Full Transcript of CFO StudioLIVE Interview With David Chambers, CFO, Jaguar Land Rover of N.A.
In a CFO StudioLIVE Interview with David Chambers discusses the challenges of 2020 in the automotive industry and working with an international company in a time of global crisis while focusing on North American operations.
Andrew Zezas:
Welcome to CFO Studio Live. Part of the CFO Stay Connected Initiative and intelligence platform designed by CFO Studio to assist CFOs in staying connected to peer CFOs and the highest caliber service providers. CFO Studio Live, presented by CFO Studio, offers live stream, real realtime interviews with highly accomplished and well known CFOs from prominent New York stock exchange, NASDAQ, and large privately held companies as well as notable tax-exempt organizations doing business in North America. CFO Studio’s guests today can pose questions and hear CFO’s Live responses. Visit cfostudio.com to learn more and to reserve your seat for future CFO Studio Live events. Today’s podcast and all of CFO Studio Live podcasts are available online for future viewing at cfostudio.com/podcasts. Good morning, I’m Andrew Zezas, Publisher and Host, CEO of CFO Studio and your host for today’s CFO Studio Live interview. Before we get started, we have a very, very exciting interview with a very accomplished CFO today, David Chambers, from Jaguar Land Rover.
But before we get started, I’d like to remind you that we have some equally exciting interviews coming up. Those both scheduled and to be announced to include CFO Studio Live interviews with the CFO of Horizon Blue Cross Blue Shield of California, CFOs of ConAgra, Gogo air, IFF, NBCUniversal, and many other exciting companies. Permit me to introduce you to today’s CFO Studio guest interviewee, David Chambers. CFO of Jaguar Land Rover as the lead financial executive for Jaguar Land Rover North America LLC. David Chambers is responsible for all accounting, finance, purchasing and treasury responsibilities of the North America region. And reports directly to Joe Eberhardt, President and CEO of Jaguar Land Rover North America, LLC. David Chambers has been in this role since September 2006. Just prior to his current role, Chambers was the Director of Car and Truck Pricing for the Ford Motor Companies, US marketing and sales organization.
David began his career with Ford in 1992, and held numerous other positions in the areas of profit analysis, product development, manufacturing, and marketing and sales. David Chambers holds a BS in finance from Miami University, Oxford, Ohio, and an MBA from Ohio State University. He’s married and presently resides in Oradell, New Jersey. Jaguar Land Rover is a company with a clear purpose and vision. The company’s responsible pioneering and customer-centric approach to business is what makes people connect with its brands, helping it develop and … excuse me, helping it deliver on an objective of sustainability, longterm, and profitable growth. As well as producing award-winning vehicles, relentlessly innovating and developing cutting edge technologies to deliver experiences that people love for life.
Jaguar Land Rover aims to give back to society. The company seeks conscious reductions and sustainable solutions and its business wherever possible. Jaguar Land Rover’s vision is a world of sustainable smart mobility. The company is driving toward a future of zero emissions, zero accidents, and zero congestion. Destination zero; it’s what its overall focus is called. It gives me great pleasure to introduce you today to my longterm friend and a friend of CFO Studios, the CFO of Jaguar Land Rover David Chambers. David, good morning. It’s so nice to have you here on CFO Studio. So nice to be with you. Wonderful to see you. I love the new look.
David Chambers:
Thanks, Andy. Thanks for having me and letting me share some thoughts with you today and everyone that’s joined in as well. Thanks for joining in and taking the time to listen and potentially ask some questions too. And also, I hope everyone’s staying safe in this environment and in this new normal that we’re living in. Just a brief opening thing, Andy, I’d just like to say, this has been, to say, the least interesting year. And hopefully, we want to progress and change. The challenge we’re facing though, probably presents us all an opportunity to improve not only for our retailers and customers and employees but also hopefully, we improve for society as well. I don’t think any of us have … can probably remember in our lifetimes, a year that’s been like this with the various challenges from the pandemic to the various societal issues that have been going on. And again, hopefully, we take advantage of it to move it forward in a positive direction.
Andrew Zezas:
Well, David, thank you very much. I agree with you. This is definitely a time of change. Some of it changes that we’d like to forget, but I do think this is an opportunity, and I’m sure you’re familiar with the old adage … The old … I think it’s a Chinese saying, may you live in interesting times. And this is about as interesting as it gets, but I’ll also share with you something that I learned a long time ago. There is a group in China that lives by a certain way of life. And that way of life in China is known as weji and I believe the English spelling is W-E-J-I, weji. And the surface definition of weji is the word chaos. And from the outside, looking in, people say, well, why would anyone want to live their life based on chaos? Well, the underlying belief in weji is that chaos is what breeds the opportunity. Out of chaos comes opportunity, out of chaos can come beauty, if that’s your perspective.
