Page last updated at 09:02 GMT, Thursday, 27 September 2007 10:02 UK

Volvo eyes uncertain future

By Nigel Cassidy
Business reporter, BBC News, Gothenburg, Sweden

Gingerly, I slide into the drivers seat, engaged - OK crunched - the clutch and edged a shiny red Volvo Amazon down the test track at a stately pace.

Volvo Amazon
Volvo has long been seen as a maker of sturdy cars

Driving a mint condition 1957 Amazon - or Volvo 121 - is my little treat after a busy day of filming for BBC News at Volvo's Gothenburg headquarters in Southern Sweden.

With its extended rear wings, padded dashboard and European-meets-American styling, the Amazon was the vehicle that cemented Volvo's global reputation for making safe and solid cars.

It also helped build a profitable export business.

Forty years on, and the global car market is much tougher.

Yet, incredibly, Volvo Cars remains profitable. with record exports to Russia and China.

Possible sale

In 1999, Volvo was heavily burdened by the prohibitive cost of developing new cars. It was sold to the US automotive giant Ford Motor, and soon became the company's premier flagship in Europe.

Stockholm financier Claes de Neergaard, Industrifonden
There are really three alternatives for Ford
Claes de Neergaard, Industrifonden

Volvo also gained access to Ford engines and drive trains.

It helped Volvo bring on a whole new generation of vehicles, like the best selling XC90 sports utility vehicle, or its C70 convertible.

But now Ford is determined to put the wheels back on its struggling core business in America.

Volvo is a sacred cow that may have to be sacrificed.

That means Volvo must plan ahead, without knowing whether it will have to work with a new partner and replace every single element it shares with Ford.

Mutual benefits

I walk the production line with chief operating officer Steven Armstrong.

Volvo C70 coupe convertible
Under Ford, Volvo's model range has been expanded

From what he shows me, it is clear that separating Ford and Volvo cars would be a vast undertaking, and take several years.

But it was also clear that Ford has become reliant on some of Volvo's sophisticated Swedish engineering.

"Ford have been extremely supportive in the years they have owned us," Mr Armstrong explains.

"For example, we've had access to technology and a great range of small diesels.

"But Ford has taken advantage of electrical wiring architecture we have developed, and we've taken the lead with new climate control systems for Ford."

Balancing act

But Volvo Cars is seemingly not going back to the future.

The car maker used to be owned by Volvo AB, still a Swedish company making trucks.

Volvo factory
Ford and Volvo rely on each other

Just up the road, also in Gothenburg, the chief of Volvo AB says that contrary to recent press reports, he is not interested in buying back Volvo cars.

The credit crunch may have put off other possible trade buyers.

Stockholm financier Claes de Neergaard, of the leading Swedish investor Industrifonden, predicts that any private buyout of Volvo cars was now far less likely because of the global credit crunch.

"There are really three alternatives for Ford," he reasons.

"To sell to an industrial buyer, to sell to a private equity player or to list the company (on the stock market) with a long term agreement that can build on the relationships Ford and Volvo already have.

"My view is that the last option is the most attractive."

Events unfolding in Detroit suggest Ford still badly needs the $6bn to $8bn (£3bn to £4bn) it could raise from a sale.

Ford's new chief executive, Alan Mulally, is determined to put all his energies into reviving the core Ford brand.

The tricky bit is trying to arrive at a deal that maximises the cash raised but does not wilfully destroy a business relationship both sides have come to depend on.

Volvo expects to discover its fate by the end of the year.

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Inside Volvo's Gothenburg factory

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