11 January 2009

How Much Does It Matter? : Sales 2008

When a car company posts sales increases, it is greeted by the press as proof of success for that company. How much does it matter to have ever increasing sales? Jaguar is an example of why it is often deceptive. Around the 1990’s, Jaguar was making around the 40,000 cars per year. Then Ford pushed for increase in sales and between 2001-04, the average production was slightly over 120k. That latter period saw some of the worst loses Jaguar has ever posted. The last two years (2007 and 2008) Jaguar has made about 60,000 cars p.a. and made money doing so.

The point is volume isn’t of itself an indicator of profitability. Pushing too hard for sales growth, while looking good on the sales charts, often erodes profit. So rather than trying to break sales records, it’s obviously better to get good product selling at prices that make money on each car sold.

BMW has been determined to be the top premium car maker in volume by expanding its product range and seeking sales too keenly. Its profit per car has suffered accordingly, so 2009 will see a big sales drop as they emulate what Jaguar has done. This means a move away from unprofitable areas of the market and reducing discounts.

Jaguar now finds itself well placed to be a nice little earner for Tata. It just needs to get some platform sharing schemes in place as small volume has one drawback, spreading development costs over too few cars. Once that is organized, Jaguar will be the envy of other premium brands.

So while I enjoy checking out sales figures, I'm not beguiled by them. They are only part of the story. The most important thing is the bottom line.

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