And boy, this is about as chaotic a time as I’ve ever experienced. But we are seeing positive things come out of business. We are seeing positive things come out in other aspects. There’s still a lot of things that are broken. We know that there’s still people going through horror, losing loved ones, being ill. And certainly, no one on this call intends to diminish any of that. But from a business perspective, I think when we look back four, five, ten years from now, we will look back on this time as a time where we all learned a lot. And everything about business evolved, and that some very positive things will have come out of it. So, I couldn’t agree with you more. So, let’s talk about Jaguar Land Rover. Let’s talk about today. Let’s talk about the past and the future. Some industries have experienced challenges, and others have had positive revenue growth. This health and business crisis is really turned things topsy turvy. Tell me, how has Jaguar Land Rover fared in the last six months?
David Chambers:
Yeah. Obviously, the automotive industry is impacted heavily with primarily from the economic shutdown and the COVID impact there. Or the impact from the shutdowns related to COVID, I guess I should say. And we continue to adapt what I would call a new normal here. If you think about it, back in probably March going into April, the majority of the automotive industry we shut down manufacturing facilities. At the same point in time, as the economies were being shut down, retailers were shut down as well. Primarily, on the sales side, the service side, we were able to remain open in most areas because they were deemed an essential business. But what it’s done is, it’s accelerated our transformation of a business to improve our efficiency going back to your point about chaos breeds opportunity. And hopefully, it will help us drive longterm growth within the business.
But at the same point in time, probably no different than anyone else, we’re all working from home, and we’ve identified working from home allowed us to work more collaboratively and more nimble than we probably were before. Are there benefits to being back in the office together and things like that? I think the answer is absolutely yes. But at the same point in time, I think we’ve adjusted really well in regards to and from an employee perspective. And then, our retailers have been absolutely phenomenal through this timeframe, both in taking care of customers and taking care of their businesses. So obviously, many of the retailers were able to participate in the various CARES Act programs, PPP programs, et cetera. And also, like I said, able to keep their service business open. And then even on the retail side of the business, if they were open or allowed to be open, they were very careful in terms of how they manage that with more digital interaction with customers, more flexibility with scheduling, so people could lessen their interaction with other customers, et cetera.
And in regards to the overall impact from the COVID environment. I mean, getting to some of the facts there, Andy from a business perspective like I said, our business was significantly impacted, our retail sales for the three month period … And for us, we start our fiscal year in April. So it was the beginning of the fiscal year. I mean, our three most sales were actually down 40%, and obviously significantly impacted by COVID. They were in line with where the market went, but at the same point in time, it ended up being well above our expectations. We had originally planned April to be down 80%, and May down 60%, both of those came in … And I’m talking to year over year. Both of those came in better than that. And in June, within at least North America, we were actually flat on a year over year basis.
Andrew Zezas:
Wow. That’s tremendous. Well, we’re hearing from a number of companies, a number of industries, that yeah they’re off, but not off, as much as they expected they would be. And that’s tremendous news. Let’s talk about employees for a moment. What steps is Jaguar Land Rover taken during the crisis to support employees? And specifically, you mentioned how the retailers had done well. What steps has the company taken to support its customers; namely the retailers?
David Chambers:
For our employees? I think the first thing we did obviously is; we did no different than anyone. On March 13th was our last day in the office. A couple of us were in the following day which, would have been more … Following … worked at March 16th. But since then, everyone’s been out of the office. And so, everyone’s been working from home. And we’ve actually had during this timeframe a few new employees start too. So, we’ve had a managed transition of a new employee during a work from home type of structure. But what we’ve tried to do is really ramp up communications. So, our CEO, Joe Eberhardt … And he sends out weekly communication every Friday. Myself and the rest of the senior leadership team we’ve tried to increase our level of communications as well.
Just for example, I typically have staff meetings with my team, with all my direct reports every other week. What I’ve done there is, I’ve held that. Plus, I now have a couple of touchpoint meetings with everyone throughout the week to ensure everyone’s having conversations or at least up to speed with what’s going on. And what’s interesting is, some of this has organically grown within the organization. In fact, I was talking to my controller the other day. He may actually be online here watching this, and what he’s done is set up little coffee breaks with people during various times of the day, or various times of the week, and just invites a random group of employees within our department to just sit down and relax and chat.
