In years past, Ford resolutely refused to report earnings for the individual brands in its Premium Auto Group (PAG) (Jaguar, Land Rover, Aston, Volvo and, for ten minutes, Lincoln). And for good reason. The brainchild of former BMW suit and bon vivant Wolfgang Reitzle, PAG has been a financial sinkhole since day one. Now that Jag and Landie's gone to Tata Motors and Aston's been flogged to an unholy alliance of a Texan and the Kuwaitis, PAG consists of… Volvo. And today, for the first time ever, FoMoCo's broken out earnings in the Volvo unit. And the news ain't good. Yahoo!Finance reports that a year ago, Volvo posted a $94m profit in the first quarter. This year, they had a first quarter pretax loss of $151m. So why, when Volvo was making money, didn't they brag about it? And why, now that it's losing money, do they disclose the fact? It's just one more indication that Ford is building a case to justify putting Volvo on the auction block a la Jag and Land Rover. Adjö Volvo.
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It seems Ford did manage to make a profit in the first quarter in spite of this.
http://online.wsj.com/article/SB120902419379041213.html?mod=hpp_us_whats_news
Ford just announced it made a profit in Q1, for the first time in 2 years. Which is quite an achievement, given that the market is down 8%. Being able to make money during down times shows that the turnaround at Ford is real.
Congratulations to Frank for finding that piece of bad news in the entire equation.
Mulally ought to join forces with Rick Wagoner of GM, and work on selling Saab and Volvo to the Swedish government or a government-formed coalition of Swedish business concerns.
With a world recession on the way and a mature auto market putting a cap on sales, the only viable buyer for these two companies would be a government interested in maintaining local jobs. The government could probably call in some favors by getting local companies to actually do the buying and management, while providing some of the capital, so the government wouldn’t have to fly solo doing it.
Funny, I thought the Yahoo!Business headline was, “Ford surprises Wall Street with $100 million profit in 1st quarter; Shares jump 6 percent.”
Please, let’s keep the integrity of the “Latest News” category on TTAC by not just cherry-picking & trumpeting the negative piece of a story.
It will be interesting to see what the next quarter looks like when they report the financials from the Land Rover/Jaguar sale (this was not included in this quarter’s financial report). Both companies were sold for a loss over what Ford paid for them, but income is income.
Good for Ford. Hopefully next they’ll look at axing Mercury and focus on their two viable brands.
First, no flaming the website. I’ll leave the remarks about our negativity in this time as a warning that they do not belong in the comments section (go figure), and a sign that we are not insensitive to these issues. But if you wish to discuss TTAC’s editorial stance or style, email me: robertfarago@thetruthaboutcars.com.
Second, we are writing-up the Ford results now. Ye of little faith.
Yay for Ford, but too bad for Volvo. I tend to root for them, even though I think they lost their way a bit, and look more like Toyota/Buick than BMW/MB.
Yeah, do what I do and flame TTAC on other sites.
Seriously, good for Ford. Bet Boeing would love Mullaly back right about now…looks ike the Dreamliner is delayed again, and again. Meanwhiles, at Ford he may have made his salary for the last two years.
Volvo is gone daddy gone. As soon as they have a willing buyer. My thoughts were the same as above…Swedish govmint buyout.
There could be an interesting business proposition between Ford, Renault/Nissan and Volvo Trucks. Renault could buy Volvo Cars from Ford, and get their money from selling Renault Trucks to Volvo Trucks. The former would finally get their hands on Volvo, as the early 90’s merger with Volvo withered away into nothing, and the latter would consolidate their truck business to become a world leader in trucks. And Ford would get some cash. Win-win for all parties…
I didn’t see this post as being negative, so much as being a precursor to the reason why Ford has been doing better: they’ve been shuttling off extra brands to better focus on Ford and Lincoln. I wouldn’t be surprised to see Volvo retain some sort of partnership with Ford after the sale.
The question is, why would Ford sell? Even if it makes some losses, isn’t it too integrated with Ford and Mazda? Doesn’t Ford need all the Volvo engineers in the future as well? Or has Ford milked the cow for all that it’s worth, and are now looking for someone to buy the hide? The problem isn’t that Volvo is a burden to Ford, but that Ford hasn’t given Volvo enough money for future r&d.
