UPDATE: Ford Explores Sale Of Volvo Amid Auto Industry Woes
Monday December 1st, 2008 / 19h44
(Updates with more information on Ford and Volvo, comments from executives, comments from analysts, share price; adds context) By Jeff Bennett Of DOW JONES NEWSWIRES DETROIT -(Dow Jones)- Ford Motor Co. (F) is once again considering the sale of its Volvo Cars unit, as the U.S. auto maker scrambles to boost its cash reserves amid a steep downturn in global automotive industry sales. The Dearborn, Mich., company said Monday it will re-evaluate strategic options for the Swedish maker of luxury vehicles as part of a broader effort to strengthen Ford's balance sheet. Ford said the review could take several months, during which time the Swedish company will continue implementing a restructuring that involves cutting about a quarter of its workforce. The announcement comes one day before Ford and its Detroit auto maker peers are due to present to the U.S. Congress turnaround plans that could enable the companies to qualify for $25 billion in emergency, low-cost federal loans. Ford, General Motors Corp. (GM) and Chrysler LLC are burning through billions of dollars a month as sales slide and credit conditions remain tight, heightening concerns that one or more company could be forced to file for bankruptcy. Ford's cash position is stronger than those of its Detroit rivals, but the company still faces the prospect of a rapid erosion of liquidity if sales continue to decline. That has left Ford - which in recent years sold its other European luxury brands and last month cut its stake in Mazda Motor Corp. (7261.TO), earning about $540 million - to mull its options for Volvo. "Given the unprecedented external challenges facing Ford and the entire industry, it is prudent for Ford to evaluate options for Volvo as we implement our ONE Ford plan," Chief Executive Alan Mulally said Monday, referring to Ford's plan to operate as a global company in which it borrows areas of expertise from its different regions and reproduces them throughout the world. Ford shares were up 4.1% at $2.80 in recent trading, after rising earlier to $3.01, their highest mark in nearly two months. The stock is among the few gainers Monday amid the steep decline for the broader U.S. equities market. Tough Time To Sell Monday's announcement marks a turnaround for Mulally, who as recently as last month said he was still committed to keeping Volvo and restoring its financial health. Mulally had opted last year, after a previous review of the merits of selling Volvo, to keep the Swedish company in the Ford portfolio. "Our focus is clearly to improve their current business performance and we are really working on the new vehicles, especially on the premium side," Mulally said of Volvo during a conference call Nov. 7 to discuss Ford's third-quarter financial results. Ford, which posted an operating loss of $3 billion in the third quarter and burned through $7.7 billion in cash, said at the time that it sought to boost its cash position by up to $17 billion by the end of 2010. The company planned to improve liquidity via a mix of job cuts, reduced benefits, lower capital spending, new financing measures and divestiture of non-core assets. Ford spent more than $6.5 billion in 1999 to purchase Volvo Cars from Swedish truck maker AB Volvo (VOLVY). Despite the unit's strong brand name and reputation for quality and safety, it's unlikely Ford could sell Volvo for more than $2 billion in the current market. "It is a terrible time to try and sell something," said IHS Global Insight analyst Rebecca Lindland. "You just can't get financing out there." CSM Worldwide analyst Michael Robinet doubts that Ford will be able to quickly find a suitor. "Anyone who purchases Volvo would have to have very close ties to Ford because virtually every Volvo is using a Ford platform," said Robinet. "It will be difficult because it's not like cutting a piece of pie that's already perforated and just cracking it off. They are very integrated and it could take years." AB Volvo, for one, said Monday it wasn't interested in buying back Volvo Cars from Ford. However, as the auto makers try to qualify for the federal loans, everything is on the table, Lindland said. "They are looking at what they can sell or what they should keep. Its a garage sale of massive proportions." GM, which has warned it could run short on cash by year's end, is reportedly reviewing the possibility of exiting some of its brands such as Pontiac. GM is already in the process of selling its Hummer brand. Big Losses At Volvo The financial situation doesn't appear as dire at Ford, which had about $26.6 billion in liquidity at the end of the third quarter. Nonetheless, Volvo has been a drag on the overall performance of the auto maker as it increasingly turns its attention to core brands and products. Volvo posted a pretax loss of $458 million for the third quarter compared with a loss of $167 million a year ago as revenue dropped 24%. The company is in the process of cutting about 6,000 workers. CEO Stephen Odell, who took over the post in October, said in a recent interview that Volvo has lost its voice in the market because of the global slowdown in luxury-car purchases. He said he is pushing for new designs as he looks to control costs. "The question of ownership is interesting and worrying, but the question of being sustainable and profitable is a bigger question," Odell said in the October interview. "If you get to the point where you are profitable you can offer Ford other choices and better choices than they have today. My case isn't to come here and sell it, it is about improving the business." -By Jeff Bennett, Dow Jones Newswires; (248) 204-5542; jeff.bennett@dowjones.com Click here to go to Dow Jones NewsPlus, a web front page of today's most important business and market news, analysis and commentary: http://www.djnewsplus.com/al?rnd=cyyj%2Fj9l%2Faz7taM%2FBIG0ZQ%3D%3D. You can use this link on the day this article is published and the following day.
