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There's a smell of desperation around Ford's sale of its Jaguar and Land Rover businesses. The whiff is still more acrid when it comes to the possible sale of Volvo, the most profitable of the three European arms of Ford's Premium Automotive Group division.
Talk about the sale of the Swedish company has hotted up.
This week, Ford sources would only say that although they were "not in active discussions", they "couldn't confirm or deny" the "speculation". Could it be that Volvo is being lined up as a further sweetener?
In any case, it seems Ford is indeed contemplating life without their posher marques. Having sold Aston Martin in March for £416 million ($1 billion) to a consortium of British business people backed by Kuwaiti finance, all that Ford might be left with soon is the famous blue oval logo and the Lincoln brand, which has little recognition outside North America.
It seems Ford is selling off the family silver - or chrome - to stave off immediate financial difficulties. Ford lost more than £6 billion in 2006.
Chief executive, Alan Mulally needs the money to fulfil his declared ambition to restore the mass-market Ford business to health. On Wednesday - which was the deadline for declaration of interest set by Ford - it emerged that a variety of potential suitors for the Jaguar and Land Rover enterprises have placed "indicative bids". All have some connection to the automotive world.
Three are private equity groups. One is Cerberus Capital Management, the owner of Chrysler Group, recently spun out of DaimlerChrysler, for which it paid £3.7 billion for 80 per cent, including the Jeep brand.
The others are US-based Ripplewood Holdings, headed by a former Chrysler president, Thomas Stillman; and One Equity, whose partners include Jac Nasser, a former chief executive of Ford.
Possible trade buyers include Tata Motors of India, possibly in partnership with compatriots Mahindra & Mahindra. Tata has formed a strategic alliance with Fiat, after Renault/Nissan and Hyundai are thought to have backed away.
Ask any motor industry executive what their most valuable asset is and they're likely to reply "the brand". In advanced economies and emerging ones alike, the secret to profitability lies in creating that most special of commodities: desirability. And at least part of that is about brand.
It is why the BMW 3 Series now outsells the Ford Mondeo in Britain, and why motorists in China and India dream of trading in their Chery or Maruti for an Audi or Mercedes-Benz. Mass-market brands have lost ground to aspirational badges.
So why is Ford so intent on selling off its premium marques? It paid £1.5 billion for Jaguar in 1989, £3.2 billion for Volvo's car operations in 1999, and £1.7 billion for Land Rover in 2000. Volvo and Land Rover are profitable, but Ford has had to sink about £10 billion into Jaguar. Jaguar is the problem child, though some of its difficulties were made in Dearborn, Michigan.
In 2001, in a vain effort to push Jaguar volumes up, Ford launched the "baby Jag" X-Type, a car that was perceived to be a glammed-up Mondeo. The larger S-Type also suffered from non-thoroughbred underpinnings (in its case a Lincoln) and a dated air.
Ford might have done better by spending more on Jaguar sooner, producing "proper" rear-wheel drive products to match BMW's, rather than trying to push "platform-sharing" too far and diluting the brand in the process. Such things matter to a car buyer spending the best part of £50,000.
Things are improving. The top car stylist Ian Callum, who is responsible for some stunning Aston Martins, has begun to modernise Jaguar's look, and new models are on the way. The replacement for the S-Type, the XF, will be a very different car, and in showrooms by year end.
A more intractable problem is the weak dollar, which has had a baleful effect on sales in a key market. Production of Jaguars has fallen from almost 120,000 units in 2004 to just over 75,000 units last year. In global terms, despite its fame, Jaguar is a minnow, smaller than Saab or Alfa Romeo.
Part of the answer to Jaguar's problems lies in rationalising production, a process already begun under Ford. Manufacturing at the historic Coventry plant ceased in 2005 and switched to Castle Bromwich in Birmingham, while production of the new fast-selling Land Rover Freelander model was sent to the Jaguar X-Type plant at Halewood in Merseyside to help keep volumes up.
Jaguars and Land Rovers (and Volvos and Fords, for that matter) share many components, from the engines down. Keeping them together makes sense from both an engineering and business point of view. Whilst Aston Martin was a relatively small, self-contained unit, Jaguar and Land Rover are even more closely integrated into the Ford machine. Disentangling them would be difficult, if not futile.
Whoever the next owners of Jaguar and Land Rover are, they will continue to buy considerable quantities of material from Ford, and may remain reliant on it for the (extremely expensive) future development of new models. In that sense, the new proprietors would not gain full control of the business immediately unless they strip out the production facilities and ship them east, as Shanghai Automotive and Nanjing Auto did with MG Rover. Imagine the political row if private equity did that.
More problems loom. It will be costly to make heavy cars such as Jaguars and Land Rovers comply with future environmental legislation. And the great unspoken question facing the European car industry - affecting mass makers such as PSA Peugeot Citroen and Fiat even more than Jaguar or Land Rover - is how they can lever the advantages of production in places such as China without being eventually destroyed in the process.
Most of the ambitious mergers and partnerships of the 1990s have unravelled. Even the Renault-Nissan alliance, for many a model of what could be done across borders and cultures, is looking less impressive.
The strongest car companies in the world are those that have maintained their independence: BMW, Honda and, above all, Toyota.
They engage in all manner of joint ventures, but avoid anything too intimate. Jaguar, Land Rover, Volvo and Ford may also prosper apart.
- Independent