“…and work on selling Saab and Volvo to the Swedish government or a government-formed coalition of Swedish business concerns.”
pch101: The Swedish government doesn’t do buyouts, it has never done. And there’s no business concern in Sweden with enough money to even buy back Volvo Cars, let alone afford to develop future models. The Wallenberg-family that sold Saab to GM is just glad they got rid of the shit, because they have never ever been able to put enough money into it in the first place. That’s why the Saab 900 continued into the 90’s on the (developed) Saab 99-platform from 1968. Volvo Trucks happily sold off Volvo Cars to Ford, because the truck side made solid profits in the billions for 30 years in a row, while all the cash earned went down into the sinkhole that the car side was. Effectively, the profits from selling trucks financed building cars. Compare net value and revenue between Volvo Trucks and Volvo Cars.
“PAG consists only of Lincoln and Volvo”
Not exactly. Lincoln was initially lumped into PAG and even moved it’s HQ to Irvine, California as part of that ill-conceived marriage, but Ford brought Lincoln back into the mother ship back in 2002 and recast PAG as it’s import luxury division.
Wikipedia actually has a good article summarizing the history of PAG at:
http://en.wikipedia.org/wiki/Premier_auto_group
Volvo is the only PAG member left.
“It will be interesting to see what the next quarter looks like when they report the financials from the Land Rover/Jaguar sale (this was not included in this quarter’s financial report). Both companies were sold for a loss over what Ford paid for them, but income is income.”
Accounting wise it all depends on the value Ford still had on it’s books for the LR and Jaguar assets. If they were on the books for Ford’s initial purchase price plus the ongoing investments made then the sale is going to result in a big one-time loss. If, however, the assets were previously written down in some of Ford’s earlier restructuring efforts then the sale might end up as a wash or even a slight gain. Income is not income when it comes to asset sales.
“There could be an interesting business proposition between Ford, Renault/Nissan and Volvo Trucks. Renault could buy Volvo Cars from Ford, and get their money from selling Renault Trucks to Volvo Trucks. The former would finally get their hands on Volvo, as the early 90’s merger with Volvo withered away into nothing, and the latter would consolidate their truck business to become a world leader in trucks. And Ford would get some cash. Win-win for all parties…”
That there is a very plausible scenario! Volvo Cars could then become a channel through which Renault could re-introduce it’s higher end products to the US by simply putting Volvo badges on them.
Even if it makes some losses, isn’t it too integrated with Ford and Mazda?
That’s easily dealt with. Ford would work with the buyer to transition platforms, etc. over an interim period, and could even sell them designs, parts and assemblies after completing a sale.
The swedish government doesn’t do buyouts, it has never done.
Volvo employs about 19,000 people in Sweden and is the country’s second largest company, so threatening a shutdown might inspire the government to do something special.
All of this stuff is subject to negotiation. Ford might be willing to part with it for next to nothing, just to stem the bleeding and reduce its cash flow problem. The new buyer could pay them back over time.
Put it this way — if Volvo loses $500-600 million every year, selling it could help get Ford to breakeven or even into profitability, which alone could make it worth selling for $1 if there is no hope for Ford of ever making it profitable. Meanwhile, the new Volvo could buy designs, platforms and parts from whoever will sell them. Sometimes, it’s better just to cut your losses and move on.
jthorner:
Volvo is the only PAG member left.
My bad. Text amended.
The Swedish governemnt doesn’t do buyouts, it has never done. And it will never do. One has to have an insight in swedish economical history to know these facts, and here are some: When the industry fails, the bankers, and not the government will take over. In the 30’s after the economical crises then, most of Sweden’s industry was taken over buy the bankers. The Wallenbergs was a banking family, their economy is based on finance, not industry. That means they will hold on to the industry only as long as it is economically feasible. If it is not profitable, they will hold on, invest long term, and wait. And if someone want’s to buy and they will make profit, they will sell. Astra, SKF, Ericsson, Volvo, the bigger part of the swedish industry. When the market for shipping and cloth-manufacture fell in 70’s, tens of thousands of people went unemployed. The government didn’t buy out then, because the market didn’t make it feasible anyway. Sweden as a country is not big enough or rich enough to hold a company like Volvo Cars under its arm, “just because”. If the market stipulates, the government will follow.
Volvo Tucks may, perhaps, be willing to buy back Volvo Cars. If they got it cheap enough. But then Ford would have to make consessions to Volvo Trucks. At the end, it all depends on how much Ford are willing to sell.
One has to have an insight in swedish economical history to know these facts, and here are some: When the industry fails, the bankers, and not the governemnt will take over.
I think you’re getting caught up in the semantics. Pulling the bankers together to do what would otherwise be a stupid deal is a form of government bailout.
Think Bear Stearns or Chrysler. The US government didn’t technically bailout either one — they provide loan guarantees, etc. — but it’s still a bailout. If a business enters into a venture that makes no sense because it secures state interests, then it’s just a privatized version of the same.
