MARCH 2010 – FORD SOLD THE LAST BRAND OF ITS LUXURY DIVISION

 

The number two U.S. car maker sold Volvo to a Chinese company  

Stockholm March 28 - After many months of persistent rumours, a Volvo spokesman confirmed last Sunday the signature of an agreement with the Chinese company Geely to sell Ford motor’s Volvo car unit. (source Reuters).

The estimated price of the transaction is $1.8 billion (source Financial Times). The deal is aimed to be closed by the end of the third quarter and will enable the number two U.S. car maker to free up cash in order to focus on its Ford core brand.

Zhejiang Geely Holding Group Company Ltd is the first privately-run car maker in China. The company, funded in 1986, started to sell spare parts for fridges and now has 12,000 employees of which 1,600 engineers in China and sold 300,000 cars in 2009.  Geely is also discussing with Manganese Bronze to acquire the famous London’s black cab maker.

The last act

This is the end of Ford’s adventures in the luxury segment. At the end of the 80’s, Ford decided to create a luxury division called Premier Automotive Group and the company acquired, at high price, notorious brands such as Jaguar in 1989 ($2.5b), Aston-Martin in 1993, Volvo in 1999 ($6.4b) and Land Rover in 2000 ($2.7b).

If Ford is recognized for having dramatically improved the quality of the acquired British brands, it is also charged for having turned Jaguar or Volvo into common cars without personality.

After quite 20 years of non-profitability, Ford sold its entire Premier division in only three years: Aston Martin was acquired by a UK-led consortium with two Kuwaiti investors ($924m in March 2007), Jaguar and land Rover by the Indian Tata Motors Ltd ($2.3b in March 2008) and now Volvo by the Chinese Geely ($1.8 b in March 2010). It will be mostly interesting to see what will happen to these brands owned by companies with no background in the luxury sector and coming from emerging markets.

These extremely low selling prices compared to the purchasing prices are a strong signal from the market that Ford did not succeed to create any value in its luxury division. At the same time, Fiat successfully re-launched Maserati and BMW is doing reasonably well with Rolls-Royce. So, there is no curse on luxury cars segment, just talent and vision.

Yvon Le Gall

Luxury-world