Jaguar, and a lot of other car manufacturers, decided to use Nikasil in their engines in the mid to late 90's as a way to line a cylinder in an alloy block to avoid the expense of steel liners. This decision turned out to be fatal for more than one engine and Jaguar XJR's, because of their superchargers and higher compression, have had their share of issues. Nikasil turned out to be less than expected in the durability category and when this coating wears out, compression drops and significant power will be lost.
Alloy engines usually require steel liners in the cylinder wall to prevent excessive wear. This is because alloys tend to be soft and cylinder walls take a lot of abuse. Alloy is much lighter than steel though and has been an attractive weight saving material for years in racing applications.
It is important to know which cars were affected because not ALL Jaguar XJR owners need be concerned. Jaguars built between 1998-2000 were the only ones who used Nikasil so if you own a 2001 or newer model, you are in the clear. In 2000 Jaguar began to switch to steel liners to rectify the problem. Cars with 6 digits in their vin# at the end have Nikasil, cars with 5 digits at the end of their vin# have steel liners. A lot of the Nikasil Jaguar XJR cars had their engines replaced under warranty, but there are a lot out there who missed out.
So how do you tell if your car is suffering?
There is one really good tell-tale sign, starting your Jaguar XJR becomes more difficult because of the compression loss and you'll notice that the motor has to turn over quite a few times before firing. There are some other signs like smoke out the tail pipes and oil in the air intake tube, but the starting and power loss are the most obvious. Power loss is so gradual though, most people never notice, even in a XJR. Eventually, the motor will fail to start completely. Replacement can be as much as $6500 for a used motor, plus labor.
The best way to check on your engine status is to have a compression test and a leak down test performed. If you are considering the purchase of a Jaguar XJR built between 1998-2000, you should consider before you pay you hard earned monies for a mystery to have the motor tested. There are a plenty of cars that don't have any problems, but many owners of Jaguar XJR's seem to avoid these tests out of fear, so buyer beware. If your Jaguar XJR or one you are considering to purchase has more than 75,000 miles, you should perform these tests without question.