Ford's decision to put Aston Martin up for sale may just be a disguised invitation to tempt a stronger car maker into an alliance and get some external support for its recovery, a Global Insight automotive analyst said in a research note on Friday.

"Yet, if the main motivation behind the sale is to raise capital and free up time and resources to focus on restructuring core operations, then several options could materialise, including a management buy-out or sell-off to a financial investor," Thomas Ryard wrote.
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Ford on Thursday (31 August) said that Aston Martin, part of its Premier Automotive Group (PAG) that includes Jaguar, Land Rover, and Volvo, is being considered for possible sale after inquiries from several interested parties.

"As part of our ongoing strategic review, we have determined that Aston Martin may be an attractive opportunity to raise capital and generate value," Bill Ford, the automaker's chairman and chief executive, said in a statement.

The review has been initiated by Kenneth Leet, a former Goldman Sachs executive and M&A Specialist, to explore strategic options, including a possible sale of Jaguar. However, this option appears less likely now.

Ford stressed that no decisions have been made yet regarding the other Premier Automotive Group brands but that it "continues to be encouraged by Jaguar's progress and by the strength and consumer appeal of the Jaguar, Land Rover and Volvo product line-ups". The company states that the infrastructure for Aston Martin, including the dealer network, is distinct enough from Ford's other operations that divesting itself of the super-luxury automaker would not be difficult.

Aston Martin has its headquarters, research department and a recently upgraded production facility in Gaydon, Warwickshire, here in the UK.

The company has had a number of owners such as tractor magnate and industrialist David Brown over the years (that's where the 'DB' in model names originated), and was referred to by the Daily Telegraph on Friday as having been something of "a rich man's toy" during its history.

The famous brand, often associated with James Bond movies, became part of Ford in 1987 when the US carmaker purchased a controlling stake, and it took full control in 1994.

"The prospects of Aston Martin changing hands is certainly attracting a lot of interest within the industry but is far from being a done deal and will not solve Ford's worsening financial situation altogether," wrote Ryard.

"Ford said there was no assurance that its decision to explore strategic options for Aston Martin would result in the sale of the British carmaker. Nonetheless, Ford also said that some parties had expressed an interest in Aston Martin. However, the cash generated from such a sale could help bolster Ford's struggling "Way Forward" plan, which has recently been accelerated in the wake of criticism that it is not proceeding fast enough and free the carmaker from the daily distraction of running a prestigious brand."

He noted that, although PAG has been in the red since its creation (Ford doesn't break out figures but recent reports suggest AM is breaking-even at the operational level), the core of Ford's current problems remains its North American business.

Added Ryard: "The company's North American profits are based on three pillars of profitability - large sports-utility vehicles (SUVs), mid-size SUVs and pick-up trucks. The shift in consumer tastes, exacerbated by high fuel prices has resulted in the drop-off in sales of these segments in general, but particularly for Ford. The carmaker's sales in the U.S. were down almost 10% in the first seven months of 2006. The refreshed Ford Explorer has seen its sales dwindle 29% at the half-year stage. The F-150, which provides 27% of Ford's US sales volumes and a large portion of its profits, is only 2% down on the year-to-date in volume terms, but it is needing up to US$4,000 in rebates to shift each one, leaving the vehicle unprofitable for Ford.

"Yet, if the main motivation behind the sale is to raise capital, free up time and resources to focus on restructuring core operations or possibly lure a larger carmaker into an alliance, then Aston Martin is undoubtedly Ford's best option, although it could raise significantly more money by selling a stake in its profitable Ford Credit finance arm. Out of Ford's premium brand stable Aston Martin offers the best opportunities not only because it is easier to sell assets, which have just recently been entirely upgraded and enriched with an attractive product line, but also because, unlike Jaguar, Aston Martin is profitable."

Ryard noted that there has been much interest in the luxury brands that Ford owns, with British construction equipment company JCB reportedly interested in Jaguar, as well as JP Morgan Chase's One Equity Partners venture (currently spearheaded by former Ford chief Jacques Nasser) also reportedly interested in the luxury brands. Of the major industry players, Renault is considered the most likely buyer. Adding Aston Martin would boost the company's desire for a greater presence in the luxury market, something Renault has repeatedly failed to accomplish on its own, and is a cornerstone of Carlos Ghosn's strategic vision for the company. In addition, Renault has sufficient cash to afford a direct leap into the high-end segment and is particularly keen to expand its alliance by welcoming a US carmaker.

"In this respect, Aston Martin could be the ideal trading currency in such a venture," Ryard said.

French rival PSA Peugeot-Citroën may also be a likely candidate, as the carmaker would like to diversify away from the small-margin compact car segments. BMW may also be interested as Aston Martin would be a natural fit with Rolls-Royce and Mini and it has also proved that it can successfully refine the fundamentals of prestigious brands.

From Aston Martin's perspective though, a better option could be to continue on its own, Global Insight suggested.

Christoph Stürmer, associate director automotive, said it would be difficult to integrate Aston Martin into another automotive group, as the products and logistics are now widely independent. As such, a management buy-out or sell-off to a financial investor could be an ideal option.