Feature Analysis - Ford: Selling the future to pay for the past


Ford seems to be suffering retribution of biblical proportions as a sea of debt threatens to sweep it off the face of the earth. Total debt connected to its automotive activities now amounts to nearly $30bn. The company’s capitalisation value is only half that and it lost $12.7bn last year. Of that, Ford’s prestige PAG division lost a piffling $327m. The problems are mostly centred on the US where car production has fell by over 200,000 between 2003 and 2006 and light truck production by more than 500,000 for the same period. Against this Jaguar’s missing 100,000 or so seems like nothing more than an embarrassment. The problem is that Ford’s very existence is under threat and like a mountaineer buried in a freezing avalanche it must shut down periphery functions in order to keep the core alive. If it survives, though, will life be worth living?

























Hertz, Ford’s rental car business, was sold in late 2005 and netted a vital $5.6bn in cash. Aston Martin was sold in March 2007 for pocket money, a mere $848m. Jaguar is now thought to be up for sale, but being worth little on its own it looks like it is being bundled together with Land Rover and may only fetch $2bn. With numbers like these speculation that Volvo might also find itself on the used car lot seems close to reality; this might bring $8bn, although at least half of it must be used to pay off debt. That would signal the end of PAG and after that there is only Ford’s third share in Mazda, which might be worth another $4bn, before the company has to start selling the family heirlooms such as Ford Credit or the domestic brands. 


To pay for its past misdemeanours Ford is having to sell the future to save the present. Over the years Volvo has proved itself to be a stalwart, producing a regular 400,000 units a year and delivering welcome profits. There are also R&D benefits, Volvo using certain Ford engines while the 2008 Ford Taurus is based on a Volvo S80. Elsewhere in the group Jaguar shares platforms with Ford, and along with Land Rover there is a family connection in engines. Mazda is not quite so integrated but it is more than a financial investment since it too brings synergy.


The advantages of Ford’s brand portfolio are not just operational, there are also marketing benefits. Ford is being squeezed on two fronts, the premium brands above it and the budget brands below. Like most car manufacturers Ford seem reluctant to take the fight downmarket, perhaps fearing that it would fatally damage the Ford brand image, so the only strategy left is a flight to quality. This policy may be born out of experience, the latest Ford range being considered to be as good as anything from Japan or Germany but handicapped by the mass market image. Ford’s strategy has been to slot up-market brands into the group which use Ford technology but exploit the consumers’ need for social status. Without these brands Ford will find itself marooned on its desert island: and the tide is coming in.

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