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Ford subtracts Volvo, makes Blue Oval main focus

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Ford subtracts Volvo, makes Blue Oval main focus

April 1, 2010 06:01 CET

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DETROIT (Reuters) -- Ford Motor Co's sale of its Volvo unit this year will leave the No. 2 U.S. automaker with no luxury brand outside North America.

But does Ford even need one?

At least for now, analysts say no. They may bemoan a lost opportunity to integrate the money-losing Swedish brand Volvo into Ford, but they see an even sharper focus on the "Blue Oval" Ford brand as key to sustaining the company's turnaround.

Ford is farther along in an overhaul of its vehicle lineup than rivals General Motors Co. and Chrysler Group, which went through government-supported bankruptcies in 2009. Ford posted a small profit last year and expects a profit for 2010.

The money-losing Volvo became a casualty of Ford's unswerving focus on its mass-market Ford brand and its balance sheet for the turnaround under Chief Executive Alan Mulally.

"We aren't really counting on doing anything other than focusing on the Blue Oval," Ford global marketing chief Jim Farley said in an interview at the Geneva Motor Show in early March.

Farley said he sees an opportunity for Lincoln and Mercury to go farther than Ford has gone on the premium side of the business, but the automaker is "just getting started" in developing the Ford brand portfolio around the world.

"Our strategy is not to develop a globalized Infiniti or a globalized Lexus; we want to get Ford to the point where we feel like we have fully realized its capability as a brand," Farley said of the luxury brands from Nissan Motor Co. and Toyota Motor Corp. respectively.

Ford borrowed more than $23 billion in late 2006 to support its turnaround, securing what Mulally has called a home improvement loan with most of its remaining assets, including the Blue Oval logo.

Ford executives have described the turnaround cautiously as in its early stages. A big part of Ford's restructuring has aimed at stripping complexity and jettisoning loss-making units that include luxury brands acquired during boom years.

Luxury brands at heavy discount

The automaker bought Aston Martin, Jaguar, Volvo and Land Rover from the 1980s to 2000 and folded them into a premier auto group of luxury brands. Volvo's sale to China's Geely will complete the divestitures of all the group's brands.

Ford paid far more for the assets -- nearly $12 billion for Jaguar, Land Rover and Volvo alone -- than it will get back. A purchase price for Aston Martin was not immediately available.

Proceeds from the sale of all four brands could total little more than $4.3 billion.

Ford bought Volvo for $6.45 billion in 1999 and plans to sell it for $1.8 billion under a deal announced on Sunday.

"If they were thinking they needed global luxury, they would not have off-loaded Volvo," said Jim Hall of 2953 Analytics, an automotive industry analysis practice.

"There is no law that says you have to have a global luxury brand," Hall said, adding that Ford probably will not have access to the majority of those Volvo customers globally.

Ford is investing broadly in its Lincoln luxury brand, sold almost exclusively in North America, and introduced a hybrid version of its Lincoln MKZ sedan at the New York auto show on Wednesday.

Still, the automaker remains focused on stoking interest in the Ford brand, which has critical launches in North America this year that include the reintroduction of the Fiesta subcompact, absent from the U.S. market for decades.

"They still have a little ways to go in reestablishing Ford brand globally, and once they are really comfortable in that ... then I think you may see them turn their attention to luxury vehicles more," IHS Global Insight analyst Aaron Bragman said.

JP Morgan analyst Himanshu Patel said in a note on Monday that he saw value in the Volvo brand, and that the sale price could have have been higher at a different point, but the deal was in keeping with the company's strategy.

"A chief benefit in our view will be the focus of management time and attention on the core Ford brand," Patel wrote.

Analysts said Ford probably did not want to sell Volvo, but saw the deal as a matter of needing to pay down debt.

Ford had $34.4 billion of automotive debt at the end of 2009 and said on Monday that it planned to prepay $3 billion of revolving debt next week due to the improved state of the capital markets and the global economy.

Erich Merkle, an Autoconomy.com analyst, said Ford does not necessarily need a luxury brand outside the United States to compete. The Ford brand could be taken a little up-market, though not to the level of Mercedes or BMW, he said.

"They can not only survive just fine, I think it will be very much to their benefit long-term to have that focus on the Ford brand globally and working toward making Lincoln into a true luxury brand as well," Merkle said.

Read more: http://www.autonews.com/apps/pbcs.dll/article?AID=/20100401/ANE/303319958/1131#ixzz0jrCpXxpe

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