Posted by: David Kiley on March 14, 2007
With the sale of Aston Martin netting Ford more than $800 million, the attention turns immediately to whether the automaker will sell Jaguar and Land Rover, too, and get out from under the English Patients.
I doubt it. Merrill Lynch’s John Murphy said today that Jag and LR would probably only net the struggling automaker about $1.5 billion at best. Ford has been losing that much in the couch cushions. The real benefit to Ford wouldn’t be the relatively low amount of cash, but the enterprise savings of not having to manage the two brands globally, fund product plans, deal with the U.K. labor union at the Jag and LR plants, unload a lot of excess employees, etc.
“Globally” is the key word in all that. Ford managers are skittish about going into the next decade with only one global brand, Ford, and attacking the premium categories with just Lincoln. Lincoln may get a stretch across the pond as an experiment, but noone thinks it will bring home much cash. Jag and land Rover are true global brands and LR, especially, has big cachet in developing markets among Chinese, South Americans and Middle Easterners.
Ford is the biggest automaker in the U.K. And it’s tinkering with plans to bring some European product to the States. The economics of that is brutal given the cost of manufacturing in Britain and the currency exchange. By hanging onto Jag and LR and not selling them off to private equity, they have more with which to horsetrade with the unions on making more Euro exports to the U.S. economically viable.
PAG lost about $325 million last year. Sources tell me that Volvo was slightly better than break even. And if Aston Martin earned something South of $100 million, that means Jag and LR are down to the neighborhood of $300 million in combined losses. With fewer employees this year, and the new LR3/Freelander out and earning and the overall plan of getting the U.K. manufacturing and employee footprint more in line with sales volume kicking in incremental operational improvement, PAG could well find itself nosing into the black this year. Two more years of incremental improvements, and it could cease to be the albatross it was created to be under former CEO Jac Nasser.
Nasser engineered the Ford Europe miracle by saddling PAG with the Halewood plant, which built Mondeo-based X Types. The sales volume plan for Jag—200K a year globally—was untenable even without the economic diversion of the 9-11 terrorist attacks. But it was a bookkeeping move that falsely created a Ford Europe turnaround by getting the unprofitable Halewood plant off FE’s books and on to PAG’s.
Ford isn’t expected to make profit until 2009. Only if they weren’t going to meet that target would they seriously consider selling Jag and LR at this point. And in another year or two, if they decided to sell them, they’d be selling a profit-making asset instead of a money-losing one in a distressed selling environment. In short, Ford doesn’t have to sell Jag and LR now, so they won’t.