Desperate times, desperate measures. Ford Motor Company has retained the services of three investment banks to advise it on the sale of Jaguar, Land Rover and, perhaps, Volvo. Flogging the remains of the Premium Automotive Group (post-Aston) will plug a giant hole in the automaker's balance sheet, give FoMoCo a cash injection to sustain short-term operations and fuel its do-or-die turnaround plan. As Oliver Hardy would say, well, here's another nice mess you've gotten me into.
The Premier Automotive Group (PAG) was the brainchild of Ford's then-CEO Jacques Nasser. Goaded by former BMW superstar Wolfgang Rietzle, the terrible twosome aimed to take Ford where Lincoln [supposedly] couldn't go: the top tier of the world luxury car market. With PAG, Ford sought to escape the mass market pressure at home and begin turning profits on margins, rather than volume.
Nasser's plan wasn't beyond realization, but its implementation was deeply flawed. Arguably (and certainly in retrospect), Ford overpaid for tired assets. In '89, Jaguar cost Ford $2.5b. In '94, Aston cost… "nothing much." In '99, Ford paid $6.45b for Volvo. And in '00, Land Rover sucked $3.3b from Ford's corporate coffers.
Ford poured unspecified billions into its PAG properties to improve product quality. It also spent tens of millions on Rietzle's pet projects, such as a Berkley Square, London design center and a doomed, prototype PAG "super dealership." A combination of executive profligacy, beancounting and bureaucracy rendered Ford's early investments woefully inefficient and largely ineffective.
In the last five years or so, Land Rover, Volvo and Aston all managed to claw their way to profitability. (Ford dumped Aston this year for $957m.) Meanwhile, Jaguar kept trying to build luxobarges on the cheap, aiming to create massive profits through hiked prices and radically reduced development costs. The result was– is an unmitigated disaster.
Jaguar lost Ford money from the git-go, and went downhill from there. In '06, Jaguar lost FoMoCo $715m, easily absorbing the profits generated by Volvo and Land Rover and plunging PAG into a $328m sea of red ink. A leaked internal memo indicates Jaguar will lose $550m in ‘07 and $300m in ‘08. Or more.
In the past, car firms were bought and owned by other car firms or industrial conglomerates whose core business had synergies with the car business. Chrysler's macabre financial results would have been a giant red flag to possible investors. Today, the game has changed.
When Dieter Zetsche put Chrysler in the discount bin, many openly wondered if there would be any takers. Having posted a $1.5b loss in fiscal ‘06, competing in the world's most competitive market against non-union shops, the company wasn't exactly a future growth superstar.
That said, Chrysler has been profitable as recently as ‘03. Truth be told, a $1.5b loss for Chrysler represented 2.1 percent of its gross revenue. It may look abysmal in absolute terms, especially for a shareholder, but at the macro business level, Chrysler's loss was small. No car firms stepped up, but private equity did.
Conversely, Jaguar's loss alone accounts for 8.4 percent of PAG's 2006 gross revenue– and that's including PAG's profits from Volvo and Aston Martin (before it was sold). Though it's an admittedly crude calculation, the figure illustrates the extent of Jaguar's plight.
With these kinds of numbers, no car firm is likely to buy Jaguar. So, in come Cerberus and Blackstone again, to announce their interest.
It's easy to see the potential "synergy:" Jaguar atop Chrysler as a luxury brand, Land Rover atop Jeep as a luxury SUV. Private equity, though, isn't interested in running a car business. It's interested in return on investment. Any offer for Jag and Landie will consist of pennies on the dollar.
According to Automotive News, Cerberus' latest "come to the table" offer for Jaguar and Land Rover is around 5.5b Euros ($7.3b). That's a pittance for a company like Ford, which currently carries $139.4b in debt. The cash would barely allow Ford to service their debt for a year, let alone pay it down.
Bidders may insist that Ford bundle po-faced Jag and Landie with higher-flying Volvo. While separating Volvo's platforms from Ford's products would be problematic, it's not an insurmountable challenge. And the final disposition of Ford's upmarket divisions could pave the way for a resurgence at Ford's original "premium" brand: Lincoln- if they have enough cash to fund it.
Even if Volvo escapes this round of selling, when the next financial period ends and The Blue Oval needs to feed its ongoing cash conflagration to make it through the next quarter, it's going to be awfully tempting to unload the quirky Swede. Will that be enough? To quote Oliver Hardy in Sons of the Desert, "That's all there is. There isn't anymore. Is there Stanley?" No, Ollie, there isn't.
