Ford Goes Back to Basics

The Dearborn-based automaker has retained two investment banks to find a buyer for its British brands. At present, the company has not ruled out a separate sale of its Swedish brand Volvo. The potential decision would mean the automaker is in effect dismantling the diversified, international business composition it created in the past 20 years and returning to its roots as an American automaker with large-scale reach.

In the 90s, Ford has already sold off many of the non-automotive businesses it acquired during its boom years. Earlier this year, the automaker reached an agreement to sell its Aston Martin brand to a group of private investors.

"Ford is now actively investigating its options in terms of other possible actions," Ford spokesman Tom Hoyt said last Tuesday. "We are not ruling anything in or out. We are working with our financial advisers to determine the best way forward for Jaguar and Land Rover." Hoyt added Volvo is not part of that discussion. However, people familiar with the situation said that Ford senior executives have had preliminary discussions about selling the Swedish brand.

In May, the potential sale of Ford's European brands was a topic for discussion at its board of directors meeting. Currently, the automaker has not retained bankers to explore a Volvo deal, but Ford has asked Goldman Sachs Group Inc. and Morgan Stanley to look for purchasers for Jaguar and Land Rover and handle any sale. The Volvo transmission mount could have escalated the standing of the Swedish automaker to yield reconsideration.

France's Renault SA and Italy's Fiat SpA are among a number of automakers that have publicly communicated their desire to acquire the Jaguar and Land Rover brands. British private equity firm Alchemy Partners also intimated the same aspiration.

Even with Land Rover now reporting gains, the two British brands are not expected to be easy to sell. Internal Ford reports revealed that Jaguar lost about $715 million in 2006 after accounting for taxes, asset adjustments and other charges. Together, the two brands employ some 19,000 workers, many of whom are covered by gold-plated labor contracts that a new owner should respect. Moreover, both brands are having a hard time figuring out how to meet the new European restrictions on carbon emissions.

While the company has secured more than $23 billion in financing to fund its turnaround plan, analysts said that Ford still has little margin for error. Individuals inside Ford and in the banking community said that Ford is determined to get rid of the brands this time, even if it has to sell them at a loss.

Selling its European brands would give Ford a little respite. "An attempt to sell Jaguar and Land Rover divisions could be beneficial to the company given that they are non-core to Ford's overall business and cash from a sale could be used to hasten North American restructuring activity," said Jon Rogers of Citigroup. "Selling Volvo makes less sense given Ford's emphasis away from trucks and the brand's passenger-car-centric mix."

But Ford CEO Alan Mulally has expressed concern that the European brands could be a distraction to a management that has got its hands full fixing Ford's core operations. This is the reason why Mulally could ultimately look to sell Volvo. Some analysts believe Ford could get a decent price for the Premier Automotive Group. Rogers believes Ford could get $15 billion for the lot - $8 billion for Jaguar and Land Rover and $7 billion for Volvo.