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What Ford's Losing With Volvo

By John Rosevear - Updated Apr 6, 2017 at 1:38PM

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Other than money, that is.

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:

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