A couple of other things we tried to do to be creative is, we actually … In April, there’s the normal bring your child to work day. We did it virtually this year. We’ve also been doing as we call it a shutdown trivia game as well, that we hold every couple of weeks. So, trying to just keep people engaged in regards to that in regards to retailers and customers, with the retailers, the big thing again is ramping up communication and ensuring we’re keeping them up to speed for what we know from a business climate perspective, and listening to their needs as well. So, what we’ve done is … We normally have a monthly all retailer meeting. It’s a call-in meeting, virtual meeting, anything like that. And what we’ve done is, we’ve made that done now biweekly and allowed a very lengthy question-answer session to help with the retailers and then with the customers. What we’ve done, our … I guess I would say a couple of things from a retailer perspective, as I talked about, the retailers have really increased their level of flexibility with customers online, digital retailing, service flexibility, some things like that.
And then, from our side, we ensured that we kept our key customer support activities in place. And an example is our customer relationship center. We transitioned all of them to work from home, but at the same point in time, we kept them in place. And also, we will talk a little more about what we did. We worked with our financial services partner, who’s Chase Automotive. And we worked with them no different than many of the other auto manufacturers to build flexibility into customer contracts where we thought customers could have concerns. For example, lease extensions. Did people want to bring their vehicle back in the middle of the pandemic, or the height of the pandemic in the middle of April, or let’s say early May? Probably not. So, we put in automated six-month lease extensions. And if you still wish to turn your vehicle in, Chase would go out and pick up the vehicle for you.
Andrew Zezas:
So, you guys really took a very thoughtful approach not only to employee relationships but also with your customers and how they dealt with their customers?
David Chambers:
Correct.
Andrew Zezas:
So, what happens after the pandemic? At some point, this will resolve. No one knows how, no one knows when, but this will resolve. And we will begin to; I’m not going to say go back because I think we’ll be going forward. It will be different, but we will get to some sense of normalcy, whatever that looks like. So, with that in mind, what are the specific challenges that Jaguar Land Rover will experience that will have arisen from the health and business crisis? What happens going forward? What will you retain? What challenges do you expect the company will have to contend with?
David Chambers:
That’s a good question. I mean, I think we’re going to have … I mean, I think there’s some short term challenges right now, and I think we’ll probably have a bit more discussion on those. And when I say short term challenges, those are such as part shortages and things like that. So those are … let’s call those tactical short term challenges. And there’s probably some longer-term challenges as well. But it’s early to define how those are going to reveal themselves in totality in this new normal. Because I think no matter what, when we’re in the midst of some of these … this crisis or any previous crisis, you get jaded by the environment of which you’re in. And you may not … The decisions you make then may not be the right longterm decisions.
So, for some of that, I think there’ll be a bit of a wait and see on how we approach it. No matter what, for us, from an employee perspective, we’re, going to be truly focused on the short term on our employee’s health and wellbeing. So, we are not back in our building yet. We do have some of our essential services there, but how we manage that new normal going forward is still open to debate. Obviously, we’ve laid out protocols of what we think can work. But at the same point in time, is that a permanent solution or not? I don’t know. And then at the same point in time on from a company perspective on its own, we’re going to have to take a step back and say, “Okay, what has this done to us from a product and a financial perspective? And then, how does that allow us to move forward? And do we make any pivots from there?”
Andrew Zezas:
Now, you mentioned part shortage. Is your industry dealing with any significant supply chain interruptions?
David Chambers:
I mean, primarily on the after-sales side. If you think about what happened is, at the end of the day, manufacturing was shut down along with probably the majority of suppliers; all that March, April timeframe as we brought our first plants back up in late May. So, those would have been our plants in Eastern Europe and one of our plants in the Midlands in the UK, which is Solihull, where we produce Range Rover Sport, Velar as well as the F-PACE for the Jaguar business. With that, when we’re looking at parts supply, those were the first miles we decided to feed. So replacement or service parts took a back seat for lack of a better word. So, as those … As demand is increased, again, there are some shortages that have revealed themselves. And with that drives a level of customer and retailer dissatisfaction that we’re having to manage. And we’ll have to manage through that, I think for, a period of time until the supply chains get caught up.
Andrew Zezas:
That makes sense. When I go back to the question of employees now, who are all working out of their homes … And thank goodness the technological backbone was there to support it … I think we were all pleasantly surprised that we were able to accomplish so much without being in the office, without being on top of the infrastructure. Prior to the pandemic, did Jaguar Land Rover have much of a work from home workforce?
David Chambers:
A very few of them. Just our field force in general … So I think out of let’s call it 400 employees in the US, maybe 50 … So let’s call it just over 10% worked from home, and then the majority were in an office environment. Whether in our regional offices, which are primarily in California and Atlanta, Georgia, then here in New Jersey …or main office here in New Jersey and, or even up in Canada, up in Toronto. So very few, no different than anyone else trying to manage that. And it’s interesting as you … What’s funny as you go through these things, there’s minor things that you don’t think about on a day to day basis, but then you need to start thinking about when you’re working from home.
