford.

That is set to change. JLR now aims to invest 1.5 billion pounds ($2.4 billion) a year until 2017 in new products and in expanding its engine range, says its chief executive, Ralf Speth. It plans to unveil eight new vehicles in 2013, including a convertible sports car and a new hybrid Range Rover.

A new plant near Wolverhampton in England's midlands, built at a cost of 355 million pounds, will design, engineer and manufacture its new family of engines, creating 750 engineering and manufacturing jobs.

It will make low-emission, 4-cylinder petrol and diesel engines - a sharp contrast from the giant 2.2 liter powerhouse that gives the Jaguar XF luxury saloon its growl.

The new models are needed, industry analysts say. Despite the success of cars like the XF and the Range Rover Evoque small SUV, a Goldman Sachs report says JLR's product line "is currently inadequate, and suffers from significant gaps".

The report valued JLR at only 2.8 times its earnings before interest, tax, depreciation and amortization, compared with 9.1 times EBITDA for German rival BMW .

"In order to achieve more sustainable and broad-based growth in the long term, we believe JLR will need to invest in increasing its presence in segments it is currently not present in," Goldman Sachs said.

TURNAROUND

JLR's turnaround so far has been remarkable. When the global automotive industry fell into crisis at the end of the last decade it had to slash jobs and take loans from the State Bank of India and the European Investment Bank.

Tata lent JLR some $1.5 billion to help it survive the downturn. Since then, it has seen those efforts rewarded with a record pre-tax profit of $2.5 billion in the fiscal year that ended March 31, success that seems to vindicate the hunch of Ratan Tata, patriarch of the $100 billion Tata Group.

When he first bought JLR, skeptics suggested Tata - who had already bought British firms like Tetley Tea in 2000 and Corus, formerly British Steel, in 2007 - was overpaying for another UK trophy. Now, criticism of the purchase is hardly heard.

"Tata Motors allowed development in full force," said Atul Penkar, fund manager at Birla Sun Life Asset Management in Mumbai, which held $34 million worth of Tata Motors stock on October 31, according to the Thomson Streetsight holdings database.

JLR now finances itself with the $2 billion plus of cash it generates each year. It has paid back its borrowings to Tata and today is propping up the parent company as its core Indian business struggles with sliding sales and market share.

Its Solihull plant which builds some 150,000 Land Rovers and Range Rovers a year, has moved to three-shift, 24-hour production. Its Halewood plant in the northwest of England is also on three shifts to produce the Evoque.

At Solihull, home to Land Rover production since 1948, workers stick bar-coded slips onto the Land Rover Discoveries and Range Rover Sports, identifying their shipping destinations as they roll down the line. The list includes countries as far as Australia, the United States, Vietnam and, above all, China.

In 2005, China accounted for just one percent of JLR's combined sales. In the quarter that ended in September, it made up 20 percent, making it the biggest export market and nearly overtaking domestic British demand, helped by the sale of some 18,000 Evoques in China this year alone.

JLR sold 71,940 vehicles in China last year, 71 percent up on the previous year.

It is now building a factory in China, and has spent some 500 million pounds there on marketing, communications and expanding its reach over the last five years. It opened its 101st Chinese dealership last month.

UK-based managers say Tata's hands-off approach gave them the freedom to pursue opportunities in emerging markets like China, taking risks that might have been harder to take when tightly controlled by Ford.

Before Tata bought it, JLR was part of Ford's now-defunct Premier Automotive Group, along with UK rival Aston Martin and other luxury brands. Ford dictated much of JLR's product and marketing strategy from its Detroit base, and required JLR to use many of Ford's systems, set up for a multi-brand global organization, which did not suit a company of JLR's size.

"Ford's policies and procedures manual would be about three inches thick and it's now about four sides of A4 paper," joked Phil Popham, JLR's global operations director.

"We were part of a huge automotive company in Ford but we were a very small part of that," he said. "Tata's approach is to work with us but to allow us to run our own business with a high level of autonomy."

($1 = 0.6209 British pounds)

(Additional reporting by Laurence Frost in Paris; Editing by Peter Graff)

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