What Ford's Losing With Volvo

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There were lots of things at Ford (NYSE: F  ) that didn't fit into Alan Mulally's vision when he arrived in 2006, but one in particular was the somewhat oddball collection of luxury brands known internally as the Premier Automotive Group, or PAG.

With the announcement earlier this week that Volvo would be sold to China's Geely Automotive Holdings, the dismantlement of PAG that began with the sale of Aston Martin in 2007 is effectively complete.

Put another way, Ford is now officially out of the imported-luxury-car business. And Geely has acquired instant global visibility, stepping into a leading position ahead of the muddled pack of emerging Chinese automakers.

So is this deal one of Ford's famous better ideas? Or, having already dumped the worst of PAG's money-burning businesses, should Ford have held on to the quirky Swedish marque?

A money-losing win for Ford
Ford is getting $1.8 billion for Volvo -- a steep discount from the $6.45 billion it paid for the Swedish automaker back in 1999. A casual observer might think that's a lowball price for a storied brand -- and thus a bad deal for Ford -- but I disagree, and for a few reasons.

First, Volvo's not the brand it used to be. Its key value propositions -- safety, durability, and a certain counter-cultural quirkiness -- have kind of gone by the board. It's not that Volvos are necessarily any less safe or durable than they used to be -- it's just that those aren't standout advantages in an era where nearly all cars come loaded with safety features and "quality" is a constant focus. And from Ford's perspective, any safety-related technological advantages that Volvo might have had pre-purchase have long since been absorbed into the larger company's portfolio.

And that countercultural quirkiness? One could argue that Toyota (NYSE: TM  ) stole an awful lot of that particular market share with the Prius, but in truth, Volvo kind of walked away from it on its own. By expanding its model range into more segments and abandoning its traditional boxy styling, the company lost its quirks and became just another near-luxury auto brand -- one that was hard-pressed to find traction in a crowded market space with incentive-laden Buicks on one side and Acuras -- with Honda's (NYSE: HMC  ) impeccable reputation for quality -- on the other.

Ford didn't need a Swedish Buick
Buick and Acura aren't the only brands competing on the turf that Volvo hoped to claim -- Ford's own Lincoln is another. Having two brands competing for the same space is never a recipe for efficiency, and in this case, the choice of which brand to keep ... wasn't really a choice. Lincoln has been part of the Ford portfolio since 1922. Its design language, model lineup, and dealer network are fully integrated into Ford's core business operations in North America, and have been for decades.

More to the point, while Lincoln has never had huge sales numbers, those numbers are solidly higher than Volvo's nowadays, and -- like Ford's other businesses -- solidly growing. And while it's possible to have low sales totals and still make money, Volvo wasn't doing it. Volvo lost $32 million on $3.9 billion in revenue in the fourth quarter of 2009, a quarter in which nearly every other corner of Ford was generating solid profits.

That's not the way to convince Alan Mulally to keep you around.

The right thing to do
Long story short: Volvo wasn't the albatross of the PAG -- that was the money-torching Jaguar, sold to Tata Motors (NYSE: TTM  ) along with Land Rover in 2008. But Volvo wasn't part of Ford's core operations, wasn't contributing significantly to the corporate technology pie, and most importantly, wasn't making money. With a ready buyer willing to pony up real cash for an increasingly irrelevant money-losing business, making the deal was Ford's only sensible option.

Read more about the ongoing global automotive shakeout:

Fool contributor John Rosevear owns shares of Ford. You can follow his Foolish twittering at @jrosevear as he continues to sort through the ongoing global auto shakeout. Ford Motor is a Motley Fool Stock Advisor choice. Try any of our Foolish newsletters today, free for 30 days. The Motley Fool has a disclosure policy.

Read/Post Comments (12) | Recommend This Article (18)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On April 01, 2010, at 5:02 PM, Jazzenjohn1 wrote:

    I'm not sure the focus should be on what Ford is giving up with the sale of Volvo, but what risk it is taking on. The Chinese have a well documented and well deserved reputation for stealing intellectual property as well as copyright infringement, technology theft, and patent infringement. Virtually all technology china has, was stolen from someone else. The real question is what will they steal, and what can or will we do about it when they do. If they are allowed to get away with it, and the sanctions aren't consistent and severe, the damage to our market will be terrible.