And obviously, systems is a big piece. And ensuring your systems can handle it when everyone’s connecting from a remote environment, those types of things. And that’s at the forefront of everyone’s mindset. But then you start going down the minor things like the mail. Who manages the mail? How do people get it? How do people decide which is important, which is not? So just … And it seems pretty minor, but at the end of the day, it’s something you have to still handle. And those of us that are CFOs know certain organizations only like to communicate through the mail such as the IRS or the various tax organizations.
Andrew Zezas:
That’s right.
David Chambers:
So, you have to deal with these types of things. And then, another thing we had to deal with is; specifically we have what are called certificate of originations for our vehicles. And those are sent out to the retailers when we sell the vehicles to the retailers. And obviously, that’s the proof for the retailer to be able to sell the vehicle. Well, those are all handled and printed in our office in a very controlled fashion. So we had to think about how we were going to manage that as well. So you start thinking about minor little things that you just take for granted on a day to day basis, and it adds a bit to the complexity. But for us in general, it’s worked out very well so far.
Andrew Zezas:
Well, you mentioned mail. Even receiving and distributing one or two pieces of mail for hundreds or thousands of people, on a per-employee basis, it’s very little, but when you add it all up, it’s a major component of running a company.
David Chambers:
And no matter how much we’d like it to be, not everything is electronic.
Andrew Zezas:
Exactly. Well, let’s talk about the other side of dealing with employees from home. What does Jaguar Land Rover do from the perspective of motivation and maintaining corporate culture? All geared, of course, toward ensuring operating efficiency and profitability.
David Chambers:
I think one of the big things that helped us … and this is funny, and I’m sure many people on the call have experienced this or had the debates inside their company. So 10 or 11 years ago, we were on Outlook and the Microsoft suite, we then switched to Google for several years. And then we just went back to Microsoft about a year ago. And with that, we integrated Microsoft Teams. And to be honest, Teams has been a huge benefit for us in regards to being able to continue to stay in contact, have meetings. We collaboratively share documents, phone conversations, whatever you want to be, it’s a one-stop shopping.
So, that’s been hugely helpful, I think in terms of for lack of a better word, a way of working for us and probably has forced further adoption of it or a faster adoption of it than what we had previously, in regards to other things, we tended to have what we would call monthly or quarterly town halls. Those were in-person town halls. So, we now do those virtually, and like I said before, whether it’s me from a senior leadership perspective, or other senior leaders, or our CEO, we continue to have everyone engaged, up to date, accessible. And as we have these virtual town halls, one of the things we do is we try to measure people’s sentiment as well. So with the employees we use … and I’m sure many people have used this, we use something called Mentimeter. And it’s interesting. The feedback from the employees has been very good connected, engaged, informed, so all positive.
Andrew Zezas:
That’s excellent. Now, you talked about maintaining relationships with your customers, and obviously, it’s apparent that you’ve done a tremendous job in maintaining a relationship with your employees as well. But what about new business development? What about driving toward business that you haven’t attained yet? What is the company done to maintain a focus on developing new business? Not new products necessarily, but new sales.
David Chambers:
I mean, I think what we did was … If I take a step back, the first thing we did, and at the height of the pandemic, and I’m sure everyone did this was, we said we have to focus on the financials. So, there was an internal focus on focusing on the financials and conserving cash. As you probably read about or seen in the automotive industry, many of the OEMs tap their revolving credit lines. From a JLR perspective, we made a decision not to do that and did not do that. And we’re glad we didn’t because we ended up not having to need to tap that credit line. So for us, not knowing what was going to happen in April, May, and June, we were extremely focused on cash, driving down inventory, and bringing cash back in. So, that’s the company’s financial perspective.
For new business, we knew we needed to continue to vehicles. Plus, we also had an issue because of the basic off a cliff economic impact, and our retailers were basically shut down. Our retailers’ stocks were extremely high, so we needed to help the retailers as well. So, we put out some fairly aggressive what I would call incentive offers, 0% financing offers on the Land Rover products and Jaguar products, payment deferrals, payment waivers, and things like that. And our view is that really helped us keep a level of momentum going from a sales perspective, and still bring customers into the business. And from a company cost perspective, you could go, wow, 0% financing for 72 months. Well, if you remember at the same point in time, we’re putting this stuff in place, interest rates are dropping like a rock as well. So that the cost to do that was not the same as it would have been, three, four, five months previously.
Andrew Zezas:
Timing’s everything.
David Chambers:
Absolutely.
Andrew Zezas:
Well, you talked a little bit about upstream supply chain issues. What about downstream? Has the pandemic caused any challenges in delivering products to dealers, or dealers delivering products to consumers?
