Jaguar Land Rover 1 Automotive News Europe Congress, Barcelona, Spain, 5 May 2005 Sustaining Growth In The New Europe

Slide 1. JOE GREENWELL, CEO, JAGUAR LAND ROVER

I think I should start by congratulating our hosts on their sense of timing.

The Automotive News Congress provides a great opportunity to discuss the trends and challenges in our industry and I’m delighted to be here ... but this year it coincides with another rather significant event in my own country - the British General Election.

Slide 2. In the early hours of tomorrow morning, we will have a new government and for companies like Jaguar Land Rover, it will have a direct bearing on our ability to Sustain Growth in the New Europe.

As we’re all well aware, the automotive business is facing a whole raft of challenges:

* Recessionary economies * Damaging exchange rates - notably the weak dollar * Escalating commodity prices * Increasing regulation and taxation * And of course, intense competition fed, in part at least, by low cost producers.

Large parts of the industry are not in the best of health right now and in the past few weeks, we’ve had very sharp reminders of that fact ... not least by events in the UK.

The election was announced just as the MG Rover situation was entering its most critical phase and for all the political parties, the issues concerned became part of the campaign agenda.

In the most dramatic way possible, the threats and challenges we deal with daily were revealed to the general public ... and they also showed how a new world order is shaping the industry’s future.

Last week I spoke at a conference alongside 2 key figures on the British political scene - the Chancellor, Gordon Brown and the Leader of the Conservative Party, Michael Howard.

My brief was to set out what domestic industry needs from the incoming government because obviously the environment in which we operate is crucial ... but with Longbridge in mind, I was also conscious of the industry’s own responsibilities.

There will always be challenges and there will always be changes and we have to be prepared for that. Whatever the current situation, the only business strategy worth having is one that will deliver regardless.

Slide 3. This is my own agenda for sustained, profitable growth.

Management must demonstrate effective leadership.

It has to invest in people and skills ... in new technology and R&D ... in process management and continuous learning.

It must ensure cost and investment efficiency and above all, it has to recognise the needs of consumers and the competitive threat. Jaguar Land Rover 2 Automotive News Europe Congress, Barcelona, Spain, 5 May 2005 Sustaining Growth In The New Europe

Slide 4. In today’s globalised industry, none of us can afford even a shred of complacency.

I mentioned the ‘new world order’ a moment ago and that was vividly demonstrated in the proposed joint venture between MG Rover and Shanghai Automotive.

At its best, the automotive business is a cauldron of innovation and a magnet for other technically advanced, high-value industries ... and long-term, those are precisely the kind of industries we need to nurture and retain in Europe.

But does anyone really think that countries like China and India will be content to serve as the low-cost workshops of the world ... or that in the West, we’ll naturally become the high-value producers?

If so, these are very complacent assumptions. Businesses don’t move anywhere naturally and neither do national economies. They both require purpose and direction.

In his new book ‘The World is Flat: A Brief History of Globalisation’, the American commentator, William Friedman, quotes some very revealing statistics. Here are just two ...

Of the 2.8 million science degrees awarded around the world last year, 1.2 million were gained by Asian students in Asian universities.

And in China last year, a staggering 46% of all degrees were gained in engineering. In the United States, it was 5%.

China has already mastered low-cost production. Now they’re buying western technology and intellectual property ... and they’re educating huge numbers of people to exploit it. That’s purpose and direction.

The most high-profile example is probably the recent acquisition of IBM Personal Computers. A Chinese company bought it lock, stock and barrel - the manufacturing, the management and the brand.

In the face of this kind of competition, our only option is to innovate - to work harder and smarter ... to develop the technology, the design and the high-value premium products they don’t have.

At the same time, we have to target value and quality ... and we have to sustain the promise of a brand and constantly work on improving it ... or consumers will go elsewhere.

It’s already happening in the mature, developed markets and indigenous manufacturers in Europe and North America have to be acutely conscious of the threat.

Most of the industry’s growth in TIV over the next decade is expected to happen in China and South East Asia ... and I say ‘expected’ because there’s bound to be a lot of uncertainty along the way.

More to the point, Jaguar and Land Rover export about 75% of total production and the vast majority goes to North America and Europe .... so our plans for the future have to work for those markets.

We can’t rely on growth in the rest of the world to make our programmes financially viable.

Jaguar Land Rover 3 Automotive News Europe Congress, Barcelona, Spain, 5 May 2005 Sustaining Growth In The New Europe

As any exporter to the United States will know, that’s even more of a challenge at the moment with the American exchange rate. Last year, the bottom line cost to Jaguar and Land Rover was several hundred million dollars.

It makes having a leaner and fitter infrastructure an even more urgent priority.

