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Does Ford Deserve All The Street's Heat?


Ford Motor Co. (F), struggling to convince Wall Street that its third try at restructuring in five years will be the charm, is winning over few believers with its stepped-up plan, announced Sept. 15, to buy out thousands of workers and close plants. That's in part because the automaker is still noncommittal about selling or shuttering troubled and bleeding luxury brands such as Lincoln, Jaguar, and Land Rover. Ford's share price dropped nearly 12% the day of the announcement, while analysts like John Murphy of Merrill Lynch & Co. quickly downgraded Ford from neutral to sell. The latest plan, Murphy says, is "missing a lot."

Is the Street overlooking something here? Maybe. Inside Ford a spirited debate is under way over the luxury question. Some executives continue to cling to a sprig of hope that Lincoln can be saved. That may be wishful thinking. But the reluctance to part with Jaguar and Land Rover starts to make more sense if Ford can use them as the basis of a potential alliance with Renault-Nissan. And that might help explain why, despite the fact that Jag lost $1 billion last year and will again this year, the vice-president of Ford International, Mark A. Schultz, is adamant about hanging onto the brand. "Jaguar is not for sale now," he says.

After pouring some $20 billion into its luxury brands, Ford executives are understandably loath to shutter them or sell them only to watch a rival make them successful. Still, why hang onto Lincoln? Because there is some support inside Ford for combining Lincoln's retail distribution and some engineering and manufacturing with Ford's Volvo brand, while killing long-suffering Mercury. Ford optimists believe that the combo could draw a younger mix of traditional American and import buyers to both brands. And plans have been afoot for years to build Volvos in the U.S. and share engineering with Ford and Lincoln models. The platform of the Volvo S80 sedan and XC90 SUV underpins the forthcoming Ford Fairlane crossover, as well as a secret Lincoln "people-mover" that will likely be made public in January. As always at Ford, a Lincoln-Volvo tie-up will rise or fall on execution.

Then there are the British brands. Executives who have recently left Ford and Nissan point to Carlos Ghosn's gaping luxury hole at both Nissan and Renault, where he is CEO. Nissan's Infiniti brand sold just 150,000 vehicles worldwide last year, 91% in the U.S. Renault has no luxury business. Ford's Jaguar and Land Rover are both true global brands. Ghosn, like any auto exec, lusts after luxury profit margins that can top 15%, if managed right, vs. around 5% to 6% at best for mass-market vehicles.

GOING FOR GHOSN

A Ford executive who asked not to be identified argues that Ghosn is better situated politically to stop building Jags and Land Rovers in high-cost British factories. That's because Ghosn has already moved Nissan production to an ultra-efficient nounion plant there and likely could do the same with Jag and Land Rover. Tying up with Nissan-Renault also could help Ford boost the popularity of both British makes in Europe and Asia, where they have solid brand awareness and room to grow. "Half the earnings from a viable business in Ghosn's hands would benefit both companies and be the ideal start of a fuller alliance down the road," says the Ford executive.

Ghosn says for now there is nothing in the works with Ford, either an alliance or a deal to buy its luxury brands. But he doesn't rule anything out and is expected to meet with Ford Chairman William C. Ford Jr. and new CEO Alan R. Mulally as early as next month after he concludes talks with General Motors about a possible, though unlikely, alliance. "Before taking that seriously, we'd have to sit down and really talk about it," says Ghosn. He'll have an attentive audience at Ford.

By David Kiley, with David Welch


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