Ford dropping luxury lines

Kai Ryssdal Jun 12, 2007

Ford dropping luxury lines

Kai Ryssdal Jun 12, 2007


Kai Ryssdal: Ford’s says it’s a strategic review of its global operations. Analysts are saying it’s about time. The struggling carmaker announced today it’s hired bankers to help figure out how to sell off Land Rover and Jaguar.

Michelline Maynard covers Detroit for the New York Times. Micki, good to talk to you again.

Michelline Maynard: Hello, Kai.

Ryssdal: What’s the business rationale here for Alan Mulally, the CEO of the company?

Maynard: Well Mr. Mulally, the former Boeing executive, came into Ford about October of last fall. And I think he’s taken some time to look over the company, but come tot he conclusion that Ford’s core business — its operations in the United States, in Europe, in Asia — are really the most important thing. Those have to be fixed, especially the North American operations. And so it’s been very nice for Ford to have these glamorous brands, like Jaguar, Aston Martin and Land Rover. But these days, you really have to trade glamour for reality.

Ryssdal: Is that glamour making them any money? I mean, did Jaguar and Rover bring in any cash for them?

Maynard: You know, they put together what was called the Premiere Automotive Group. And for a few years, it actually made money. And at one time, Ford thought that this group, which included Volvo as well, could contribute a couple of billion dollars a year to the bottom line. But last year, premiere automotive group lost about $320 million. And it’s been very clear that these are the kinds of brands that require a lot of money — tens of millions of dollars, management attention. These are globally identifiable brands, and Ford’s really had kind of a strategy of stop-and-start when it’s come to these companies.

Ryssdal: Was this going to be one of those “We’ll share platforms and components and cut down on supply costs?” I mean was that the root cause of this deal?

Maynard: Well, I think that is exactly what they tried to do with Jaguar. They’ve used some Ford platforms for Jaguar vehicles. Which just horrified the Jaguar purists — the people who remember Jaguar in the 1950s and 1960s and remember when it was a really hot, swinging car during the 1960s. You know, Ford was looking at what everybody’s looking at, which was mainly Toyota, which is able to take the platform for a vehicle, the underpinings of a vehicle, and turn it into five or six or seven different kinds of cars. Well that’s really hard to do when you’re talking about these fabled luxury brands. They essentially are what they are.

Ryssdal: Yeah. And somehow, a Jag’s not a Jag if it’s on a Ford Chassis, right?

Maynard: Well, there are a lot of people that felt that way. And Jaguar has just continued to lose money. There have been several turnaround efforts. And remember that Ford paid a lot of money for Jaguar. They actually estimated back in 1990 that the company itself was worth about $500 million, but the purchase price was $2.5 billion. And they basically paid a $2 billion premium to get the Jaguar name. It has never paid them back that investment.

Ryssdal: You know, the last big car deal we had was DaimlerChrysler basically giving Chrylser away to Cerberus, a private equity group. Who is it that’s gonna buy a Land Rover and Jaguar? Is it gonna go private equity?

Maynard: Well, I think private equity will be the sort of number one suspect here, again. Land Rover aught to bring them in some income. They made $925 million selling Aston Martin earlier this year. And Land Rover could be valuable to somebody. Now, BMW probably won’t be a candidate since they sold Land Rover to Ford in the year 2000. But there could be another European auto maker who’s interested.

Ryssdal: All right Micki, thanks a lot.

Maynard: My pleasure, Kai.

Ryssdal: Michelline Maynard is the Detroit bureau chief for the New York Times.

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