  • Report this Comment On April 02, 2010, at 3:13 PM, MrArbitrage wrote:

    I love the old Volvo's up through about 1998. It seemed to go down hill after that year. Was it Ford that caused it to abandon the "boxyness"?

    Nevertheless, the future is very bright for Ford. Many will buy them over the others out of appreciation and respect for not taking the government cheese and being in the position not to have to. I haven't been a buyer of US cars since high scholl but if they win me back it will never be a GM and most certainly will be a Ford.

  • Report this Comment On April 02, 2010, at 3:14 PM, MrArbitrage wrote:

    Excuse me "high SCHOOL". No I didn't go to public school, just one of many typos.

  • Report this Comment On April 02, 2010, at 3:55 PM, SUPERMANSTOCKS wrote:

    What Ford's Losing With Volvo? A company developing new product for the consumer. Products that would be in demand.

  • Report this Comment On April 02, 2010, at 3:55 PM, SUPERMANSTOCKS wrote:

    What Ford's Losing With Volvo? A company developing new product for the consumer. Products that would be in demand.

  • Report this Comment On April 02, 2010, at 9:42 PM, plange01 wrote:

    ford is finally out of things to sell to try and stay in business. ford even sold the rights to its own name!jaguar,land rover, mazda,volvo a large bodyshop chain hertz the bankrupt car rental and associates first capital to name a few in the last 10 years.after all of this ford is still 150 BILLION in debt and will file bankruptcy when the banks it owes have had enough..

  • Report this Comment On April 03, 2010, at 8:09 AM, WhiteHatBobby wrote:

    And remember: Volvo developed the P2 chassis that Ford is using for almost all of their "larger" vehicles; the Taurus, the Interceptor, and the crossover that replaces the Explorer SUV are all Volvo chassis. So this means these three cars will become Chinese property immediately. So our cops will be driving Chinese cars when the new Interceptor arrives because it is a Chinese chassis.

  • Report this Comment On April 04, 2010, at 9:34 AM, susan400 wrote:

    FORD is on its eway to death.

    You can't pay US union wages and compete in thw world auto market.

    Volvo, brandname etc, over teh next 50 yrs, what could be done? HUGE error.

    Ford is desperate for cash.

    If the bonds go to 30 cents , or when I think they might beworth buying.


  • Report this Comment On April 05, 2010, at 1:04 PM, TMFMarlowe wrote:

    susan400, if Ford's "desperate for cash", why are they about to pay off some 10% of their outstanding debt ahead of schedule?

    I suggest you spend some time with their financial statements before holding out too much hope for those bonds -- I think you're missing some fairly critical information.

    John Rosevear

  • Report this Comment On April 05, 2010, at 7:49 PM, baldheadeddork wrote:

    Good analysis, John.

    My only concern about life for Ford after Volvo is the effect it may have on future platform development. I think Ford used Volvo as a reason/excuse to make its platforms much better than the accountants might have allowed for a Ford product alone. Will Ford have the spine to continue designing class-leading platforms now that they're not being sold as near-luxury Volvo models? Or will they go back to the bad old days of cutting corners and designing cars that are just good enough?

  • Report this Comment On April 07, 2010, at 2:18 PM, TheDumbMoney wrote:

    I agree "Volvo kind of walked away from it on its own. By expanding its model range into more segments and abandoning its traditional boxy styling, the company lost its quirks and became just another near-luxury auto brand." Pretty sure this was Ford's decision though. I think it was ye olde American automaker behavior, Ford being GM, trying to expand marketshare short-term, not thinking about long-term brand image. I drive a post-Ford Volvo, and it's not special the way the old ones were. To appeal to a "broader audience" Volvo/Ford destroyed one of Volvo's primary reasons for being. What was the quote? In some movie a man came up with a proposed advertising slogan for Volvo: "Volvo: They're boxy. But they're good." No more.

  • Report this Comment On April 07, 2010, at 9:09 PM, jesterboomer wrote:

    While it's true that Ford was not making money with Volvo, the Volvo product line is quite appealing.

    I suspect Geely will make lots of money with Volvo and grab some of Lincoln's potential market along with some of the Acura, Audi, BMW and Lexus market.

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