Jaguar is the more attractive of Ford's up-for-sale two brands, with significant upside potential between now and 2012, according to management consultants Arthur D Little.

"Land Rover is once again profitable, while Jaguar has continued to absorb cash - this performance is rooted in the key strategy decisions taken over the last decade," the consultancy's automotive practice concluded.

"While Land Rover looks good now, there are major risks ahead in the form of CO2 constraints - with the potential to massively reshape Land Rover's sales, product range and profitability.

"There is no alchemy involved in a Jaguar turnaround; good financial performance can be achieved through realigning the strategy with the brand values, leading to a lower volume (50-60,000 units a year), high gross margin business producing premium sporting saloons and grand tourers.

"A rapid end to X-Type production would be one of the major changes that we foresee, along with other operational changes. However we do not see a major risk of industrial dispute, in particular as we estimate there to be no need for redundancies, in particular in the X-Type plant at Halewood."

The consultancy sees a far less certain future for Land Rover, particularly as emissions regimes in some of its key markets are still being debated.

"While we do not foresee near- or mid-term legislation that would actually ban high footprint SUVs (chiefly due to the European job losses that would result) legislation will inevitably toughen. We consider this to threaten over half Land Rover's volume - only Range Rover and Defender are relatively secure."

Arthur D Little said two other critical factors make life unusually hard for Land Rover - it is not forecast to build a hybrid product until 2011, despite Ford already applying the technology in North America. And, as off-road excellence is central to the Land Rover brand (far more so than for other SUVs), this inevitably drives up vehicle weight.

"We see three options, depending on their background, appetite for risk and time-horizon of the successful buyer.

These are: turn around Jaguar then sell the group to a major car manufacturer - this is the simplest option, and likely to be attractive to the two PE firms.

However the eventual exit is uncertain, depending on finding an automaker into whose portfolio both Jaguar and Land Rover would fit.  Management could concentrate on the Jaguar turnaround and driving efficiencies throughout the business. In the meantime investment would still be required in Land Rover products, to protect volumes against future emissions legislation.

Split the brands - If they have an appetite for short term risk, then an aggressive owner could aim to turn around Jaguar and gradually separate the brands.

"We consider that it may be easier to find two future buyers within whose portfolios Jaguar and Land Rover fit, rather than trying to find a single buyer, so this option may release more value. Given that we consider Jaguar the more attractive long-term proposition, there is also the option of selling Land Rover to a major automotive player while retaining Jaguar.

"The major risk in separating the businesses comes not from major cost increases but from the disruption involved in separating marketing, sales, distribution and purchasing activities."

Build a long term 'Jaguar Land Rover' premium car group - a long term owner of the business may consider keeping the group together and maximising future synergy (for example platform sharing between the next generation XJ and Range Rover). Depending on the impact of emissions legislation on the mid-range vehicles such as Discovery and Freelander, the group may in the long term dwindle to three product areas: Jaguar, Range Rover luxury SUVs and Land Rover utility vehicles. However, providing that this evolution (and in particular the scaling down of manufacturing) is well managed then this may not be a bad thing, leading to a far more premium-sector oriented group and reducing the cash that has to be committed to product development in the mid-term.

Arthur D Little said Ripplewood and TPG (the private equity bidders) are most likely to favour the first two options. Although the final option is possible, they have no ability to achieve further synergy with other parts of their business.

Tata and Mahindra are both able to add something more to the third option - low cost engineering and sourcing capability and potentially the ability to share components with their own product ranges.