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Land Rover Finds The Fountain of Youth

Even as Land Rover celebrates its sixty-fifth anniversary -- generally regarded as retirement age -- the automaker is displaying the growth of a Silicon Valley startup and posting profits that must make its former owners weep. For the third fiscal year running, Jaguar Land Rover (JLR) announced a profit of at least $2.3 billion, the price India's Tata Motors paid Ford for it in June 2008. Sales are up 22 percent, to 375,000 units. Land Rover accounts for 84 percent of group sales and all of the profit, according to analysts. Considering that JLR flirted with bankruptcy and begged for a bailout from the British government in 2009, this is one of the most astonishing recoveries the auto industry has seen. So what went right for Land Rover? And was Ford wrong to sell?

It seemed like the right move at the time. Sources close to the sale tell us that not a single major automaker showed interest. There were five private-equity firms and two Indian carmakers -- Tata and the smaller Mahindra -- in the running. This was not a good time to be selling a volatile car company, especially one dependent on expensive SUVs. If JLR had still been for sale when the financial crisis struck just a few months later, "Ford probably would have closed it," says Sanford Bernstein's automotive analyst, Max Warburton.

"The whole Tata deal was incredibly romantic," Warburton continues. "The decision came from a guy -- Ratan Tata -- who just loved the history of these British brands. There's no operational synergy between Tata and JLR."

It was hardly smooth sailing through 2009. JLR posted nearly $500 million in losses, and Tata tried to get a loan from the U.K. government. Ford CEO Alan Mulally must have been Google-translating caveat emptor from Latin
to Hindi.

"It was tight, about as tight as it gets at a car company," a former JLR executive told us. "We were playing for time, doing everything we legitimately could to ease the cash flow. We had a hard time meeting the payroll."

Then the profits graph started to march upward: a small profit in the fiscal year that ended in March 2010 followed by colossal profits the next three years. What happened? Well-received new products helped: the Evoque quickly became Land Rover's best seller, helping to boost sales in all markets, even shaky Europe, where Land Rover grew 18 percent last year. But China's sudden discovery of SUVs is easily the biggest reason for Land Rover's riches. China became the brand's biggest market this year: sales there rose 48 percent after growing 76 percent the year before.

More positive signs lay ahead. The new Range Rover hasn't yet made a full year's contribution to the bottom line, and we'll soon see a long-wheelbase version aimed squarely at China's chauffeur-driven market. The new Range Rover Sport is a much better replacement for a model that was Land Rover's most profitable and -- after the Evoque -- its biggest seller, despite its high price. It will get a downsized 2.0-liter turbocharged four-cylinder, again aimed at China, where it wins a tax break. The streets of Shanghai will be thick with them.

So Land Rover is saved, right? Not entirely. Land Rover has been greatly aided by the weak British pound, which could recover. And although China is still growing, the rate is slowing and its government is cracking down on conspicuous consumption. In the last quarter of fiscal year 2012-13, Land Rover's sales there were up "just" 13 percent. Land Rover wouldn't be British without that slight frisson of financial peril.