Is Volvo Next? As Ford Ponders Its Next Moves, Swedish Automaker's Fate Hangs In the Balance
Pick your rumor. In today's chaotic climate, it seems there's some buzz on the Web about everything. Occasionally, the rumors turn out to be true, like the talks between General Motors and Chrysler. Indeed, the one thing that seems certain is that there'll be significant consolidation in the cash-strapped auto industry over the next few years.
So there was little surprise when Ford Motor Co. sold off the bulk of its stake in Mazda, the resurgent Japanese automaker, earlier this month, confirming ongoing reports that had started swirling in Japan weeks earlier. What remains to be seen is whether the ailing American automaker will also validate rumors concerning the fate of its equally troubled Swedish subsidiary, Volvo.
Since coming onboard at Ford, two years ago, CEO Alan Mulally has made it clear he'll consider every possibility when it comes to turning around the struggling American automaker. He's already sold off all the other overseas brands that, along with Volvo, made up the once-promising Premier Automotive Group. So, might Mulally abandon Ford's last foreign forays in a bid to raise some much-needed cash for the company's core North American brands?
For the moment, at least, company officials say that's not in the cards. But, then again, they don't entirely rule out such speculation.
Whether Ford might want to sell off Volvo "is a valid question," acknowledges Steve Odell, the Scandinavian maker's new CEO. But he quickly adds that, "No one [from Ford headquarters] said, 'Go get it ready for sale.' The bigger question is whether we're going to survive. I'd like the answer to be yes, and that has to be wrapped around product or it's just words."
To that effect, Odell insists his only mandate is to "get it fixed."
For their part, several senior BMW officials, asking not to be identified by name, said they were perplexed by the rumors linking the German company to Volvo. "It is not something we are seeking," asserted one.
Several well-placed industry analysts agree. Noting that such rumors first surfaced more than a year ago, Jim Hall, founder of 2953 Analytics, in Birmingham, Michigan, said that even if Volvo were for sale, he didn't see BMW as the likely buyer. For one thing, he notes that the German marque is in the midst of an internal reorganization that would make a major acquisition difficult to handle, at least right now. And Hall points to the devastating problems that followed its last major purchase, of the British Rover Group, which cost BMW billions and left it gun-shy about acquisitions.
Hall said he wouldn't be entirely surprised if Ford decided to sell its subsidiary because Mulally and his top lieutenants are "obsessed with polishing the Ford Blue Oval," but in the current global economic environment, he doesn't see any likely buyers waiting in the wings.
If anything, Hall counters that Volvo "is a better asset for Ford to keep." For one thing, it attracts the sort of buyer who would normally never consider products marketed under the Ford, Mercury, or Lincoln brands. But Volvo has also become an integral part of the U.S. company's product-development system. Volvo platforms have provided the foundation for such vehicles as the Ford Taurus and Taurus X, as well as the new Lincoln MKS. Meanwhile, modified Ford platforms provide the underpinnings of several of Volvo's more recent models.
"They should be looking to keep it, if they can," echoes Joe Phillippi, of AutoTrends Consulting in suburban New York. Like Hall, Phillippi believes the challenge will be to fix Volvo, which he doesn't think has been handled well since its 1999 acquisition, at a cost of $6.45 billion -- far more than industry observers believe Ford could expect to recover through a sale, at least not considering Volvo's current problems.
It actually should have been a good year for the Swedish company, considering it sold a record 458,323 vehicles last year. But that's still well short of its capacity. And, since the U.S. makes up a major portion of Volvo's business, the automaker has been hard hit by the plunging value of the dollar. On top of that, it has some of the highest labor costs in the industry, particularly at its Swedish plants.
All those are issues Odell says he must address. Meanwhile, he is looking at major changes to the Volvo product lineup and hopes to expand beyond the maker's traditional focus on safety. Like key competitors, it needs to go "green," and is looking at what Odell describes as "full electrification." A hybrid is in the works for a 2011 launch. And a pure electric vehicle could follow.
Like Volvo, Mazda has become an integral part of the Ford empire and plays a particularly active role in product development. Their ties date back decades, and today they share the same underpinnings in vehicles such as the American maker's new Fiesta and Mazda2, as well as the Japanese manufacturer's CX-9 and Ford Edge.
Meanwhile, Mazda is doing surprisingly well, despite the global recession. The automaker posted a record profit of $1.55 billion last year and could match that in 2008.
The turnaround occurred on Ford's watch. In the arcane world of Japanese finance, the U.S. maker's 33.4% stake actually put it in control, and Ford posted a string of managers to Mazda's executive suite, those CEOs include Mark Fields, now Ford's president of the Americas.
But with Mazda on the ascendancy -- and with its shares increasingly desirable -- it became clear to Ford that it no longer needed to hang onto that large a stake. So it has sold off about two-thirds of its shares to a consortium including Mazda and 20 other investors and reaped a much-needed $538 million in hard cash.
Ford actually will remain the single-largest shareholder in the Japanese company, with a 13.8% stake. And according to one senior Ford product development official -- who requested anonymity in return for speaking without a P.R. rep -- "little is going to change" in practical terms.
Expect the two longstanding partners to continue cooperating on future products, as well as production ventures that range from their suburban Detroit assembly line to plants in Thailand and China.
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