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Deal done, Ford turns to its core

Ford Motor Co’s agreement to sell Jaguar and Land Rover to Tata Motors Ltd is part of a major course change currently under way at the American automaker.

india Updated: Mar 27, 2008 23:14 IST

Ford Motor Co.’s agreement to sell Jaguar and Land Rover to Tata Motors Ltd is part of a major course change currently under way at the American automaker.

The deal means dismantling Ford’s Premier Automotive Group — a collection of international luxury brands that was the centerpiece of a failed attempt to transform the company from an American icon into a truly global automotive empire.

The approximately $2.3 billion Ford will receive from Tata will do little to offset the billions Ford has poured into these brands since first acquiring Jaguar nearly two decades ago. However, it will bring the automaker one step closer to realizing CEO Alan Mulally’s new vision of “One Ford” focused on fixing its core Blue Oval brand.

Former Ford CEO Jacques Nasser acquired foreign brands like Land Rover and Volvo in a bid to make Ford a player in every segment of the international automobile market. At the time, he predicted the luxury group would become a major contributor to Ford’s bottom line.

Instead, it became a major drag on it.

Depending on whose math you use, Ford has lost between $11 billion and $13 billion on Jaguar and Land Rover, including its initial purchase costs. Despite this, Jaguar remains a huge money-loser. Land Rover’s substantial profits are barely enough to cover those losses. Moreover, Ford realized it would need to make substantial new investments in both brands to ensure the steady stream of new and improved vehicles consumers demand.

That is money Ford simply cannot afford to spend. The automaker lost a staggering $12.6 billion in 2006 and, while the situation improved in 2007, it still lost $2.6 billion last year. Mulally has promised to return Ford to profitability in 2009, but Ford is struggling to make good on that pledge.

The company has mortgaged all of its US assets – its factories, its office buildings, its patents and even the venerable Blue Oval itself – to fund the most sweeping restructuring in its 104-year history. It has eliminated nearly 11,000 salaried positions and convinced almost than 26,000 hourly workers to take buyouts since the end of 2005. It has closed factories and cut production at many that are still operating.

Faced with increasingly fierce competition from foreign rivals and a swing in consumer demand away from the big trucks and sport utility vehicles that were its franchise, Ford has even lost its place as America’s second largest car company to Toyota Motor Corp.

Ford’s decline has been one more blow to Detroit, home of the American automobile industry. Once one of the richest cities in the world, it is now a wasteland of abandoned factories and empty storefronts – a testament to the serious problems facing Ford and the other US carmakers.

Ford’s troubles at home and the painful cuts it made to address them prompted many of Ford’s remaining workers to question its global brand strategy. From its factory floors to the top of its world headquarters tower, employees asked: "Why are we pouring money into these British brands while our own business is falling apart?"

Those concerns found a sympathetic ear in Alan Mulally, who was hired to lead Ford's turnaround in 2006.

Ford sold off Aston Martin last year, and sources say the company is only keeping Volvo because it cannot get anyone to pay what the brand is worth, given the tight credit market. However, it is taking steps to separate Volvo’s finances from its own in order to make it easier to sell the Swedish brand is conditions change. Mulally has made it clear that he does not believe Ford needs a global luxury brand to compete.

Many automotive industry analysts disagree. While most its sale of Jaguar and Land Rover to Tata as a necessary evil, they believe that a sale of Volvo would be a big mistake for the company. Ford’s interim plan for Volvo involves taking the brand up-market, a tactic that could work – if Ford gives it time.

As eager as Ford was to divest itself of Jaguar and Land Rover, it took great care to find a reputable buyer with the resources to make them successful. Britain is one of the few places left in the world where Ford is still No. 1, and it cannot afford to alienate the car buying public there by squandering what many still see as the crowned jewels of the English automotive industry.

“We are confident that they are leaving our fold with the products, plan and team to continue to thrive under Tata’s stewardship,” Mulally said Wednesday. “Now, it is time for Ford to concentrate on integrating the Ford brand globally, as we implement our plan to create a strong Ford Motor Co. that delivers profitable growth for all.”

It is now up to Tata to see if it can build on what Ford has accomplished at Jaguar and Land Rover and use these brands as a portal through which it can itself enter the world car market. The challenges are immense, but so are the opportunities.

(Bryce G Hoffman is an automotive industry writer with The Detroit News. He has covered the auto industry — including Ford — for many years.)