As I said before, the financed-based families in Sweden that before owned Volvo and Saab would not risk it in a million years to buy back either Volvo or Saab, even if Ford and GM gave those companies away. Making cars is a long-term industrial proposition, and their pockets is just not big enough to afford those risks, government funded bailouts or not. If Ford doesn’t have the money to r&d future Volvos, who has?
Look, noone would be happier than the swedes, if Saab and Volvo were to be fully owned by swedish companies again. Watching GM and Ford rape those companies away is a tragedy. But as I see it, it would have to take investments in the tens of billions of dollars to make it happen, and I can’t see that money being invested here. The government wouldn’t afford it, and the bankers wouldn’t see the profit of it happening.
But as I see it, it would have to take investments in the tens of billions of dollars to make it happen, and I can’t see that money being invested here.
Developing a car typically costs something around $1 billion. A lot of that could be JV’d, even with a company like Ford.
The point is that there are a million ways to structure a sale. It’s not as straightforward as putting an ad in the paper and getting someone to hand over a wad of money, and then washing your hands of it.
If the goal is to preserve jobs, there are a lot of ways to do it. Speculating about the specifics is premature; the point is that there are ways to structure it that could work for both sides.
Ford may be focused on reducing its burn rate and cleaning up its balance sheet, which may mean that it might sell it for $1 today, in exchange for a share of future profits (if there are any) and the right to sell parts and equipment to the new independent Volvo. Meanwhile, the ability to JV platforms and common parts going forward reduces development costs for both parties, because Ford gets to amortize some of those expenses to an outside entity, while Volvo gets new stuff at a discount.
If owned by someone Scandinavian, Volvo doesn’t need to perform as well as it would if it was owned by Ford or someone else. Just so long as it has a few cars that it can sell at breakeven, that might be enough just so long as it keeps people employed. It can’t be cheap for the Swedish government to lose one out of every three hundred jobs in the country if Volvo were to fold or withdraw from Sweden.
The industry-based infrastructure in Sweden is more or less downsized and outsourced to foreign countries to a point where it would take a lot of cash investments to upsize it again to the level where it would be economically feasible to make entirely swedish-based cars again. What both GM and Ford has done for the last fifteen years is asset-strip all the engineering-ingeniety that made Volvo and Saab unique in the first place. Practically speaking, they can’t make cars of their own anymore. It isn’t there. GM and Ford has done to the Swedish car business what the russians did to East-Germany after the war, they took all the factories away and shipped them back east.
Making cars is not a business that money-makers invest in. Car brands are bought and sold to car makers, not banks. No bank in their right mind would invest in that business today. And those who does, do it to strip and flip and make a profit. The only probable buyers of Volvo is another car maker that would somehow make a profit on it. Like Renault/Nissan, that would enlarge their portfolio with a very nice hat. There are synergie-effects to be made for them, as they don’t have a premium-brand in that league with that catchet. But forget governments, forget bankers, they are not an option.
As I mentioned in the “Mercury dying” post earlier today…
“I have to wonder if Volvo will soon be in the hands of some company such as Peugeot-Citroen. At least Peugeot group would then have some kind of presence in the United States, and could potentially re-launch the Peugeot brand in Volvo dealers, as a lower-cost Euro-alternative.
Interestingly enough, Peugeot is already collaborating with Mitsubishi by building Peugeot and Citroen SUVs, and Mitsubhishi has an underutilized plant in Normal, Illinois.
Imagine Volvos coming from Illinois, and Peugeots from South America being sold in the US at Volvo dealers…. it would work.”
Nissan-Renault already have a presence in the US, and they are struggling. I don’t think they need Volvo – they already have enough on their plate in the current recession. During which Nissan is having a tough time moving even their small cars, which is a VERY bad sign… The only reason it’d happen, would be because Carlos Ghosn “wanted it” to happen. There’s no logical business sense behind them doing it that I can see…
Just to prove the point…
http://www.globalautoindex.com/maker.plt?no=120&g=PSA
http://www.globalautoindex.com/maker.plt?no=1110&g=PSA
http://www.globalautoindex.com/bodies.plt?no=4893&ass=23&g=-4007
Car brands are bought and sold to car makers, not banks.
Chrysler was just sold to a private equity firm.
No bank in their right mind would invest in that business today.
It doesn’t need to be an investment, per se. It’s a bailout done for the sake of the economy and local employment.
We can speculate all day long about it, but Mulally would be foolish not to call on them first if his goal is to sell. Let’s keep in mind:
-Just because it loses that kind of money with Ford in charge doesn’t mean that the losses would be that high with someone else running it. Volvo gets the benefit or detriment of Ford’s overall cost structure being allocated to its numbers, and I suspect that in this case, Volvo loses from that arrangement.
