SHANGHAI — That whopping $4 billion write-down Jaguar Land Rover announced this month stunned investors and plunged the U.K. automaker into a financial crisis. JLR's owner, Tata Motors of India, says it must raise $1 billion within 14 months to replace maturing bonds and maintain its investment program.
The reduction in book value of JLR's vehicles and plants came on top of a $354 million quarterly loss reported this month. The company is also cutting 4,500 jobs, or about 10 percent of its work force, in response to declining sales.
What's behind the trouble at an automaker that not long ago was being lauded for its decade of success since being acquired by Tata from Ford?
The trauma associated with Brexit is one factor, as well as collapsing diesel demand in Europe. But superseding everything has been the surprising extent of JLR's problems in China.
The company blames its latest quarterly loss largely on "challenging market conditions in China," which include a rare decline in industrywide sales and the China-U.S. trade dispute.
But those challenges are only part of the problem. What has rattled JLR's fortunes in China most are persistent woes with reliability and dependability.
New-vehicle sales in China last year fell for the first time in the past 28 years. But the luxury market continued to grow, with sales rising 8 percent to top 2.8 million.
Germany's Big 3 — Audi, Mercedes-Benz and BMW — as well as Cadillac, Lexus and Volvo posted impressive sales growth in China last year.
Also, JLR has never shipped vehicles from the U.S. to China. So it is a stretch to say the trade tensions between the two countries have significantly affected the company's local sales.
What's really behind the 22 percent slide — to 115,000 — in JLR's China deliveries last year is lax control of product quality.
Weak product quality has been a problem with JLR dating to when the company was owned by Ford Motor Co.
The problem has lingered since Tata Motors acquired the famed brands in 2008.
In 2014, JLR started production at a joint venture with Chery Automobile Co. in the east China city of Changshu. From 2015 to 2017, five locally assembled products — the Land Rover Evoque and Discovery and the Jaguar XFL, XEL and E-Pace — were launched.
Local production allowed JLR to modify vehicle interiors and exteriors to local tastes. It also enabled buyers to avoid the 25 percent tariff that Chinese customs levied on imported vehicles back then.
As a result, JLR's China sales surged to 146,399 in 2017 from 92,474 in 2015.
But because the company never effectively addressed product quality, the number of defects reported by owners increased in tandem.
In China, as well as in the U.S., both brands routinely rank well below the industry average for new and 3-year-old vehicle quality and dependability, based on owner surveys by J.D. Power and Associates.
In 2017 alone, JLR carried out 13 recalls in China for defects with components including engines, instrument panels, airbags and batteries. The recalls covered some 106,000 vehicles, which was equivalent to more than 70 percent of its local sales during the year.
Since August, Jaguar and Land Rover owners have regularly protested in front of JLR's China headquarters in Shanghai to bring attention to widespread quality problems they allege with their vehicles.