Wall Street Journal - May 30, 2007
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
"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
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
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