Ford - Volvo and Jaguar

Wall Street Journal - May 30, 2007 http://online/
DETROIT -- As Ford Motor Co. considers its options concerning its portfolio of assets, questions are growing over the fate of its Volvo
Ford said it isn't in talks with any party, including BMW AG, to sell Volvo, of Sweden. The company was responding to reports that the two auto makers had been in talks regarding the Volvo unit.
Earlier in 2007, BMW signaled interest in acquiring at least a stake in Volvo, according to people familiar with the German auto maker's situation. But these people said BMW interest has cooled.
Ford spokesman John Gardiner dismissed suggestions that Volvo is on the block and said Ford has been the subject of heightened speculation over the past 12 months as it has sought ways to bolster its operations. The auto maker continues to hold weekly strategic-review meetings overseen by Chief Executive Alan Mulally.
The Dearborn, Mich., auto maker maintains a consulting relationship with Kenneth Leet, a former Goldman Sachs Group Inc. investment banker who in December took a job with private-equity giant Cerberus Capital Management, which is gobbling up assets in the U.S. auto industry. Mr. Leet was hired last summer by Ford.
The auto maker recently sold its Aston Martin unit to a consortium led by United Kingdom automotive veteran David Richards for $848 million. But Ford and Volvo executives in the past have said they won't sell Volvo, which Ford purchased in 1999 for about $6.5 billion.
But with BMW's earlier interest and other deals taking place that are transforming Detroit, Volvo is getting scrutiny from industry observers. Volvo might be the most ready to sell among the company's brands, said Stefano Aversa, co-president of consulting firm AlixPartners LLP. He said Volvo is relatively disconnected from the parent company and is consistently profitable, unlike Ford's British brands.
"They cannot sell Land Rover, they cannot sell Jaguar," said Mr. Aversa, citing Volvo's stablemates in Ford's luxury-car Premier Automotive Group. "They would have to give them away."
Ford is looking at several scenarios to help it recover from operational and structural problems that led to a record $12.6 billion loss in 2006 and a move in December to secure more than $23 billion in additional funding to help finance its restructuring.
Ford shares were down five cents to $8.40 in 4 p.m. composite trading on the New York Stock Exchange after moving as high as $8.59 early in yesterday's session.
Consolidation has come under an intensifying spotlight following bankruptcies and acquisitions in the U.S. auto industry, including Cerberus's agreement to acquire Chrysler from DaimlerChrysler AG earlier in May.
Ford doesn't break out results from individual companies within Premier Automotive Group. Goldman Sachs recently estimated Volvo earned $260 million last year. The group had a loss of $327 million over the same period, according to Ford.
At Ford, managers are partially unwinding a buying spree that ended earlier in the decade after the company purchased several brands and other assets. The auto maker's North American business has suffered in recent years because of high costs and dwindling market share, sparking a need for additional cash and a refined focus on improving core businesses.
Jefferies & Co. Managing Director Justin Mirro said the Volvo unit could be effective as a stand-alone company because it has its own product-development facilities and global dealer base. He also noted that Volvo remains a leader in passenger safety, long an advantage that Volvo has advertised.
Several analysts also have speculated that Ford eventually will have to sell at least a stake in its Ford Credit lending arm, whose financial health has weakened because of junk-status credit ratings and falling global sales. Ford has said over the past year that the credit arm is a core part of its business.
But any sale of Volvo or Ford Credit could be complicated by both assets being pledged as collateral on the auto maker's recently obtained financing package. If Ford were to sell Volvo, part of the assets would be devoted to paying back debt, while the remainder would be invested in the company. As for Ford Credit, Ford is confined to selling no more than 51% of the unit and would be restricted regarding how it could deploy proceeds.
Unlike Ford Credit and Volvo, most of Land Rover and Jaguar aren't pledged as collateral on loans. Land Rover, purchased from BMW earlier in the decade, is enjoying a product renaissance.
Mr. Mirro said despite Land Rover's focus on sport-utility vehicles -- sales of which are under pressure in the U.S. because of rising gasoline prices -- the unit sells some extremely profitable vehicles and is short on production capacity, given global demand.
Jaguar, however, continues to suffer from overcapacity and an aging product mix. Recently, Mr. Mulally expressed confidence in Jaguar's revitalization efforts.

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OK. Let me get this straight. You are supposed to hold on to divisions that are losing money, and your supposed to sell divisions that are making money so you can take the money from the sale and plow it into the divisions that are losing money.
This kind of muddle-headed thinking is what the US's business school MBA programs have been turning out the last two decades, and it is why so many companies like Ford have had problems.
The way your supposed to make money in large companies is divide them up into divisions, and continue creating new divisions either by growing them or buying them. Then as markets change and divisions become unprofitable, you sell them off to some poor investor who just squeezes the last bits of revenue out of them.
That model worked well until these business schools started churning out MBA's who graduated with their head up their butts.

Yeah, you see, the bankers know what's dumb. They aren't going to loan money on worthless collateral.

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