Ford Wants to Unload Volvo

Thursday January 29th, 2009 at 10:11 AM
Posted by: m35man

Ford Motor Co. is expected to begin entertaining offers for its Volvo Car Co. unit next month, and Chinese automakers could be among the bidders, say people familiar with the situation.

Finance specialists for the Dearborn automaker are in Gothenburg, Sweden, for a “strategic review” of their Swedish carmaker in advance of a sale. Ford is hoping to fetch between $5 billion and $10 billion for Volvo. Sources in Sweden say the actual selling price will be much less, given the prevailing economic conditions.

Much will depend on Ford’s efforts to restore profitability at Volvo. In September, Ford sacked Volvo’s Swedish CEO, Fredrik Arp, and replaced him with British-born Stephen Odell. The message was clear: the time had come for tough decisions, and Odell wasted no time making them. Within weeks, he had cut 4,000 jobs. “I wanted to help the management team get Volvo back to sustainable profitability,” he told The Detroit News. “Unless we are sustainably viable, the speculation (about a sale) is just that.”

That is no small task: Volvo lost $484 million in the third quarter of 2008, compared with $174 million during the same three-month period a year before. Volvo has been hit hard by the global economic crisis, which sent its sales plummeting from 102,000 units in the third quarter of 2007 to just 66,000 units in the same period last year.

Odell also is trying to push Volvo up market, something Ford first said it wanted to do a year ago. Odell said there was an opportunity for the brand to take advantage of what he sees as a “shift from overt consumerism to non-overt consumerism.”

Volvo, he said, offers understated luxury at a time when many affluent drivers no longer want to flaunt their wealth. Safety has been Volvo’s secret sauce for years, but that quality is becoming a commodity. Odell said Volvo will maintain its position as a leader in safety technology, and it will share its safety innovations with Ford — at least until it is sold.

“Whoever the owners of Volvo are, they will know that they are getting a brand with zero negative brand image,” he said.

Sources in Sweden say that could happen soon. Ford already is talking to potential purchasers. Ford and Volvo both declined to comment.

Christoph Stürmer, Frankfurt-based auto analyst at IHS Global Insight, said he thinks Volvo will most likely be sold to an automaker from an emerging market, “an Indian or Chinese company with a pocket full of cash and a pocket full of ambition.”

He said the Volvo brand was very strong in developing regions in Asian and Eastern Europe. By contrast, “I don’t see much future growth for Volvo in western markets,” Stürmer said. As part of Ford, Volvo belonged to a group with a huge retail network and presence in many countries, and yet it was still not able to expand sufficiently to be viable, he said.

In Sweden, there has been speculation that Ford’s Chinese partner, Changan Automobile Group, might be interested in Volvo. Changan assembles Volvos alongside Mazda and Ford vehicles in the city of Chongqing.

Any deal would require consultations with AB Volvo, the Swedish heavy truck maker that sold the Volvo car business to Ford in 1999 for $6.45 billion. The truck company and its former car division still jointly manage the brand name that they share.

With General Motors Corp. peddling its Swedish nameplate Saab, the Swedish government is watching the situation closely to ensure the survival of not only the car assembly operations but the components manufacturers which supply them, say sources close to the companies.

Volvo is one of Sweden’s largest employers, and Odell said the Swedish government is keen to ensure a viable domestic automobile industry going forward.

“I absolutely believe we can, but I’m not going to put a time line on it.”

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