It is so ironic that all of the woes of the big three domestics come from a time when they were awash in success and cash.Nasser, bought more than premium foreign car companies. He was into British repair garage chains and other off the wall stuff. It seems that conglomerates work for some (think GE or Berhshire Hathaway). But in the car business it seems it takes all the brain power in the front office just to keep the product coming out on time and glitch free. All the successful car companies have stayed close to home(think honda toyota) Mercedes got into trouble where, after they bought chrysler ?(in Germany after they took valuable management and sent them to the US). If Ford, GM, and chrysler are to survive, (I don’t think all three will) they have to put every warm body, every day (and some nights) into the business of designing, building, and marketing a lineup of near perfect cars here in the US. First the aquisitions have to go ala Chrysler for mercedes. (gm can well be rid of saab)and of course ford (volvo, jaguar, and rover.) Now with all brainpower on deck at home, perhaps they can challenge the new World competitors.
There is a tremendous financial opportunity here if you believe Ford will survive as a compamy. You can bur Ford bonds yielding 9-10% current yield on a 25-30% discount off of face value. Make 10% while you wait and 25% more in the future IF YOU BELIEVE FORD WILL SURVIVE.
is there any single car company in the world that would yielded anything from being purchased by american companies. all they get is platform-sucked, product starving , identity lost, cheapened down agonizing death.never ever allow to be bought by american car companies. If they can`t build cars to sell themselves, what makes you think they can build it for your company? look at saabs, isuzus,… anything that big 3 has put their hands on. ford must realize- there are 2 categories of people 1. patriots- they buy american cars even if they are a bit worse.
2. non- patriots- they just buy the best offered product.
funny, none of big3 make cars for any of these categories. so that`s why you are destined to perish. either make them domestic, or make them really good. spin off the non- domestics would be the best solution. but don`t forget why big 3 ever bought shares in foreign companies…. that`s right… to suck out platforms and to fake domestic diversity. if they sell all volvos, where they will get the gizmos from. right, there is still mazda.I wish mazda dumped ford…. then they would either have to build their own floorpans or die. i guess history teaches us that going south is the most probable ending. the more parts any gizmo has, the less likely it is engineered by an american company. ford could transform into plastic bag manufacturer for cars, or car deo manufacturer…..ha hahahaha.
“All the successful car companies have stayed close to home(think honda toyota)”
I think I know what you mean here. However, Honda makes an incredible variety of motorized products – Lawn mowers, trimmers, snow blowers, (my mower and blower are both Honda powered) Generators, boat motors, small engines one can buy for various applications, of course motorcycles, and now they are going into the jet airplane business (Dump your LearJet stock now).
What Honda isn’t doing is buying up European auto makers who are barely surviving. Jag has been in trouble for decades. Land Rover is a joke as far as reliability – one is better off with a Toyota, and most people can figure that out.
Any Executive who says “Why don’t we buy Jag and Land Rover” should be saying “You want fries with that?”
I spent a large portion of my career with a company managed by its four founders. Each had a key competency. In 30-years the company grew to be the largest, most successful and profitable in its field. Then the partner who provided the prime direction, resolved the disputes, and kept things focussed and humming along retired.
The partner who assumed his mantle now had a free hand. He brought in a platoon of MBAs, the smartest guys in the room, to devise efficiencies and rejuvenate a business that needed neither streamlining nor revitalization. Experienced hands abandoned ship or walked the plank. In just six years, after too many senseless overpriced acquisitions, the company had a debt load it could not service. The four divisions were separated. The least profitable went first, heavily discounted to sell fast. The cash the sale threw off disappeared into the cauldron to feed the ravenous interest dragon. The most profitable division was next. The other two went shortly after at fire sale prices.
The MBAs negotiated the transactions and ensured they were personally well looked after. Like the 18th century missionaries who went to darkest Africa to do good, they did very well indeed!
No company in their right mind is going to go after Land Rover. They don’t sell enough of their cute utes to make a case for profit in that sector, and the big luxury SUV era is more or less gone for good….barring some fuel source breakthrough that leads to another round of head in the sand impulse buys from status conscious soccer moms and middle management types.
I think they could unload Jaguar (though it’s the sickest of the patients), because their concepts are once again showing hints of past brilliance, but Land Rover will probably need a bit of swedish sweetener to find a new master that isn’t interested in playing chop shop.
Funny, I interviewed with Ford not long after Nasser’s binge. It was a tough interview, as most interviews are now, and frankly I was running out of patience. I didn’t get the job, and to this day I sometimes wish I had blurted out ‘I know enough about the auto industry to know buying Jaguar was incredibly stunned and doomed to failure!’ Ford’s blunders will populate case studies for years to come.
I had an opportunity to join Ford way back when they still owned the Ren Center. I think it was back in 1997.
The folks there were actually very nice and I had a good time during the interview process. However the job that I came there for (district sales manager) wouldn’t be given to me until I spent a full year working on the Ford customer’s ‘No!’ line and spending my days in not too sunny Detroit. I said thanks, but no thanks.
