Chillin' out till it needs to be funded
This commentary potentially discovers issues around the Volvo and Saab sales. Volvo sale closed over the weekend at a huge 300% loss of $4.7 billion to Ford, The Chinese luxury car brand aspirant Zhejiang Geely walking away with the Swedish iconic brand for $1.8 billion.
In keeping with the symptoms of the crisis, while BofA discovered its way home earlier among the banks, Ford has sold its high end brands like Aston Martin, Jaguar and now Volvo. Barring Mazda, all its sell offs have been iconic brands in Europe which had great potential as brands but were not very profitable. Ford had also sold Jaguar and Land rover for a $1.7 billion to Tatas in India ( plus adding its commitment to pay $600m in pension liabilities.
In the UK much of the auto sales and purchases have been about unions and their costs nullifying the brand’s efforts during hard times.
Ford now just owns Ford, Lincoln and Mercury brands.
In fact, just sticking to the auto industry plans for China, there has been a lot of parallel activity by the Chinese albeit slow, not because of government approvals but probably because they have the patience to negotiate for the right price. The typical buyer propensity to bid a higher premium for a purchase has been sucked out by the Chinese and we now have a much more staid and single buyer driven, negotiation friendly, M&A deal market China Investment Corporation has bought a lot of retail stakes of less than 2-3% in Coke, Visa and other iconic American brands.
Nanking Auto Company purchased the MG Rover plant shut down since 2005 in the UK and restarted production there with two seater 2500s rolling out soon after the crisis exploded in August 2008. Nanking Auto Company is a part of Shanghai Auto
China’s domestic Car Market
Domestically China has a growing luxury Cars market with Audi selling 130000 Cars in 2009. Beijing Auto purchased Saab’s powertrain technology even as the unit was purchased by Spyker from Amsterdam. Saab is going public in the next six months. Earlier another Chinese company dropped its plans to buy Hummer from GM. GM is also suing SAIC in China and Daewoo in Korea for IP protection after exiting the ventures. However these luxury brands definitely have a ready market in China itself where car sales are likely to be above 15 million in 2010.
It is the European brands like Saab and Volvo more than the high end “Maharaja” brands like Aston Martin and Jaguar that will lead the new luxury push in lifestyle consumption markets. These brands require huge investments at this time just to come up coughing and sputtering into life. The magnitude of those investments may well realize whether it even makes sense to reinvest in the same brand name as the revolution may be functional and aspirational at the same time. As long as the Chinese or the new publicly listed Saab offer a sports car with modern 2011 features, the car may well be a new Saab or Volvo line with its own brand following that competes with the Audi and the known Mercs and the BMWs.
The European brands have a global following because of their own diaspora that may well sell down these brand names of once iconic glory for the sloth and pain they have come to represent. They also have lost their home markets in some cases, but it would be very difficult to change the stripes for a living Volvo or Saab brand that has a thriving market, investments in distribution and good technology on offer.
Ford in the meantime has ben pushing ahead in the domestic US market. In 2010, it started well, leveraging its hold on fleet cars ( Sales of around 180K cars a month) with gains in retail share at the expense of Toyota’s ‘gainsaying’ market postures . The recalls may have subsided but the brand consideration values for Toyota are down 80% Even as rival GM has shut down 10 out of 16 production and assembly facilities in the US, Ford has stamped its revival story with a 17% share in January/February 2010
Ford posted a $2.7 billion profit in 2009 and forecasts a net income in 2010 as well, its first profits since Mullaly came on board and kick-started this reorganization in 2006. Operating profits will likely exceed $4 billion as 4th quarter sales raised per car realization by $2000 and production rebounds will mean higher profits from the built in economies of scale.