It is starting to appear as if the Ford revolution is not illusory. The company that once thought the car was unimportant — the mantra under then-CEO Jacques Nasser — and that once bet its entire fortune — wrongly, as it turns out — on trucks and SUVs continues to shine brighter than even the most optimistic of shareholders could have imagined. Meanwhile, its domestic compatriots — General Motors and Chrysler — not to mention its once invincible Japanese competition — Toyota — stall under the weight of a U.S. economy seemingly without bottom and their own hubris (GM and Toyota both vying mightily for the title of the planet’s most prolific car company).
Ford’s latest move, choosing Chinese automaker Geely as its preferred buyer for Volvo, may prove to be inspired. Volvo has languished as of late, strangled by Ford’s inward focus as the U.S. company retrenched inwardly on its core brand and sold off its extraneous bits. New product has been scarce, investment minimal and management in turmoil as former Ford employees look to rejoin the mother ship before the final sale cuts off their last line of retreat. It hasn’t been a pretty 18 months since Ford divested itself of Land Rover and Jaguar, leaving Volvo the last orphan standing before Ford’s Home For Wayward Auto Companies shuts down.
Miraculously, Land Rover and Jaguar have prospered, both as a result of some of the new design directions initiated under Ford and the hands-off management style of new parent Tata. With the usual caveats — will the Chinese and Swedish management styles complement or antagonize one another? Will the world buy Volvos manufactured in China? — the Geely/Volvo fit looks to be similarly synergetic. There’s virtually no overlap in product, for instance, always a concern in any merger/takeover and the reason why the Daimler/Chrysler and so many of GM’s acquisitions/startups never worked out.
Geely, of course, will allow Volvo greater access to the most important auto market in the world — China. Volvo, on the other hand, offers Geely what no other manufacturer on the planet can — a reputation for safety that will go a long way in allaying one of the primary fears North Americans have about purchasing a Chinese-made vehicle. Volvo’s stellar reputation for placing occupant safety above all other attributes may be losing its impact in the luxury segment, but if the normal level of inter-department technology transfer does occur, that same obsession with air bags and crash statistics is likely to be a huge hit if and when Geely brings its low-priced econo-sedans to North American shores.
At least Ford’s transactions make some sense. Contrast Ford’s Land Rover/Jaguar/Aston Martin transitions with GM’s unseemly dumping of Saab on a parvenu with no experience in the mass production of automobiles and the aborted sale of Opel to the Magna/Sberbank partnership that, had it gone through, would have been rife with internecine infighting not seen since the Hatfields and McCoys. As well, Ford just announced a third-quarter profit, an astonishing concept many of us thought we would never again see from a domestic automaker.
But that’s not to say the Geely/Ford deal is without its issues. Talks, rumoured to have started as early as the summer of 2008, almost collapsed in October on the subject of intellectual property rights, always a major concern for companies forming unions with Chinese concerns. It’s an understandable predicament because, just like the GM/Opel interbreeding, Ford and Volvo technology has become intimately intertwined in the 10 years they have been married (Ford’s Focus and the Volvo S40 shared a platform as did Ford’s Five Hundred and the Volvo S60/S80, for instance).
There’s also the significant fact that Geely is not one of the larger automakers operating in China, planning to build about 250,000 cars this year, about half of the 458,323 units Volvo sold in 2007. Indeed, industry analysts have questioned Geely’s ability to afford and integrate Volvo into its operations, although the former may be mitigated by Goldman Sachs’ recent investment of US$334-million. Of course, acquiring Volvo will cost a whole supertanker of cash more than that — estimates of the transaction price range from US$1.5-billion to US$2-billion, down from Ford’s original acquisition cost of US$6.4-billion — but marketwatch.com reports that Geely has already secured the backing of a state-owned investment company.
Nor is the might of Chinese financial backing a guarantee of success. Chinese automakers have been trying to feast on the carcasses left behind by the Great Recession of 2009. While little-known Sichuan Tengzhong Heavy Industrial Machinery may yet be the salvation of Hummer and Beijing Automotive Industry Holdings’ stake in Sweden’s Koenigsegg Group (the new owners of Saab) may yet prove fruitful, Shanghai Automotive Industry Corporation, the largest automaker in China, lost much of the almost US$600-million it had invested in Ssangyong when the Korean automaker declared bankruptcy.
National Post
dbooth@nationalpost.com
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