When Ford Motor Co. shelled out $2.5-billion (U.S.) to buy Jaguar in 1989, some car industry wags suggested its first move should be to bulldoze the Jaguar factory in Coventry, England, and start over.

Ford saw the light yesterday after 15 years and took a step toward that process by halting car production at the Brown's Lane factory -- eliminating 1,150 jobs -- and dropping out of Formula 1 auto racing, where it can no longer compete with Ferrari and the German luxury makers BMW and Mercedes-Benz.

"Our business as it currently stands is unsustainable and our losses unsupportable," said Joe Greenwell, Jaguar's chairman.

It's not the end of Jaguar, but the overhaul represents a major blow for a brand whose sleek E-type 1960s model tops polls as the "sexiest" car made.

The restructuring is also another sign the fierce competition in the global auto market means no company can afford to make mistakes.

Jaguar's problems, analysts said yesterday, were compounded by the rise in the value of the pound against the U.S. dollar, which sent its costs of assembly in Britain soaring and revenues in its most important market -- the United States -- skidding.

Two critical errors were the X-type and the S-type, said veteran industry analyst Joe Phillippi, who heads Auto Trends Consulting Inc. in Short Hills, N.J.

The X-type -- which sells for $41,195 in Canada -- was Jaguar's attempt to boost sales by broadening the range of the brand and going slightly downscale from its top-of-the-line image.

It's a Jaguar shell on a Ford body and it never generated the excitement and sales boost that Jaguar needed to keep its three assembly plants in Britain operating at full capacity.

That move alienated elite buyers, said one senior auto industry executive.

"If you're going to drop that kind of money, you don't want to drop it on a Ford," the executive said.

Mr. Phillippi agreed.

"It was one more nail in the coffin of the cachet of the brand," he said.

The S-type, a $61,950 sedan, compounded the problem because of what he described as "horrific" quality problems that "soured a hell of a lot of people on Jaguar, period."

Piled on top of those mistakes and the currency problem was what Mr. Phillippi and others called the intransigence of workers at the auto maker.

"They're obviously dealing with the most difficult labour situation in any modern industrialized country," Mr. Phillippi said.

Then, there's the competition. Like most of the car market, the luxury segments where Jaguar competes are a barroom brawl.

Cadillac has been revived in North America with a major infusion of cash from General Motors Corp. that has led to vehicles with edgy new styling. The Infiniti division of Nissan Motor Co. Ltd. is also on the upsurge.

The Lexus luxury line of Toyota Motor Corp. will flood the market with new cars during the next two years.

The cuts are expected to save Jaguar about $120-million (U.S.) annually, some of which will go into new products, such as a diesel version of the XJ sedan, a high-performance diesel X-type and a wagon off the X-body, perhaps emulating the moves by BMW, Mercedes, Lexus and others into the sport utility vehicle market.

"The only way out is what they're doing, a fairly dramatic retrenchment back to some overall level of production volumes that they can at a minimum break even at," Mr. Phillippi said.

It will take a major boost, however, to return to the peak sales levels of 2002 in North America, which were reached after a strong decade of growth.

Sales in the U.S. market hit 61,204 that year, but fell to 54,655 in 2003 and are down another 11 per cent this year. It's a similar story in Canada with a peak of 2,556 in 2002, a drop to 2,336 last year and about a 20-per-cent slide so far in 2004.

"As is always the case with restructurings, Jaguar has a long road back to health," Merrill Lynch & Co. Inc. analyst John Casesa said in a note to clients yesterday.

The new products will help a little, Mr. Casesa said, although he and others noted that Ford's new forecast of higher third-quarter profit excluded the one-time charge taken yesterday.