When Ford bought Volvo in 1999 for $6.45 billion, the hope was to build on their emergence into the luxury segment to go along with Lincoln and Jaguar. On the surface, selling Volvo to Geely Motors on Sunday for $1.8 billion looks like a tremendous failure, but as the coming months will show, losing at the right time can turn into a win for the company in the future.
Below, you will find 7 reasons that this “loss” is actually a win as Ford moves with strength into the future as the automotive industry continues to rebound:
1) Focus on Ford
Throughout 2007 and 2008, CEO Alan Mulally has stayed true to his vision of “One Ford”. The goal is to have universal designs and singularity in direction, cutting loose of the ideas of expansion through purchases and focusing more on making the core brand as powerful as it can be.
Selling Volvo is another move towards this goal as running another manufacturer, even one as relatively small as Volvo, can detract from the goals and focus on building one strong company.
2) Bailout? No Thanks!
Having another nameplate on the mantle has proven to be less important in the last couple of years than having cash. When Ford first mortgaged its holdings in 2006, most analysts considered a sign of weakness. The company was accused of being too cautious, that the industry was strong enough to sustain sales that would help struggling companies to buy their way out of bad situations.
Tell that to General Motors or Chrysler.
As the lone major US automaker who did not accept a bailout, Ford distinguished itself in the eyes of the people. Still, cash is still important even if the industry rebounds as other companies large and small are finding that bubbles can burst at any moment.
3) The Headache is Over
Volvo’s pretax profit in 2005 was $377 million. They’ve been losing money ever since.
In 2009, they lost $934 million. This was an improvement from 2008 when they lost $1.7 billion.
The bottom line is that for Ford to turn the company around and make it profitable again, they would need to rebuild the Volvo image of reliability and safety, enhance its ability to sell outside of Europe and the US, and cut production costs dramatically by moving much of it to China.
Geely is perfectly positioned to do all three of these things, while Ford was not. The headache is over. Geely is Ford’s Motrin.
4) Technology Assimilated
The Swedish automaker brought with it some innovations and technologies that Ford had not mastered, including safety features that were unique to Volvo and heavy-duty engine designs that were geared better for OTR hauling. Ford has had the company for over a decade. We can assume that they’ve learned everything they could have during that time.
5) The Land Rover/Jaguar Precedent
Ford has had some experience with selling luxury brands at the right time. The move to sell Land Rover and Jaguar to Tata Motors was perceived as a loss at the time. Since then, Tata has asked for a bailout to support them as the luxury market was hit hard in the last 2 years. Ford, on the other hand, used the cash and momentum from the sale to post their first profits in 5 years.
Volvo’s sale, as much as it hurts to lose the money that they did from the original investment, will have a similar result. The only thing that may be different is that Geely may be able to turn their new acquisition around in ways that Tata did not. Either way, Ford has shown that they can win despite losses.
6) Chinese Relations
Nobody will say it, but it’s there. China, often considered a challenge to sell to despite being the largest automotive market in the world, will be more inclined to work with companies that work well with their own companies. Selling Volvo to Geely is a move that will help improve the Ford brand in the country.
Mulally is already working on it. He took the opportunity of being in China to make a public relations move by personally delivering a Ford Focus to a Chinese buyer on Friday.
7) Focus on Ford
Did we mention that they want to build their own brand first? In the coming months, you will likely see a few things happen. Mercury will slowly be “phased out” and merged whenever possible into Lincoln or Ford. The brand has always been a “tweener” and is not necessary under the current plan.
Ford will be unifying their designs to make them cross-continental. By the end of the year, the models that are sold in Europe will be almost exactly like the ones sold in the US other than legal differences and, of course, the position of the steering wheel.
Marketing and sales will migrate even more towards online, mobile, and new media formats. The days of expensive television ads are coming closer to being an afterthought.
Finally, Ford will emerge as the only US automaker that can compete head to head with anyone. Toyota is going through their challenges, but they will re-emerge soon enough. Honda, Nissan, General Motors – all will likely be stronger by the end of the year than they are today.
Barring a major disaster such as mass-recalls or lawsuits, Ford will be the company to chase into 2011.
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Read more Ford News on this blog. Volvo image via Paul Cocker
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