David Chambers:
So what I would say is, products to retailers and even delivery to consumers know if we have the products. We have found ourselves in a position now, which is not where we thought we would be three, four months ago where we were actually running short of vehicles. And-
Andrew Zezas:
That’s what you thought you would be, or that’s where you are?
David Chambers:
That’s where we are. Not where we thought we would be. And that’s a function of two factors. First of all, the production shutdown. So obviously, at some point in time, that gap had to show itself number one. And then number two, we’ve continued to do better than what we predicted internally and continued to do better on most vehicles across the board. So we will be in a position here as we get through this month and into September, where we’re much tighter on inventory than we normally would be or would like to be. But at the same point in time, that’s not a bad problem to have, considering where we were at the end of March.
Andrew Zezas:
So David, how’s the industry doing? I mean, it sounds like Jaguar has got a good handle on this with your leadership and the rest of management. You guys have thought about this. You’ve been very focused. It sounds like you’re weathering the storm better than many companies, but how’s the rest of the automotive industry doing?
David Chambers:
It’s interesting. I think in general, we’re all doing about the same from an automotive perspective, there’s one little interesting anecdote that we’re all trying to get our heads around. And it’s a positive one. But at the same point in time, trying to understand if it’s a dynamic that will continue or not. So in general, used vehicle prices had been slowly trending up because of the mix of sales of new retail vehicles, the price of those trending up. But the performance on used vehicles had actually been flat to slightly down over, or let’s call it the last year or so.
Andrew Zezas:
When you say performance, you mean performance-
David Chambers:
From a price perspective.
Andrew Zezas:
Got it.
David Chambers:
Maybe in prices that either retailers … or off lease at auctions, in terms of the various indexes, what the prices would be on those vehicles. And there was a view in mid-April that the bottom would fall out on used vehicle prices for two reasons. First of all, just a flat cutoff on demand. And then secondly, as you may remember, there’s been some bankruptcies declared in the rental vehicle side. So everyone’s like, “What’s Hertz going to do with all their vehicles?” What’s interesting is, there’s an index out there called the Manheim index.
And the Manheim index hit a floor in probably mid-April from a used vehicle perspective and has now rebounded back to exceed pre-COVID for used vehicles. So, it’s a very interesting thing that’s out there and shows there’s an underlying demand factor there. A piece of that could be a function of retailer shortages of new inventory. So, the retailers obviously wanting to remain in business could be a piece of it, and it could also be consumers transitioning from new to used or slightly used cars. So there’s not as much financial risk for them as they’re purchasing vehicles too.
Andrew Zezas:
What I do think is I don’t think the industry will be exactly the same as it was pre the pandemic. I mean, it’s too early to tell, as we talked earlier, what would be the longterm structural changes. But the one thing we know for sure is customers have said; you’d need to provide a digital experience. And you need to provide us the ability to interact with you digitally and even purchase vehicles digitally. And I think as you look through what happens with various automotive companies, I think that will be a big factor that we see plays out here sooner than what everyone thought probably it would be.
David Chambers:
Well, I concur with the demand for a digital experience. That very fact is the reason why we’re having this interview today digitally versus the interviews that we’ve done in the past.
Andrew Zezas:
Exactly. So, every industry is experiencing that, so I’m not surprised that the auto industry is experiencing that as well. Do you expect any particular challenges that your competitors will face that perhaps Jaguar Land Rover has already addressed, post-pandemic?
David Chambers:
Well, I think, as we talked about, no short run. I think everyone, whether it’s us or everyone, I think there is going to be vehicle and parts shortages that are going to occur. I think they’ll likely continue to see a shift and a migration in terms of the very segments in which people are interacting or purchasing vehicles and whether or not that continues to accelerate that we’ll see. Obviously, there’s been a mass movement from cars and just small SUVs and crossovers.
So I think there’s one thing for sure. The other thing that’s out there, which we don’t know is, will people go down a path now, a more higher-level of vehicle ownership again? Will people view that … let’s think about the area in which we are in, New York City Metro area. Will people forego public transportation and take advantage of private transportation again because it provides them a more secure form of travel from a health perspective? I do think it will potentially accelerate some of the technologies that are out there. And for example, one of the things we’re looking at is an enhanced cabin air ionization system to improve air quality inside of our vehicles. Because as people become more what we call sensitive to the environment in which they’re in, will these types of technologies be a benefit to consumers?
Andrew Zezas:
Wow, that’s tremendous. You’ve talked about relationship management, business development, direct selling, customer experience, not only between Jaguar and its dealers but the dealers and their consumer customers. What happens to the showroom? I mean, what’s Jaguar’s Land Rover’s vision for the future role of the showroom?
