The possibility Ford would offer Volvo – “the jewel in the PAG crown” – for sale is a reversal of policy but with the Swedish unit expected to be worth around $US8bn, the attraction of so much cash may be too great for the company to ignore, a UK-based Global Insight auto analyst has said.
“It is clear from the reports that any move to sell Volvo is in the early stages and far from definite, but the increased speculation appears to have some substance and is based on sources involved in the process. Furthermore, the heightened speculation may be a reflection of the lack of interest in Jaguar/Land Rover, and/or the low level of cash that their sale is expected to generate,” Paul Newton said in a research note.
Although Ford has declined to comment publicly, other than to reiterate it is considering all options, it has been widely reported that the automaker has invited bids for Jaguar and Land Rover to be submitted by this Thursday, 19 July.
As other analysts and industry observers have already noted, Newton said divestment of Volvo would not be nearly as easy for Ford as the sale of Aston Martin, or even Land Rover and Jaguar.
“Aston Martin was almost a completely independent operation, and even Jaguar and Land Rover operate via the use of limited Ford platforms and technology, with only one model in either range married to a Ford-derived platform. Furthermore, Volvo is expected to perform well following a lull in its core mode replacement cycle last year. Global sales grew 8% year-on-year in the first five months of 2007 and the company is using its current installed capacity more efficiently, meaning that there is no need to expand production in Europe or anywhere else in the medium term. The car maker has a total annual production capacity of around 580,000 units worldwide, and of this it produces about 450,000 units per annum and it wants to focus on making further efficiency gains to support its growth ambitions. Volvo aims to sell 600,000 units worldwide by 2010,” he said in the note.
Again, as others have noted, Newton said Volvo is also an integral part of Ford’s line-up, providing platforms for the reborn 2008 Taurus, Sable, and Taurus X in North America while its S40 shares a common platform with the European Ford Focus and Japan’s Mazda 3. For Ford to split Volvo off, it would either need to find replacements for such models or be able to guarantee a continued future partnership with whoever purchases the Swedish car maker.
“Despite the boost that $8bn would provide, a boost that the company has previously assured the industry it does not need, the logic of selling off one of the profitable arms of the company that provides solidly engineered technology on a global level would be hard to decipher,” Newton opined.
He added that the rumours surrounding Volvo are coming to a head before the publication of the company’s latest quarterly results, due at the end of the month, and this may be an indication that the slide in Ford’s US operations is accelerating, forcing CEO Alan Mulally to consider offloading the Swedish unit.