I don’t blame Ford for buying out what became the PAG group. The Jaguar debacle pales in comparison to what Daimler-Benz did to Chrysler. In fact, Ford actually added an awful lot of value to a company that should have been dead at least 10 years ago.
Land Rover was largely a victim of $3 gas. The BMW influence was first rate and Ford actually did a pretty good job of managing it. Again, I think that this marque would have also died a natural death if it hadn’t been for Ford’s involvement.
Volvo to me is the biggest question mark. The parent company was getting hit pretty hard by the rise of SUV’s by the late 90’s and the ROI on the car division paled in comparison to the truck line. The krona’s strength,a nd the S80’s struggle, made Volvo’s overall automotive operations a very dicey proposition at the time.
The XC90 turned out to be an excellent success. Ford deserves kudos for it but the lack of a minivan for one of the most conservative family oriented brands was truly inexcusable.
The S80 had initial problems that were not Ford’s doing, and the S70/V70 series had pricing issues that only could have been resolved through outsourcing and decontenting. Volvo was smart to focus on the lower end near-luxury side of the equation. However the S40 and S60 were simply not as good as the competition.
The purchase of Volvo obviously added life to Ford’s car powertrains which more or less peaked by the time the acquisitoon was made. Simply put, the cost savings and overall quality of the Volvo designs gave Ford’s automobiles new life at a time when paltform sharing was becoming the critical component to a large manufacturer’s survival. Toyota, VW, and GM were already headlong into the platform sharing religion when Ford started to wake up to the idea. Volvo’s platforms were what Ford needed to build a better foundation for it. A lot of outstanding Ford and Mazda products would not have been possible if it weren’t for the Volvo acquisition.
I still believe Volvo needs to be given a new market direction in the US with a greater emphasis on durability and longevity. If Ford would consider an extremely strong warranty (12 years / 120,000 miles powertrain) and emphasize the longevity of their models, Volvo would move to the front of a lot of consumer’s lists.
If this isn’t done, Volvo will become another casualty of the near-luxury field in North America since none of their vehicles here are market leaders. I should also mention the need for a good diesel (like they’ve had in Europe for a long time) and the potential of the C30, but right now just adding punch to the enduring quality of Volvos is what the marque sorely needs most of all.
You know what, folks? All this malarkey of Jaguar, Volvo, ….FORD…it’s all for crap…
…you see, my next vehicle is a Hyunda Veracruz diesel. Should be good for 300,000 miles.
The days of “Planned Obsolescence” are over.
Why? Because there are actually people out there who CARE and are willing to BUST THEIR ASS’S to *EARN* your business.
Goodnight Ford. I hope you file first…you have done nothing but follow GM’s “lead” for the past 30 years. You deserve it.
Sleep in peace…maybe the shareholders rock your cradle.
“Honda makes an incredible variety of motorized products – Lawn mowers, trimmers, snow blowers, (my mower and blower are both Honda powered) Generators, boat motors, small engines one can buy for various applications, of course motorcycles, and now they are going into the jet airplane business (Dump your LearJet stock now).”
Honda is a motor company and all of those products make sense for them. There was a time when General Motors was also a highly diversified manufacturer or many things with motors, including military tanks, air conditioners (Frigidaire), locomotives, stationary, bus and truck engines (Detroit Diesel) and lots more. Chrysler was once a big maker of outboard marine engines. Honda has done an amazing job of making their brand a valuable mid-market player in a multitude of markets. The original point is that both Honda and Toyota have for the most part avoided buying other automotive companies, though Toyota actually has done so with Hino and parts of Isuzu and Subaru.
Steven Lang makes a solid point about what Volvo needs to do to strengthen the reputation it once had – in spades. My ’72 Volvo 142E sedan wears a metal “200,000 mile” badge in its grille, which was – maybe still is – given to Volvo owners, who achieved that. Badges were given at 100,000, 200,000 and 300,000; can’t recall if they offered any higher than that.
Of course, Irv Gordon made all the news services a few years back, when his 1966 Volvo P1800 coupe rolled over 2 million miles on the odometer. Of course, only in the buff books was it explained that he had indeed replaced a number of key undercar components, since he bought the car, new.
I tend to doubt that any S60 or S80 floating around today will achieve 200,000 plus miles – in part, because the owners just trade them away, after three to five years.
As someone mentioned in the comments section at TTAC, a few months back, albeit anonymously, he knew someone in England who prepped Volvos for dealer delivery and was amazed what was now getting out of Sweden, in terms of quality lack-of-control.
Maybe when Ford does sell Volvo, that will change. It will have to, for the marque to survive methinks.
@Terry
As someone mentioned in the comments section at TTAC, a few months back, albeit anonymously, he knew someone in England who prepped Volvos for dealer delivery and was amazed what was now getting out of Sweden, in terms of quality lack-of-control.