David Chambers:
I think … I mean … I’ll take a step back. First of all, we are in a process right now of moving all of our retailers to what we call our arch CNI, which is let’s think of that as our basic framework and concept for the design of our retailers and layout of retailers. And the majority of our retailers have, or will it transition over to that over the next couple of years? What I think is going to happen is no different than us. It will accelerate this transformation. We were already on with the retailers, no differently a digital journey with them. And it’s going to accelerate that. So, many of the retailers have increased their online sales, as we discussed earlier, as part of this pandemic. And for us, they were actually up about 50% year over year for the various retailers.
And the other thing is, the retailers are going to have to do things a bit more creatively. So, for example and many of you may have seen this or not. We had just launched the Defender. Reintroduced the Defender and launched the Defender back in the US for the first time in let’s call it 30 years. So we’re launching an all-new vehicle in the midst of the pandemic. And so many of the retailers did virtual introductions of the vehicles or virtual reveals of the vehicles. And that will allow customers to attend either in person or online, but at least be a part of the review.
Andrew Zezas:
Wow. That’s cool. That’s very cool. There are a lot of exciting things that are going on technologically, digitally. Things that we all said; I wonder if we will be ever be able to do that? And now we’re doing it. And let’s stay on technology. Besides the ability for dealers to interact digitally with their customers, are there other new technologies that Jaguar Land Rover is introducing either between it and dealers, or maybe even within the vehicles themselves? You mentioned cabin air quality, are there other technologies that the company is prepared to announce?
David Chambers:
From an announcement perspective, I can’t say. But in general, we’ve been no different than what you talked about. In order for us to achieve quote, unquote destination zero, a chunk of that will have to be driven by new technologies. So, we launched the I-PACE a couple of years ago, which is our first all battery-electric offering. And obviously, on the battery-electric side of the business, whether it’s us or any of the competition out there, the key thing for consumers, other than obviously performance and safety, is the range of the battery so that we will continue to have to drive that forward.
At the same point in time, we have announced a partnership or collaboration with Waymo, where we are going to provide them a fleet of I-PACE for them to develop an autonomous driving fleet, which will be launched in several cities. And so, obviously, from a technology perspective, there’s those items as well. Obviously, there’s the digital aspect, which we talked about, which I think is key in the industry, too, on how we interact with the customers. But those are some of the things I see Andy. I mean, it all comes down to how we get to those end goals. And a lot of that will be driven by various technologies.
Andrew Zezas:
Sure, sure, sure. So, well, David, let me ask you one final question before we go to our audience Q and A, share with me … Sum it all up for me. How do you expect that leadership at Jaguar Land Rover takes all these collective experiences? Not just of the last six months, but for the very, very long time that Jaguar Land Rover has been such a loved and well known international brand. What’s the plan to move the business forward?
David Chambers:
I think the first thing we had to do … And probably, like I said, no different than anyone, we had to react. And that was all about dealing with cash flow. And our industry’s interesting in regards to cash flow. In that, we tend to realize cash very quickly from our sales. But then obviously, we pay our bills slower than that. So, when the sales stopped, we ended up having payables on unwind. And which could have been … And I think in totality, that was worth about a billion and a half Sterling for the company globally, was the payables unwind. But however, through other prudent cash management measures, we were only down on a year to year basis from a cash flow perspective about 500 million. And again, that sounds large, but it was better than what we had predicted and better than what we had communicated. So that was a huge benefit.
So first of all, it’s how do we manage that? Secondly, was now we need to restart the business, what’s the process, and what’s the prioritization process to restart the business? And what we did was we prioritized it based on the vehicles with the highest demand and the highest profitability. So no surprise there. We started the plants that produce Range Rovers and Range Rover Sport … or the plants that produce Range Rover and Range Rover Sport first, and then managed from there. Because what we didn’t want to do is put ourselves in a position where we were stuck with tremendous amounts of unsold inventory. Because this time, they have a bit more control over the process. Right? In February, March into April, we didn’t … it was a full-stop deal with the ramifications.
And so, we had vehicles at retailers; we had vehicles that are in auctions. We had vehicles on boats, and we had vehicles at the plant still. So, how do you try to avoid that, or at least optimize or prudently manage that situation going forward? So, that was, how do we manage immediate priorities there? The next step would be … let’s call it recover. And this is going to be a bit of, if anyone has a crystal ball, we’ll take it. This is about how fast does the market come back? And then, how do we adjust our business plans accordingly? So, no different than probably anyone else out there. We have a budget and business plan, which has assumed levels of profitability and cash flow. And then, we use the cash flow that’s coming off of that to decide … not to decide, but to reinvest back into our new products. If we were in a new normal, where the industry is 20% lower, and our profits and cash are significantly lower, we’re going to have to take a look at that and adjust accordingly.