Slide 5. Let me provide a bit of background to this discussion, focussing on the premium sector. You may be familiar with some of these facts and figures but they bear repeating because they underline how intensely competitive the market is.

Premium cars and SUVs - shown in red - currently represent about 8% of global TIV.

Cars are shown in blue and SUVs in green and together, they represent around 5 million vehicles - up from 3 million in 1996. That figure is set to grow to over 6 million by the end of the decade.

But the premium sector share will peak and then fall back slightly because the growth in countries like China will be mainly in non-premium vehicles.

And there are the big unknowns - like political developments and trade tariffs ... but there is strong Chinese interest in Jaguar and Land Rover products and to meet the demand, we already have (5) official importers.

Jaguar sales have tripled in the past year and Land Rover's 160 per cent growth over the previous year is consistent with a level of growth we are still seeing.

There’s another reason why the premium share will plateau and that’s because there will soon be an established premium offering in almost every segment.

Slide 6. This is the situation in Europe where the Compact and Medium Premium segments have been established at the expense of non-premium brands ...

And the introduction of smaller cars like the Mercedes A Class and the BMW 1 Series is now driving growth in the sub-compact premium segment - shown in blue.

Effectively, European volume manufacturers are caught in a double bind. Consumers can now add either premium or better value imported cars to their shopping lists ... and in many cases, better value may also mean better quality.

Slide 7. With Premium SUVs, there’s an even more dramatic story.

Worldwide, it’s the fastest growing segment in the industry and obviously that’s hugely important to companies like Land Rover.

Again this is the world picture and it shows what happens when established premium brands enter a new segment.

Jaguar Land Rover 4 Automotive News Europe Congress, Barcelona, Spain, 5 May 2005 Sustaining Growth In The New Europe

Ten years ago, Land Rover dominated the medium-sized market - shown in blue - with the Range Rover and the Discovery.

Then they were joined by new competitors like the Mercedes ML and the BMW X5 ... and the same explosion has happened in the Small Premium segment where Freelander now has a whole host of new rivals.

In fact, the number of SUV products on sale globally has doubled in the last decade to well over 200.

Slide 8. Having said that the main markets for Jaguar and Land Rover are North America and Europe, there are big differences between them as regards the source of future premium growth.

In North America, it will be predominantly SUVs; in Europe it will be compact and sub-compact cars ...

But at a total industry level, we do not see absolute growth in either market because broadly speaking, they’re saturated with each accounting for about 20 million vehicles a year.

Slide 9. The opportunities for Jaguar and Land Rover are in changing trends, in the mix of the segments and also in the richening of the mix which is playing to our favour due to economic growth.

But the more crowded the premium sector becomes, the more competition will increase and the more important it will be to present a distinctive customer choice.

Faced with such a competitive world market, my aim - and the aim of my management team - is to build a world class infrastructure so we can deliver world class products and create a world class business – but the challenges remain enormous.

That has to be our priority if we’re to compete long-term against our bigger premium competitors.

Slide 10. I mentioned my own agenda for sustained, profitable growth and at Jaguar Land Rover that translates into our 5 key business priorities. We call them The Vital Few and they are:

* Build the Brands and Grow Revenue * Develop Distinctive Products that Deliver the Brand Promise * Achieve a Competitive Cost Base * Deliver Quality and Delight the Customer * And Create the Winning Team - a management culture that’s totally focussed on creating a world class business

The Vital Few are the tools we are using to work harder and smarter than the competition.

Slide 11. So, point no 1. The key to the premium business is the brand - knowing what it stands for, what its strengths are and what we can do to improve it.

Jaguar Land Rover 5 Automotive News Europe Congress, Barcelona, Spain, 5 May 2005 Sustaining Growth In The New Europe

Slide 12. Crucially, it’s about the consumer’s pride of ownership and constantly and consistently reinforcing every single detail - from the badge on the steering wheel through to strong residual values and a first class experience at the dealership.

When there are high quality, less expensive alternatives, the consumer’s decision to buy a premium car is discretionary and largely based on a distinctive image and set of values.

Businesses can only achieve robust, sustained growth with a clear, focussed and product-led brand approach - one that’s acutely aware of the competition and completely in line with consumer needs and expectations.

Slide 13. Hence No 2 - we have to deliver distinctive products that deliver the brand promise.

I would describe Jaguar and Land Rover as iconic British companies with unique strengths and capabilities. They’re both totally distinctive; they’re both totally authentic.

Slide14. Land Rover is the world’s only totally dedicated manufacturer of offroaders – that’s all the company has ever made since it was formed in 1948 ...

But the brand itself is rapidly evolving and I believe it’s poised for a major breakthrough.

