Page last updated at 14:54 GMT, Tuesday, 12 June 2007 15:54 UK

Jaguar sale could secure Ford's future

By Jorn Madslien
Business reporter, BBC News

With the recent sale of Aston Martin, and with Land Rover and Jaguar up for sale, Ford Motor is clearly beating the retreat from the market for luxury cars.

Jaguar X-type
The Jaguar X-type shares a platform with the Ford Mondeo and can be delivered as an estate with a diesel engine; hardly a brand booster

Under chief executive Alan Mulally, it is all hands to the pumps in the US where Ford is focussing all its resources on rebuilding the Blue Oval as a brand after losing more than $12bn (6bn) in 2006.

"Ford have got some huge problems on their own, really huge," says former Jaguar chief executive Geoffrey Robinson, now a member of parliament, who insists that Ford is facing a battle for survival.

Aaron Bragman, auto analyst at Global Insight, says that the "time-frame in which they have to start getting exciting vehicles on the road in order to start returning Ford to profitability is alarmingly short".

To make it happen, "Ford needs to get rid of the luxury brand distraction", adds Christian Boettcher, partner with automotive strategy firm Lansdowne Consulting.

Brand stretched

In other words, the anticipated disintegration of Ford Motor's luxury subsidiary, Premier Automotive Group (PAG) - which also includes Volvo Cars - is not a fund-raising exercise.

Rather, the sale of Jaguar and Land Rover would contribute to Ford's bottom line only in the sense that getting rid of the Big Cat would insulate Ford from its continuing losses.

Land Rover
Land Rover's current line-up is proving a success

Ford is believed to have invested about $10bn in Jaguar since it bought the marque in 1989 for $2.5bn.

But to no avail. Jaguar has never really brought home the bacon for Ford. Analysts predict that this year's losses could reach $550m, followed by a further $300m loss in 2008.

Moreover, rather than boosting the brand, much of Ford's investment has paid for brand-stretching exercises that have damaged the brand's upmarket image without delivering a corresponding mass-market sales boost.

Jaguar's sales in the US, its key market, have fallen from 60,000 in 2002 to 20,000 in 2006, a drop that analysts say has come about because of an excessive reliance on parts-sharing with Ford - in particular with the launch of the Jaguar X-type.

"It became obvious very quickly that it was based on a Mondeo," observes Mr Boettcher.

"People in the US were not fooled,"

Closely-linked marques

Land Rover, which was acquired from BMW in 2000 in a 1.7bn deal, is in a better position than Jaguar. However, this was not always the case.

Volvo in factory
Rivals are eagerly eyeing Volvo Cars

Three years ago, the then PAG boss Mark Fields told workers at Land Rover's Solihull factory that they could find themselves out of work by the end of summer unless they accepted a range of "changes within the plant".

Mr Fields' "change or die" strategy worked, and following the shock treatment the off-road division is now in pretty good shape.

"Land Rover's got a fresh line-up of models and it is selling quite well," says Mr Boettcher. "There's a lot of equity in that brand and it is marginally profitable."

Nevertheless, it does not make sense for Ford to keep the 4x4 maker, according to Simon Dorris, partner and colleague of Mr Boettcher at Landsdowne.

For starters, "Ford has a decent SUV (sports utility vehicle) line-up already", says Mr Dorris.

In addition, Jaguar and Land Rover's international distribution networks are closely linked, as are some of their production facilities, he explains.

Disentangling their operations would be both awkward and time-consuming, and given that they "really want to get Jaguar off their books as soon as possible", it makes sense to bundle the two marques and sell them as a package.

As a result "Ford will have to sell Land Rover to get rid of Jaguar", Mr Boettcher says.

Selling Volvo?

The problem is, neither marque is particularly valuable. Following the sale of Aston Martin, PAG is estimated to be worth just $9bn. Volvo Cars, the main contributor to PAG's $400m pre-tax profits during the first three months of the year, is worth some $8bn, according to Mr Dorris.

"Volvo is the jewel in the crown," he says.

"If you look at the financial position, [Jaguar and Land Rover] are worth some $1bn to $1.5bn," Mr Dorris continues. "Add a control premium, and the final sales price could come in at about $2.5bn."

This is a company in serious difficulty. For Ford to go bust is a real possibility
Simon Dorris, Lansdowne Consulting

Interested buyers - most likely private equity investors - would probably ditch the Jaguar X-type and focus on rebuilding the marque's upmarket credentials, Mr Dorris predicts.

He believes a key part of the buyers' strategy would be to introduce a modern and stylish replacement for the retro S-type, a rival to Mercedes and BMW.

Jaguar and Land Rover could then be resold as separate entities.

That would leave Ford Motor with Volvo, and given the group's financial predicament in the US, Mr Boettcher predicts the Swedish carmaker will probably also be put up for sale soon with an asking price in the region of $8bn.

"It's a very attractive target," he says - perhaps for the Renault Nissan alliance headed by Carlos Ghosn, or for Canadian automotive parts firm Magna, which recently failed in its efforts to buy Chrysler.

Focused future

The demise of PAG would leave Ford without a presence in the market for high-end motoring, a segment where the most successful players are achieving both enviable profit margins and strong volume growth.

But this may well be a price worth paying to get Ford back on track, believes Mr Boettcher.

"You can make it work without a luxury brand," he insists. "I don't believe in the portfolio strategy, where you cover every segment in the market."

Going forth, Ford is expected to focus on what it knows best; building and selling mass-market cars, pick-ups and SUVs.

"Ford is undertaking a sweeping re-examination of processes, procedures, and bureaucracy that it is hoped will streamline processes and speed new products to market," observes Mr Bragman.

And maybe, just maybe, this will be enough to ensure its survival as an independent car maker.

Though Mr Dorris is not so sure.

"This is a company in serious difficulty," he points out. "For Ford to go bust is a real possibility."

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