So, that’s one of the big factors, and that’s what’s going on now. But I think even all of us here in the US would say that in some ways, things feel normal. But how much of that is driven by government assistance? Meaning CARES Act assistance, unemployment assistance, and things like that. And nothing negative about that stuff, but just how much of that is a problem? And we don’t know the answer there. And then, ultimately, we’re going to arrive at the new normal. And then, like I said, taking the recover portion of that, how do we then reframe our business? And then what will be … We think based on everything we’re seeing, where customers are saying, we think there’s some new normals out there in digital business and digital interaction. But will that truly be the longterm customer behaviors? What drives them, how they … Will that be their attitudes going forward? Will people still be looking to have the same vehicles they had previously? All questions that are out there and those are the things we’re thinking about now.
Andrew Zezas:
David, your comments have been clear. You shared a lot of interesting insights about Jaguar Land Rover and about the current state and future of the automotive industry. I can’t thank you enough for permitting CFO Studio to shed light on what has always been and what certainly will be a very well-loved tremendous brand globally. We have some questions from our guests. I’d like to pose them to you now. The first one is, will the acceleration of manufacturers using digital communications to consumers preempt and halt the growth of online sellers, or new and used car sellers, companies like Carvana and that industry?
David Chambers:
Repeat the question if you wouldn’t mind, Andy.
Andrew Zezas:
Sure. Would the acceleration of manufacturers using digital communications in terms of selling cars to consumers, will that initiative preempt or halt the growth of online sellers? Non-manufacturing sellers, the Carvanas of the world and those companies.
David Chambers:
I think the first thing I would say is TBD, and that’s a bit of a cop-out. And the reason I would say that is, the majority of our focus, at least on our side is going be on the new-vehicle side. The Carvanas and the Vrooms of the world, or on the used vehicle side. Do we need to work with our retailers to sort out that business model? I think the answer is yes. So the bigger impact could likely continue to be on our retailers. Because at the end of the day, what the online no different than other online types of businesses do as they’re stripping out one layer of the sale process number one. And number two, stripping out the costs that are involved, including the brick and mortar. So it allows them to still earn a healthy margin, but potentially at a lower price. Or they can potentially sell the vehicle at a lower price than what one of our retailers would be able to do. So, it is something we’re looking at, aware of, and know that our retailers, as part of their migration, are going to have to adjust to as well.
Andrew Zezas:
Another question is with the advent and tremendous success of companies like Tesla and the addition of Tesla competitors, like Nicola, and a couple of others, given Jaguar Land Rover’s own entry into the electric vehicle business, what does Jaguar Land Rover see as the future of the electric vehicle business? And will other products be introduced by Jaguar Land Rover in electrical format?
David Chambers:
And this is I would say my view on this. I think the company would stand behind this. Other competitors entering into the electric business is positive. Because it shows that people think there are opportunities to make profits in that industry. I think it will also force some of the infrastructure requirements. It will force those to be implemented faster or sooner rather than later. So I actually think it’s a positive that we have other competitors coming in all the way across the board. And if you think about where they’re coming, you have Rivian on one side with effectively a pickup truck, which they’re working on with Ford, all the way down. The more normal luxury sedan set up with someone like Ellucian Motors or something like that. So I actually think it’s a positive in regards to that.
From a Jaguar Land Rover perspective, the answer is yes; we will continue to proceed down that path. Obviously, we have I-PACE, the new XJ, which we will be launching, will be an all-electric vehicle. And then the majority of our products today, whether its Range Rover, Range Rover Sport, you have … Or there are offerings out there where you can get what we would call a partial hybrid. So it has a traditional powertrain plus a battery-electric motor in there, which would allow you to get 25, 30, 40 miles of range. So as you’re tooling around on your day to day basis, you can use the battery motor, and then the normal powertrain engages as required. And then, obviously, it charges no different than a normal battery-electric.
The disadvantage that the traditional manufacturers have versus the Teslas of the world … and I’m sure that Nicolas of the world and et cetera, is how they sell vehicles. And that’s something the industry is going to have to continue to work on with the various states and the various retailers. So today, we, as a manufacturer, cannot directly sell new vehicles. We have to sell through franchise retailers. And so, that limits some of our flexibility in terms of going direct to consumers, which is what Tesla does today. So in order for us to be able to compete within that environment, again, we’re going to have to leverage our retailers and help them move their business model forward so they can be competitive as well with that type of business.
Andrew Zezas:
So another question from our audience is, how will 3D printing change the auto industry?
David Chambers:
That’s a great question. I guess I don’t have a good answer for that one.
Andrew Zezas:
You know what? You’re allowed not to have one answer, you’ve answered all that.
