Despite continued protests from trade unions and politicians, Ford's Browns Lane Jaguar plant in Coventry, UK looks set to close as the firm battles to control its cost base. Yet with difficult trading conditions blighting the industry at present, in the US particularly, the company has little choice but to take decisive action.

While the luxury car market boasts fewer competitors, the trading environment is no less cut throat than that of the volume segment. Key competitors, including BMW and Mercedes-Benz, are performing well at present and providing significant competition in the marketplace. Jaguar, meanwhile, is struggling by comparison, especially in the US - the most important overseas market for all three players.

Jaguar's problems earlier in the year meant that its overall sales target was cut from 200,000 vehicle sales a year to 120,000 sales for 2004. This in turn led to the company's decision to close its plant in Coventry. Chairman and chief executive Joe Greenwell argued in an interview with the Financial Times that the operation in Coventry had become "unsustainable" given the current sales volume that Jaguar expects to reach. Given current predictions, Greenwell is expecting the company to break even by 2007.

The closure of the Coventry plant is still being debated: unions argue that a business case for its closure has still not been presented. It is unlikely, however, that Greenwell will be able to keep it open considering the current sales projections and the expected losses in the future.

It is also unlikely that his bosses at Ford will look favourably on keeping Coventry going as the company tries desperately to reach profitability for its luxury marques. Ford has indicated that its luxury marques are expected to make a profit of $US2.3 billion by 2006 - a landmark it will find tough to reach if Jaguar continues on its current path.

It seems unlikely that union leaders will find a compromise that is acceptable to Ford management, given that the major problem is that Jaguar is not selling enough cars. With few other viable options apparent, Jaguar is right to take stringent if unpopular remedial action.

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