The struggling Ford Motor Co. is preparing to sell Volvo, the profitable Swedish car group, in a move that could raise US$8 billion, said The Australian news. A decision in principle to sell Volvo was taken Saturday, but that the timing of the sale had yet to be decided, said city sources. No bank had been appointed to handle the transaction.
Volvo Cars is the flagship of Ford's Premier Automotive Group (PAG) - a luxury European marque which also includes the Jaguar and Land Rover brands. The PAG was created during the automaker's expansionist phase in the 1980s and 1990s.
The Dearborn automaker began dismantling PAG in 2006 when it faced a difficult financial crisis. Earlier this year, it sold Aston Martin in a deal worth ?479 million, and this week it will receive indicative bids for Jaguar and Land Rover. The duo, which is being sold as a single business, is expected to account for ?1 billion.
Meanwhile, Volvo is bigger than Aston Martin, Jaguar and Land Rover. The Swedish company employs 27,500 people and produces about 500,000 cars annually in Sweden and Belgium. It has been by far the most gainful part of PAG and has made a considerable contribution to development of other Ford models. The sale of the company would signal the final dismemberment of the Ford's luxury car business outside North America. Is the sensing a potential sale of the company soon?
Auto industry sources said that the timing and speed of the sale would depend on the level of interest that came from rival carmakers and private-equity groups. "If they have a good offer from a Western carmaker, they would be able to move fast, because the integration issues can be sorted out quite quickly. But if it's private equity, it will all need to be worked out in advance so they can do their normal due diligence," said one source familiar with the talks.
As reported by reported the MSNBC, Rod Lache, an analyst at Deutsche Bank, told clients Tuesday that Ford has at least two good reasons to dispose of Volvo. First, a sale would simplify the parent's operating structure and recovery ?strategy. Second, it would provide extra cash to restructure healthcare liabilities as part of forthcoming contract talks with the United Auto Workers' union.
Jonathan Steinmetz, an analyst at Morgan Stanley, noted that "Ford does not have the resources, from a financial or a managerial perspective, to keep ploughing time and money into all its brands." Meanwhile, Joe Phillippi, a New Jersey-based consultant, notes that Volvo was supposed to help Ford gain a foothold in the European premium car market. Instead, he says: "Ford has never been able to move its brand out of the everyman category."
The Scandinavian luxury brand remains a niche brand in North America, which makes up more than a quarter of its sales, lacking the striking lure of the Toyota Motor Corp.'s upmarket Lexus and the Honda Motor Co.'s Acura brands.
Volvo sold about 430,000 vehicles in the previous year, well below the 650,000 target set by the Dearborn automaker. While auto analysts expect that Ford could raise more for Volvo than the $6.5 billion it paid in 1999, the profits would still be minimal.
"They are getting a lot of people coming to them with ideas because Volvo is an attractive asset. If they get the right one they could act quickly," the source said. Those individuals familiar with the discussions, as reported by MSNBC, said Ford has imposed strict conditions of secrecy on would-be bidders, even to the point of vetting potential advisers. "They are completely paranoid about leaks," concluded the source.