In 2000, it became part of the Ford Motor Company’s Premier Automotive Group, alongside Jaguar, Volvo and Aston Martin ... and Land Rover’s potential is now starting to be released.

In the previous 52 years, Land Rover had just 7 all-new products launches; in the following 8 years, there will have been 5 ...

Slide 15. And 3 of them are being introduced in this year alone - the Discovery 3, an even stronger Range Rover and the all-new Range Rover Sport.

They’re outstanding premium vehicles - high-tech, high-quality, totally modern, capable and desirable ... and absolutely relevant to today’s consumers. In the industry’s fastest growing segment, we have, I believe the industry’s strongest product portfolio.

Slide 16. Jaguar has always been about beautiful, fast cars - about totally distinctive style and glamour - and again, that’s the template that will shape the company’s future.

In the late 1990s, the company embarked on a period of rapid volume growth and to be frank, it was a distraction from our core brand values.

We had to take some tough decisions last autumn and we announced a Recovery Plan based on a restructuring of the business, new product action and a revised marketing strategy ... but since then, the headwinds have got even stronger.

Jaguar Land Rover 6 Automotive News Europe Congress, Barcelona, Spain, 5 May 2005 Sustaining Growth In The New Europe

The dollar exchange rate and escalating commodity prices ... the decline in the UK and European segments ... the need to adjust to market requirements with regard to diesel particulate filters - they are all further burdens as we restructure.

It’s a pretty tough slog right now ... but we’re sticking to our Plan.

Slide 17. Over the last few years, we’ve consolidated and strengthened the line-up by introducing new diesel engines and Jaguar’s first-ever estate car ... and we’ve become a world leader in lightweight aluminium construction with the innovative new XJ saloon.

Now we’re about to introduce the first in a new generation of beautiful, fast cars. Video clip

Slide 18. This is Jaguar’s Advanced Lightweight Coupe. Shown earlier this year to widespread acclaim, it previews the all-new, all-aluminium XK sports car we’re launching in a few months’ time.

If there are any lessons to be learned from the recent past, it’s perhaps that we’ve been a little too conservative on style but this is a true Jaguar - innovative, uncompromised and drop dead gorgeous.

The first new car to be styled by our Director of Design, Ian Callum and his team, it also signals our future design direction - bold, expressive and absolutely true to our heart and soul, with great powertrains to match ... because that’s what our consumers expect.

Slide 19. But to play to our brand strengths, realise their potential and compete really effectively, we have to ensure the business fundamentals.

Achieving a competitive cost base is absolutely crucial to sustain and grow the business.

Slide 20. Premium companies should deliver premium returns by providing a premium customer experience ... and they can only do that if they are truly world class.

At Jaguar Land Rover, we have to design, engineer and manufacture our vehicles better than our competitors and we’re doing that by maintaining a climate of rigour going forward on Quality, Cost and Productivity.

What unites them is our overarching commitment to Lean Business Principles.

Whether it’s Engineering, Manufacturing or Sales and Marketing, the goal is continuous quality improvement by eliminating waste wherever possible - wasted time and effort, wasted investment and materials.

Across Jaguar and Land Rover, we spend in excess of $7 billion per annum on materials alone and as we’re all aware, prices are rising inexorably.

That’s why we’ve introduced a rigorous TVM process - to interrogate our cost base without compromising our product, our services or the environment in which we operate.

Jaguar Land Rover 7 Automotive News Europe Congress, Barcelona, Spain, 5 May 2005 Sustaining Growth In The New Europe

And Jaguar and Land Rover are working together to optimise engineering efficiency whilst retaining individual brand identities.

Slide 21. When Land Rover needed new V8 engines, for example, we could develop the excellent unit we already had in-house - the Jaguar AJ-V8 ...

And because the work is now done by a single team, we can reduce cycle times and bring new product to market more quickly and efficiently than we ever could before.

Slide 22. We’ll also take advantage of further synergies within the Premier Automotive Group and Ford Motor Company.

We’ll maintain and strengthen the distinct brand values that mean most to a consumer - like design, performance and handling ... but we will share non-differentiating technologies and resources to increase engineering and manufacturing efficiency.

Again, every European brand - and particularly an engineering-based premium brand - needs to maintain its competitiveness, for instance, in the face of the gathering environmental sensitivity ... and for Land Rover, it’s an absolute must.

Ford is actively investigating alternative forms of power and powertrain systems. It’s the only company looking at the ‘big 4’- hydrogen, hybrid, diesel and bio-ethanol fuels - and I can confirm that Jaguar and Land Rover will reap the benefit.

Slide 23. I should add that as part of the Jaguar Recovery Plan and the restructuring of our business, we’re also addressing one of the endemic problems within the automotive industry - namely, over-capacity.

