Door shuts on euro brands
After Ford’s Premier Automotive Group announced pre-tax losses of 316m for the third quarter of 2006 and chief executive Alan Mulally declared poorly performing brands will not be supported, the future looks uncertain for Jaguar, Volvo and Land Rover. Robert Lester reports.
The deepening crisis at Ford has thrown fresh doubt on the future of its struggling Premier Automotive Group (PAG) after new chief executive Alan Mulally said the company would no longer support brands that do not show signs of improvement.
PAG, the division of Ford that contains its four European marques – Volvo, Jaguar, Land Rover and Aston Martin – last week reported pre-tax losses of £316m for the third quarter of this year, compared with £57m for the same period in 2005. All the unit’s brands sold fewer cars with the exception of Aston Martin, which is up for sale, and Mulally said he had not yet decided whether to keep PAG.
Speaking as Ford reported an overall third-quarter loss of £3.1bn, Mulally – who was poached from Boeing in September – told analysts in a conference call: “I really think it’s going to hinge on how the businesses are doing and whether we can make profitable growth businesses out of them with the action we have taken and additional actions that might be required.”
BUYERS GO GREEN
Ford is suffering from its over-reliance on gas-guzzling pick-up trucks and sports utility vehicles (SUVs) in the US, as consumers switch to smaller cars. Its increasingly precarious position has led many in the industry to predict that it may also offload Jaguar and Land Rover to buy itself time and then disband PAG.
One industry insider believes the components of PAG, which was established in 1999, never fitted together and that Volvo should not have been included. However, he thinks loss-making Jaguar has been the “real problem child”. The source says: “The basic principle of PAG was not a bad one, but where it went wrong was Jaguar. Ford paid too much for it and tried to extend the range too far. The X-Type is a very unprofitable car. That has been its undoing and might well lead to the disintegration of PAG.”
PAG has also been hit by higher warranty claims from customers after it was forced to recall 48,000 Land Rovers as a result of a fault with the ignition key in one of its models.
PAG director of communications Simon Warr admits the division has not lived up to expectations: “The results have not been what we hoped. But we feel the underlying reasons for having the group are still relevant and we are making progress. These were separate businesses with very long histories. They had separate business structures, distribution networks and processes, and these things take time.”
However, Warr dismisses suggestions that the apparent mismatch of marques has contributed to PAG’s problems. “If they were all the same, there wouldn’t be any point in having them,” he adds. “Some of our competitors go from saloons to sports cars and SUVs under one brand. They’re asking the consumer to make a real stretch in terms of what the brand stands for.”
PAG’s brands have struggled in the UK this year, with Volvo faring the worst. The Swedish marque’s sales were down 20% on last year at the end of September, according to the Society of Motor Manufacturers and Traders. Jaguar was more than 11% down, with Land Rover holding steady at just over 0.5% down. Only Aston Martin is performing well, up almost 28% on last year.
ASTON MARTIN SALE
Ford said in August that it was exploring strategic options for Aston Martin “with particular emphasis on a potential sale” of all or part of the unit. Chairman Chris Wood of branding agency Corporate Edge feels it is the right move. “Aston Martin is nice to have but it’s not critical,” he says. “It doesn’t really rub off on the rest of the empire. Is it a blow to Ford’s pride? Yes. But it takes considerably more from Ford than it gives.”
In September, Ford denied it had any plans to sell Jaguar or Land Rover, despite intense speculation. But the results of a company-wide strategic review are due to be published this month and some industry experts feel that last week’s results may force Mulally’s hand.
Institute of Automotive Industry Research senior research fellow Peter Wells believes PAG will have served a purpose if the sale of some or all of the brands ensures the main Ford brand’s survival. He says: “Even if they have got to sell the family silverware, at least they have got the silverware to sell.”
However, he adds that selling all or part of PAG will not mask Ford’s wider problems: “The key problem has been at a strategic level. Ford has not had the management stability or strategic vision to know what to do with PAG – or the whole company, for that matter. They have made shorter-term, ad-hoc decisions and the results have been less than satisfactory.”
Ford announced an £850m write-down in the value of Jaguar and Land Rover after last week’s quarterly results. Wells agrees that Jaguar’s move into the mass-market with the X-Type was a mistake. “Ford’s ambitions for Jaguar were far too high,” he says. “It’s one thing to say Jaguar is a good brand but to ramp up to the sort of volumes they wanted without sacrificing the brand integrity or the engineering was a lot to ask. It needed deeper pockets than Ford has got.”
MAKE OR BREAK
Ford’s losses in North America, one of its most difficult markets, worsened in the third quarter to $2bn (£1bn), compared with $1.2bn in the same period last year.
Wells thinks the coming months will be crucial to the future of the company as a whole. “My feeling is that it’s a do or die moment for Ford,” he says.
“If it does not turn it around, particularly in the US, then that’s it – it’s finished. I think the situation is critical to dangerous. If Ford’s senior management is no longer plausible to the financial community then it has a problem. The next step has got to be utterly convincing.”
It looks increasingly likely that the next step could be the break-up of PAG.