-The alternative to a shut Volvo for the Swedes would be another 19,000 people on the dole and idle factories. That isn’t free, either, so a carefully engineered deal might be the lower cost option.
-There are ways to structure this to minimize the outlay for the buyer, which would make it easier to swallow. Ford could have reasons to be willing to structure a deal in this fashion. (Even if Ford doesn’t make a penny, the benefit that this provides to its books could make this look profitable on paper.)
-A Volvo in local hands does not necessarily need to achieve the same level of profitability that a truly independent investor would require. It could right-size the business, produce with fairly low expectations of market share, and still be worth keeping at home. It might not be great for anyone else, but it could be good enough for the locals.
Really, there are two large hurdles that make a Volvo sale remote for at least another year or two: the value of Volvo and its integration with Ford.
Volvo, even after its $2 billion write-down last year (which was the vast majority of Ford’s “loss”) is worth about $5 billion as an asset on Ford’s books and the liabilities associated with Volvo are much smaller than Jag/LR. They won’t be getting $5 billion for Volvo, which means a sale will likely result in a fairly significant write-off – affecting credit rating, some of their terms of borrowing and their line of credit, etc.
Second, Volvo is still very integrated with Ford. There’s a lot of work that needs to be done to separate the two. Any unfinished work will be a detractor to the price for a potential purchaser, even if Ford remains a significant stakeholder in the company.
With enough cash to operate through a few more years of losses, I don’t know that selling Volvo right now makes as much sense as setting them up as an “independent” group at Ford. The risks to their already tenuous credit rating are probably too high in the short term as Volvo is not the same liability that Jag/LR were.
I do think that Volvo will eventually be sold off (although I think Ford will be more likely to retain a stake), but it’s not going to happen in 2008 unless Mulally has a really good purchaser step up to the plate.
“Chrysler was just sold to a private equity firm.”
Yeah, and how is Cerberus doing? In my mind, it is a strip-and-flip.
Yeah, and how is Cerberus doing? In my mind, it is a strip-and-flip.
It’s going to turn into one, but it will be done at a loss, and that was unlikely the original plan. Chrysler has nothing to strip and flip; Cerberus will eventually cut and run because their plan is going to fall.
Volvo is not quite in that situation. If it had a small lineup and could limit its ambitions to selling a few models in a few key markets, then it could create enough of cash flow to keep workers employed, which is all that a government-backed deal would really need to justify itself.
Volvo can’t be a great money maker unless it figures out a way to compete head-to-compete with BMW. But a government-backed purchase doesn’t need to produce those kinds of profits in order to make sense.
Do you think that the Swedish government is run by idiots? They have a responsibility to handle the taxpayers money with care. Bailing out a company on one hand and throw money in the drain with the other? I can’t state this fact enough, the government won’t bail out. The annual defence budget in Sweden is in the near of 5 billion dollars. Volvo Cars ain’t worth that much to the government, not politically, not economically.
It would not be THAT hard to separate Volvo from Ford/Lincoln and Mazda due to the commonality between current platforms: an interim technology sharing agreement would take care of that and Ford could move on to new platforms with each successive generation. Besides, only the Taurus/X/Flex/Sable/MKS/MKR ride a plaform originated from Volvo. The C1 platform was at best shared between Ford/Mazda/Volvo and the Fusion/Milan/MKZ/Mazda6 have more Mazda heritage with the Mondeo and its Euro cousins purely Ford. Powertrains are also primarily Ford or Mazda based with the next gen EcoBoost about to debut. What would be hard is convincing some other buyer that they’d be able to make a profit while shifting Volvo’s products to their corporate platform.
Finally, this story belongs on the TTAC front page as it relates to yesterday’s WSJ story about Ford’s turnaround and AM’s desire to sell Volvo and can Mercury. Likewise, news of Ford Motor Company actually making a profit belongs on the front page as further evidence that AM maybe the only Big3 CEO that “gets it”.
Do you think that the Swedish government is run by idiots?
If I said yes, would it matter? How about no?
Most countries would not be inclined to allow their second largest corporation to simply disappear. If Ford threatened a complete shutdown, it could potentially generate enough concern to put a deal together.