We’re now consolidating production of the Jaguar XJ and S-TYPE saloons and the new XK sports car at our Castle Bromwich plant in Birmingham.

Slide 24. Back to The Vital Few and point No 4 ... to build a truly world class business, great product must go hand-in-hand with great product quality and we’re tackling that challenge rigorously and systematically.

Lean production techniques started to be introduced at Jaguar over 10 years ago and the impact has been remarkable.

Slide 25. In the JD Power Initial Quality Survey in North America last year, Jaguar was placed third out of all manufacturers - up 7 places from 2003 - and we were the leading European nameplate, ahead of our direct German competitors.

OK, we’re only a week or so away from the new survey results and I’m determined to wring every bit of value I can out of this ... but we are committed to continuous improvement so the task now is to sustain our progress and transfer Best Practice to Land Rover.

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Slide 26. In the past 5 years, we’ve invested significantly in new manufacturing facilities at the company’s Solihull plant ...

Last year we achieved a breakthrough agreement with employees on our Roadmap for the future ...

And right now we’re implementing the Quality Operating Systems that have led to the huge improvements at Jaguar.

Changing working cultures and practices takes time but Land Rover customers are already starting to see the benefits.

The company improved its JD Power ranking by 7 places last year and internal data from the new product launches this year is very encouraging. We expect it to be reflected in the marketplace shortly.

Slide 27. Finally, a word on the single most important asset that any company has to sustain growth and profitability - its people.

Slide 28. We’re not in the low cost, low skill business. We’re about high skills, innovation and R&D, so we need to attract and retain a constant stream of talented and highly qualified young men and women.

And the careers we offer must involve continuous learning - from the shop floor to senior executive level.

Jaguar and Land Rover run schools programmes to start children thinking about coming into the industry.

All our plants have Education and Business Partnership Centres to develop vocational skills, make science and technology more appealing and build links between education, the community and commerce.

Internally, we have a programme called the Winning Team which is all about developing the next generation of leaders and what we call ‘lean’ techniques - process control, business improvement and the eradication of waste ...

And at our Halewood plant on Merseyside, we have a Lean Academy where we train people within Ford Motor Company and our supplier base.

Slide 29. But if the industry as a whole is to be truly competitive, we have to work even more closely with governments at the national and European level so they understand our human resource needs going forward.

We have to look at competitive benchmarks and gap analysis - just as we do routinely with components and processes - and target further improvements accordingly. Jaguar Land Rover 9 Automotive News Europe Congress, Barcelona, Spain, 5 May 2005 Sustaining Growth In The New Europe

The same applies to industry regulation - a topic that would probably merit a decade’s worth of Congresses if it weren’t for the fact that we spend an inordinate amount of time on it already.

At Jaguar Land Rover, we have absolutely no argument with the need for regulation and we fully support the ideals behind it.

Our environmental and safety performance is crucial to all our futures – that’s why Bill Ford, the chairman of our parent company, has put sustainability and the impact of climate change right at the top of our corporate agenda.

But we need better, more consistent regulation, backed up with proper cost-benefit analysis ... so it’s proportional and doesn’t disadvantage EU-based industry against global competition.

Ford analysis puts the total cost of current and pending legislation as high as 5,000 euros per vehicle. The average cost of a Ford Focus is about 10,000 euros. No wonder the European car industry is struggling to be profitable in its home market.

Moreover, the greater the cost burden, the less the industry has to invest in the new technology that will deliver the better, safer and cleaner cars consumers need.

That’s why we welcome the establishment of CARS 21 - the EU working group consisting of commission ministers, motor industry representatives and NGOs.

Its specific task is to try and pare down the cost and complexity of regulation without diluting the obvious need for it which we all accept ... but we’d also like CARS 21 to promote more R&D because there’s a paradox in the whole issue of automotive regulation.

Whilst manufacturers are working flat out to produce cleaner, more fuel-efficient cars, the more safety systems and features we introduce, the heavier they become which eats into the benefits.

Even so, Jaguar, for example, has improved its fleet average for fuel consumption and CO2 by about 25% in the last 7/8 years - by introducing smaller cars, by using the latest diesel technology and as I’ve said, by becoming a world leader in lightweight aluminium construction.

It’s a tough business climate right now ... it’s especially tough in the automotive business and disproportionate regulation doesn’t help... but as I’ve argued today, the biggest challenge we face is complacency regarding the competitive threat.

The Jaguar Land Rover response is all about The Vital Few ... about keeping that vital alignment between the brand, the product and the customer and making sure we have an infrastructure that can deliver it.

That’s how we aim to Sustain Growth in the New Europe ... and hopefully, my thoughts have contributed to the debate today.

Thank you.