Won’t have to be that anonymous, actually. I believe you are referring to a comment I made.
I was at a conference in the UK, speaking about brands. One of the attendees came up to me, and told me that one of his businesses was prepping cars for delivery and that his people were simply appalled at the drop in parts and engineering quality in Volvos. His impression was that money was being squeezed out of the brand, at the expense of reliability.
Who in their right mind would actually pay money for Jaguar? The talk of how much Ford bought it for is useless without mentioning the billions upon billions Ford has poured into the brand. Just last year they dropped in another $2B. All of this investment has netted absolutely nothing. Land Rover hasn’t been nearly as bad but their future doesn’t look too rosey. Their crumbling assembly plants hardly add more to the picture. I would be amazed if Ford could give those brands away.
Steven Lang: “… Volvo… lack of a minivan… inexcusable…”
I would agree. We very much liked out 240 wagon and, when we finally went minivan-shopping in ’93, ’97 and ’01, my wife would have paid $10K extra for a Volvo nameplate.
In re Stein X. Leikanger on Volvo quality degradation…
They were never as bulletproof as legend would have it. They certainly served us better than the minivans we bought in ’93 and ’97 but they had their share of problems. The 240, however, was a simple car that was easy to repair (repair bills were never large). I’ve considered Volvos since and, with the increased complexity and more frequent refresh rate, I have decided to avoid them.
The ’01 minivan, the one that that we’ve finally hung onto for 6 years… A Toyota, of course. No problems. I haven’t even had to replace the brake pads at 70K miles!
@KixStart
Oh, I’ve owned a 240 Wagon from new that had its quirks …
The person I met in the UK commented that his mechanics had noticed a clear drop in quality, however, across the range of models — and his only explanation was that they were cutting corners to improve profits.
Volvo’s biggest problem was the horrendous shift from RWD to FWD with the 850…reliability plunged. I loved our S70, but we were (much more than) nickel and dimed to death. Took a soaking on unloading the car, but the constant dealer/mechanic trips were killing us. Our neighbor who bought the same year S90 still has his car running well 9 years later.
It’ll be interesting to see how the Ford 500/Taurus plays out reliability-wise since it’s based on the Volvo chassis…
My Canadian assembled 1971 Volvo 142S was mechanically bulletproof. Only silly things like the viscous fan clutch, shifter fork and windshield washer pump broke. The strong body lacked competent rustproofing, like many imported cars of the day. True to the Volvo advertisements I drove it in daily use for 10-years and 115,000 miles and sold it for a decent price.
Old-time Volvo fans like me won’t look at one now. The attributes that made the car, reliability and durability, have apparently been Ford value engineered out.
Except for Volvo, the brands that went into making PAG were all losers from the get-go. You don’t pay for losers….poor business acumen. Anything received for the likes of Jaguar is more than it is worth, except on the basis of sentimentality (i.e. a sucker play). Ford will be lucky to find a buyer.
RWD Volvo’s had their reliability problems, too. I had a 1985 740GLE between 1990-1995 with unsolvable electrical gremlins and an automatic transmission whose chipped flywheel required replacement, resulting in a 9 hour labor charge. A nice sedan, but not worth holding onto unless you were going to put a V8 into it.
I ran into a mechanic who later told me that was a bad year, the first year the 4cyl engine was in the 760 body.
The smart thing for Ford to do(wish full thinking on them being smart) is the slice up Jaguar and Land Rover and sell of the peices themselves. They are worthless as whole companies and have been for almost 20 years now. The true value(what little value it is) are in the parts and not the whole. Selling them if it’s even possible means taking another huge loss on top of the money they dump every year into each.
I know I’m waisting my breath here since Ford will keep screwing up until they are finally gone, hopefully sooner than later.
I just hope they don’t drag down Mazda and Volvo in there dimise.
The first run of Volvo’s built in the Netherlands (1976?) were a pack of turkeys, too. Up until that point, they had a reputation way over what Toyota has nowadays.
My XC90 has been a solid comfortable vehicle over the past year. Consumer reports data proves its a black dot regarding reliability (meaning unreliable) but mine has been fine. Very good car. Much better built than our ‘03 Expedition. I dont see any connection between the XC90 and any Ford models.
Not sure why Ford would sell a brand that is making money though as apparently Volvo is..
Redbarchetta:
“I know I’m waisting my breath here since Ford will keep screwing up until they are finally gone, hopefully sooner than later”
I give you credit for saying what some think but don’t have the –lls to say “gone…hopefully sooner than later”.
That said, I find you comments sad. I can’t root for a US manufacturing company and all of the associated direct and indirect employment to go down the tubes. However tough the task—I am rooting for Ford to turn it around—-its a shame you do not share the sentiment.