They say life is not a rehearsal and the past is over and gone. But the Ford Motor Co. would like to defy the maxim by trying to guarantee the future by retrospection.
It can be recalled that Bill Ford Jr. beat out Volkswagen and Fiat less than a decade ago to purchase Volvo Cars. Ford Jr. said that the $6.5 billion acquisition a "meaningful step" to fulfilling the Ford's "21st-century vision" of becoming the world's leading automaker. At the time, it was a great victory for the automaker.
Eventually, the aftermath of a series of acquisitions resulted to the new Premier Automotive Group (PAG), with Volvo as its centerpiece. The PAG is expected to collectively sell a million cars annually by the middle of this decade, and yield at least a billion dollars a year in profits.
But as reported by The New York Times, those plans have not worked out. With its recent decision to entertain bids for the Scandinavian automaker, Ford appears to be shifting into reverse on its strategy, dismantling the collection of luxury auto companies, including the Land Rover division which it bought in 2000 that it once assembled with such confidence, said The Times.
Ford CEO Alan R. Mulally is pushing the company to get out of $12.6 billion in losses in 2006 by returning to its roots as a mass-market manufacturer, and the fabled foreign brands are no longer considered pivotal to its turnaround strategy, The Times continued.
may be illuminating a vital part of the past that the company needs to reconsider. Amid auto industry's hardships, automakers understand the need to refocus on their core brands. This strategy is aimed at regaining market share they are losing to foreign automakers such as the Toyota Motor Corp., Honda Motor Co. and the Nissan Motor Co.
"What has really evolved here is that the scenario has changed so dramatically," said David Cole, the chairman of the Center for Automotive Research. "Because of that change, you're looking at things in a far more pragmatic way, with the thought that if you screw up in labor negotiations, or you screw up in product development, the company may go down."
In retrospect, Ford's experience with the Premier group, known as PAG, is proof that a car company cannot buy its way to a dominant position in the market, said David E. Davis, the founder of Winding Road, an online car magazine, and a longtime observer of the auto industry. Ford saw its purchases of Volvo and the other brands "as a costly, but not overwhelmingly costly, way to project themselves into parts of the market where they had never been able to move in with their own resources," Davis noted. "It turned out that all they bought was a huge amount of trouble."
Analysts in the industry say that if Ford were in better financial shape, it might be able to make a case for keeping Volvo. Cole has this to say: "They're faced with no choice but to do that. You could have phenomenal operating performance at a Volvo, but it's not going to offset a catastrophe at the home Ford Motor Company."
Jonathan Steinmetz, an auto industry analyst with Morgan Stanley, said in a research report: "Ford does not have the resources, from both a financial and a managerial perspective, to keep plowing time and money into all its brands."
"Every bit will help," Steinmetz concluded. "Jaguar has been 'a large cash drain.' Land Rover, while better off than Jaguar, is too small to help the company solve its problems."
