Ford Death Watch 34: PAG Pegs Out. Who Will Buy Jaguar, Land Rover and Volvo?
Adoption is a lengthy process. Prospective parents must submit to all kinds of scrutiny to prove themselves suitable child care providers. And for good reason. You can’t give ‘em back, as they say. Not so in the business world. Ford has officially put siblings Jaguar and Land Rover up for sale, with some sources placing Volvo’s custody in question. The move ends nearly a year of speculation, or nearly two decades of speculation, depending on how prophetic you’ve been.
A great many car people groaned when Ford grabbed the cat’s tail back in ‘89. Presciently enough, they worried that the American automaker wouldn’t “understand” and “respect” the Jaguar brand. Ten years later, they groaned again when Ford purchased Britain’s provider of “Chelsea Tractors” (Land Rover). BMW, OK, maybe. But Ford?
Analysts considered both purchases losers. Even if the brands could be brought up to snuff, they’d cost too much money to repair. When Volvo and Aston Martin joined the Premium Automotive Group (PAG), critics were more optimistic about those marques’ chances. In the end, both armchair analysts and the professional soothsayers were proved correct.
Last year, Ford lost $12.7b. The Blue Oval doesn’t break out PAG’s numbers, but insiders suggest the European brands lost $2.32b of that total. Volvo broke even last year and Land Rover climbed into the black. Aston Martin has moved on, leaving the cat holding the bag.
Despite protestations of corporate loyalty, Alan Mulally’s mob instructed Goldman Sachs and Morgan Stanley to launch “Project Swift” (a perfect codename for anyone wondering about Ford’s desperation level). The money men are set to handle the sale of Jaguar and Land Rover– though that may not be the best word to describe the divestiture.
Land Rover is on track to sell about 195k vehicles this year, bringing in about $9b. After looking at the costs of doing business, Merrill Lynch and Co. told the Wall Street Journal they think the outfit is worth about $2.7b. Ford paid $3b for Landy ten years ago. Factor in inflation and, well, that’s sad. But it’s better than Jaguar's progress (or lack thereof).
Ford bought Jaguar for $2.6b (approximately $4b in today’s dollars). In the last three years, they’ve lost an addition $2.9b. Ford’s in the hole $600m so far this year. That puts Jaguar’s value in the negative numbers. While that’s not unusual in the car business– DaimlerChrysler had to dangle a plenty juicy deal to get Cerberus to bite-– it’s not good either.
Citigroup analysts reckon Jaguar and Land Rover could fetch $8b. As the marques share parts and production facilities, splitting them up could drastically reduce that number. Others don’t put the number that high in the first place.
This is where Volvo comes in. Although Ford has stated the Swedish brand is staying, when inside sources are questioned they tend to whistle and look the other way. Volvo is considered viable. To ensure all three PAG brands find a good home, Ford may have to throw in its Swedish contingent.
And where might that home be? Speculation is, at the moment, a lot less than rampant.
The aforementioned DaimlerChrysler is not in a buying mood, as they are in the process of selling their suffix. General Motors has been brand hungry since formation, but they’re a little shy this week (year, decade). Toyota traditionally favors natural conception. Renault said it isn't interested, as their cash flow has diminished as of late. Fiat has voiced some interest in future acquisitions, but like The General, their reach presently exceeds their grasp.
As recently as January, BMW AG publicly expressed desire to purchase Volvo. The deal never ripened. Considering the complications-– like the weirdness of BMW taking control of Land Rover seven years after selling it to Ford-– further discussions seem implausible. That said, many in Munich feel the BMW brand is stretched to its limits. Adding another brand, as the company did with MINI, may be the best way to grow the biz.
Ford sold Aston Martin to a consortium of investors including Prodrive’s David Richards and a pair of Kuwaiti companies. This financial formula portends the most likely scenario: Land Rover and Jaguar’s buyers will come from outside the current automotive arena.
Jon Moulton, of the private equity firm Alchemy Partners in London, told Businessweek he was interested in Jaguar and Land Rover “on an emotional level.” (He also thought the price would probably be too high.) Though neither company has made much or any money for the owners in the last 20 years or more, he insists the brands are “alluring.”
Private equity firms like Alchemy and Cerberus are not considered solid stewards for wayward automakers. They shun scrutiny, avoiding the kind of open communications one looks for in a happy family. They can, however, put food on the table. That’s about as good as it’s gonna get.
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