Perhaps you personally don’t like bailouts, but it doesn’t prevent them from happening. Read your newspaper — in times of crisis, they happen sometimes, particularly when the company in question can do a lot of damage if it fails.
pch101: We don’t seem to reach any further in this discussion. As I am a Swede, I know how my country works. And I can’t see a government-funded bailout happen, because, to my mind, something like that has never ever happened in Sweden. I can’t remember any deal in that magnitude anyway. Sure, a subsidy here and there. The state payed for a brand new factory in my hometown Malmö, just the see GM shut the entire factory down within three years, thousands of people unemployed. And the state payed for a new highway between Gothenburg and Trollhättan, because GM executives said it was vital for their operations. And then they moved development to Germany. But I will give you the benefit of a doubt. Show me a swedish government-funded bailout that has actually worked, and a business proposition for this case that has any substantiality behind it, and I will happily be proven wrong.
And I can’t see a government-funded bailout happen, because, to my mind, something like that has never ever happened in Sweden.
During the early 1990’s, the Swedish government intervened with loan guaranties and monetary policies designed to prevent the banking system from collapsing.
http://www.riksbank.se/templates/speech.aspx?id=1722
Sweden is not immune to economic downturns or adversity. No country wants its financial institutions or major employers to collapse.
Of course, Ford would have to play hardball to get this done. But Mulally has done turnarounds before, so he would be a good candidate for making this work.
Yeah, but that prevension was futile and meaningless, as at the end they had to let go and let the crown go floating. The only thing happening was a giant speculation where money was transferred from taxpayers to speculators, and the government being throwned out in the next election, and the next government spent the next ten years making up for it. But you are right, that is one example. The only bank that didn’t make it on its own was PK-Banken, the state didn’t so much bail it out, as it took it over wholesale. The bank was renamed first as Nordbanken, and then as Nordea. And was given some 10 billion dollars in loans, which it had to actually pay back to the state, which it did. And then the state sold the bank. The state only bailed out to secure the the customers money and some 60000 house loans. If someone closes the factory you can always get another job. If the bank goes down and you lose your house, that’s a tragedy on another level.
So, perhaps if Ford gave Volvo Cars away for free, the Swedish government would invest enough money to make it profitable again. But that wouldn’t be profitable for Ford, would it?
The issue with the Swedish government is a non-issue. It just won’t happen. It is as likely as GM delivering the Volt on time and under budget. A much more plausible scenario is Ford selling Volvo to someone that actually has a long-term interest in owning that brand. And that means a car maker that lacks a near-luxury premium brand in that magnitude. Like Renault/Nissan or Citroen/Peugeot. Or perhaps Tata? Tata has high-end cars and low-end cars but nothing in between. Volvo has a reputation as a solid seller in the US. That would give Tata a bigger foot in the US market.
Or perhaps the best proposition for Ford is not to sell, but invest? Volvo is not in bad shape, it just lacks proper resources in the r&d and marketing divisions.
Volvo’s problem isn’t a lack of investment – its a lack of purpose. Everyone sells safety now, so what does Volvo do to distinguish itself (See Ford DW 44)?
If Ford put Volvo up for sale, there’s one party who, I reckon, would snap them up in an instant.
Mahindra and Mahindra.
Think about it, they failed in their bid for Jaguar (so they clearly want a luxury brand) so reigniting talks with Ford, shouldn’t be a problem, M&M have a good diesel history, as does Volvo, it would give M&M a springboard into the Indian market of selling rugged cars for rugged roads, if they let the Swedish engineers do their job again and M&M also have deep pockets (they must do to launch a bid for Jaguar) so they’ll clearly look after them.
All that, plus a platform into America.
I can’t think of a better owner.
Volvo’s problem isn’t a lack of investment – its a lack of purpose. Everyone sells safety now, so what does Volvo do to distinguish itself (See Ford DW 44)?
Exactly. “Near luxury” is no longer an effective branding position, at least here in the US. All of the near-luxury brands (Volvo, Saab, Buick, Acura) are faltering here.
Mahindra and Mahindra. Think about it, they failed in their bid for Jaguar (so they clearly want a luxury brand)
That’s the problem — Volvo isn’t a luxury brand.
In the right hands, and with careful effort, Jag and Land Rover have considerable potential. They will always be low volume cars, but they could generate considerable margins if they can each get a popular model or two.
Volvo, not so much. Unless Volvo can be morphed into a BMW/Mercedes/Lexus beater, it has no chance. Otherwise, it’s doomed to stay as a niche maker, but it can’t sell enough cars for prices that are high enough to carry their overhead.
I’m not saying that the Swedes would buy it, but Volvo would have little appeal to anyone else. Certainly not to Toyota, GM, Cerberus, Renault-Nissan, FIAT, VAG, Daimler or BMW. I would agree that a Russian, Chinese or Indian upstart might be a better candidate, but there is not much “there” there to encourage anyone. We’ll see how it goes.