David Chambers:
It’s a great question.
Andrew Zezas:
It really is a great question. I found in a conversation with the CFO of another auto manufacturer about a year and a half ago. He shared with us that they spent a lot of time understanding what business they’re in and, like Jaguar Land Rover, decided that they’re in the experience business, and the vehicles they sell are really just means of delivering an experience. And part of that recognition was also a conclusion that their vehicle will always have a steering wheel. The fact that they asked themselves that question, and I would imagine Jaguar Land Rover went through the same question, everything about a vehicle … I grew up with hot rods. I grew up with an eight-cylinder Pontiac with a 350 that’s jacked up in the back. I was a traditional kid. The thought of being in a vehicle without a steering wheel is amazing. And the fact that your industry contemplated whether it needed a steering wheel, was amazing.
David Chambers:
So from a Jaguar Land Rover perspective, we actually have developed … I think we showed it a couple of years. We showed a removable steering wheel. So, this was a steering wheel … Think about it as your iPhone through your car. I mean, instead of an iPhone, which you carry everywhere with all your information, this should be a steering wheel that you could carry, and then you could attach it to the various vehicles you’re driving, and we carry the information that’s required in order for you to drive the vehicle. So that was something that was done that we showed a couple of years ago which is quite interesting to think about it from a technology perspective.
Andrew Zezas:
Sure, sure. That’s very cool. That’s great.
David Chambers:
Circling back on the 3D printing one, if … I have to provide some level of the answer there. So obviously, the opportunities on 3D printing probably are more on our design side of the business and opportunities there to drive efficiencies in regards to that, because if you think about it today, there’s a tremendous amount of prototyping that occurs in the automotive business, no different than other development businesses. And that’s probably where there’s the biggest opportunity for something like that. On the finished part side of the business, probably today is less so. But I could be wrong just given the various requirements that are out there from a safety and security standpoint.
Andrew Zezas:
So, the last question from our guest audience is, when companies like Harley Davidson built their brand recognition based on the expectation that people love their vehicles so much that they would tattoo Harley Davidson’s logo on various parts of their body-
David Chambers:
I don’t have a tattoo.
Andrew Zezas:
And the cult effect that has been demonstrated through Tesla, how will Jaguar Land Rover and other automotive companies compete going forward?
David Chambers:
Well, what’s interesting is, I think the Land Rover side of the business for Land Rover enthusiasts I think, has a similar following. So if you go and talk to people that have a Defender or Discovery, those people will talk about how much they love the vehicle, even though the vehicle may be causing some issues now, because it’s 35 years old, how much they love it. They love the experience of it. On the Land Rover side of the business, we used to do a training structure that was called Dipped in Green. And it was all about the Land Rover business, the brand, the experience itself. Within the US and Canada, we have Land Rover driving experiences. We just reopened those at the beginning of August. The closest one to here is at the Equinox in Vermont.
And if you talk to the people that work there, you would think they’re in the Land Rover cult per se. There’s no doubt about it. On the Jaguar side of the business, I think it’s a bit different because Jaguar has changed over time. But again, if you take a step back, all you have to ask certain automotive enthusiasts about is just ask them to talk about an E-Type. And I think you get the same type of reaction.
Andrew Zezas:
David, your time with us has been very valuable. I want to thank you so much for being so open and so direct and transparent with your answers. Like I said, the Jaguar Land Rover is a brand that’s been loved for a very long time. And with no doubt, and with the leadership that you’ve demonstrated and your management team has demonstrated here in North America and around the world who undoubtedly will be loved for a very, very long time. I hope that you and your family stay well. David, I want to thank you so much for joining us.
David Chambers:
Thanks for having me.
Andrew Zezas:
My pleasure. I will remind our guests that David Chambers, a while back appeared in a cover story on CFO Studio magazine. That story and that magazine are available for digital viewing at cfostudio.com. I’d like to thank David for joining us. I’d also like to thank our guests. It’s wonderful when our CFO guests join us and share their views. I appreciate the questions that came in through the Q and A. I’d like to remind our guests that CFO Studio Live will host a number of other folks who are just as exciting as the people like Dave chambers and other folks that we’ve been blessed to have attended with us. Visit cfostudio.com to find out who else we’ll be interviewing, and register to attend those events. I hope to see you all again very soon. I hope if you’re commuting from the kitchen to the dining room, you watch out for the corner of the table. And if you’re lucky enough to be out of the cave, I hope you’ll all stay healthy. I’ll hope you stay well. I look forward to seeing you again, not only here on CFO Studio Live, but at some point soon face to face. David and to all our guests, thanks for joining us. And God bless.
David Chambers:
Thanks, Andy.