NEW YORK: As Ford Motor Co closes in on a deal to sell its famed Jaguar and Land Rover brands, the struggling automaker could be nearing the end of the road on the asset sales that have been cushioning its turnaround.
Analysts caution that Ford, which has spun off assets ranging from the Hertz car rental agency to the Aston Martin luxury brand, must shift its focus to fixing the money-losing business at the heart of its problems: making and selling cars and trucks in the United States.
The company lost more than $15 billion in the past two years and is in the middle of a restructuring that includes closing 16 North American plants and slashing tens of thousands of jobs to try to return to profitability by next year.
To help fund that effort, the world's third-largest automaker is now in talks to sell its Jaguar and Land Rover brands to India's Tata Motors Corp. But if and when that transaction closes, Ford will find it harder to cash in on its remaining assets, analysts said.
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While the company could opt to sell its financial services arm or its Volvo or Mercury brands, such deals look unlikely in the short term because they would not bring high prices. "Once the Jaguar and Land Rover deal is complete, there probably is not another deal around the corner," said John Casesa, managing partner of auto industry financial advisory firm Casesa Shapiro Group.
"The sale of Volvo remains an option, but it's not a good time to get strong prices on assets," he said. Interest from private equity firms had pushed takeover prices sky-high -- but the credit squeeze that began last year has made it harder for those firms to borrow, forcing down asset prices.
While Casesa said Ford must become less financially leveraged, he added that the company had no urgent need for cash. The Dearborn, Michigan-based automaker mortgaged its assets in 2006 to secure about $23 billion in financing to help fund its turnaround. That financing helped Ford end 2007 with $34.7 billion in cash, marketable securities and some short-term assets.
VOLVO'S FUTURE
Ford, with a market capitalization of $13.5 billion, has seen its shares plunge almost 80 percent from 2001, when US vehicle sales began trending lower. A deal with Tata would disband Ford's Premier Automotive Group, whose only remaining brand would be Volvo.
Volvo, a Swedish brand that Ford bought for $6.45 billion in 1999, is widely seen as the next asset on the block once conditions improve. "First, Volvo is not making money," Argus Research analyst Kevin Tynan said. "Also, there isn't enough brand equity. That tells me that keeping it would make a whole lot of sense."
Ford does not break out results for Volvo, but did say the unit had lost money in 2007. It also wrote down the value of Volvo by $2.4 billion following a review of the brand's prospects in January. This week Ford said it was developing a plan that would help Volvo operate on "a more stand-alone basis," reinforcing speculation of an eventual sale. "They will probably sell it, but they will hang on to it until they can get a better offer," said Morgan Keegan analyst Pete Hastings.
"It could be a fairly attractive asset, and they would rather not let that go at a low price." A sale of Volvo could also be difficult because several Ford models share manufacturing platforms with the brand. Ford has repeatedly said it has no plans to sell Volvo. But in 2003 then-Chief Executive Bill Ford Jr. said he had no interest in selling the Hertz rental car unit, calling it "part of the Ford family." The unit was sold in 2005.
WHAT'S NEXT?
Ford could also decide to sell its Mercury brand. Analysts have criticized the company for allowing its Ford and Mercury models to overlap too closely and setting them up to compete against each other. Ford has responded by quietly dropping future development plans for Mercury. This has left the nameplate with an uncertain future.
"There might be no plans for Mercury after 2012," IRN Inc analyst Erich Merkle said. "It's not doing anything for sales. It's just a rebadged Ford. It would be a good one to get rid of." Then there is the automaker's financial arm, Ford Motor Credit.
As with Volvo and Mercury, analysts see the potential for a future sale, but nothing immediate seems likely. Some analysts say it would make sense for private equity firm Cerberus Capital Management, which already owns Chrysler Financial and 51 per cent of General Motor Corp's finance arm, to buy Ford Financial and merge all three units.
"But no one wants to buy a lending company right now," Casesa said. Neither Ford nor Cerberus was immediately available for comment on Friday. "I think the story at Ford now," Casesa said, "is to execute the operating plan rather than to execute more transactions."
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