Ford may be better off selling Volvo

Ford may be better off selling Volvo
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First Published: Sat, Mar 15 2008. 02 26 AM IST
Updated: Sat, Mar 15 2008. 02 26 AM IST
Ford Motor Co. may regret unloading its UK luxury brand Land Rover. India’s Tata Motors Ltd is close to buying Land Rover and Jaguar. Ford needs to raise cash to help fund the turnaround of its Lincoln and Mercury brands. But in the past year, Land Rover has emerged as a jewel which Jaguar’s problems have hidden. That may offset the risks Tata faces.
Land Rover sold 226,395 cars last year, an increase of 17.6% on 2006. Ford does not break out individual brand results in its Premier Automotive Group, which includes Volvo as well as Land Rover and Jaguar. But, it does say the group made a $504 million (Rs2,036 crore) operating profit in 2007. Because Ford admits that Jaguar and Volvo are losing money, analysts estimate Land Rover made $1 billion operating profit last year. That puts Land Rover’s profit per car at almost $4,500—margins rivalled only by Porsche and Lexus SUVs.
The brand’s sales are well spread geographically: sales last year climbed by 96% in Russia and 143% in China. Land Rover’s turnaround means the final price is likely to be above $2 billion compared with Merrill Lynch and Co.’s estimate of $1.3 billion when Ford first put Land Rover and Jaguar on the block last year.
But Tata still faces daunting challenges. Its experience is with high-volume, low-priced vehicles, not luxury brands. The Indian car maker will need Ford to keep supplying engines and other crucial parts. It has to fund UK workers’ pensions and putting claws back into the defanged Jaguar brand will be a battle. Strict European Union emissions requirements threaten gas-guzzling Land Rover’s European sales. That said, Tata should be able, further, to boost Land Rover’s non-European sales.
Despite promises to UK unions, it eventually could move much production to India. Even though some Europe-based Ford managers now seem to be having regrets, the Detroit management appears determined to press ahead with the deal. But given a resurgent Land Rover and a struggling Volvo, maybe Ford should change direction.
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First Published: Sat, Mar 15 2008. 02 26 AM IST