Ford Motor Company (NYSE: F) is currently taking bids on parts of its Premier Automotive Group, which includes Jaguar, Land Rover and Volvo. (Another Premier brand, Aston Martin, was sold to investors in March for roughly $900 million.) There has been speculation that the Indian automaker Tata Motors (NYSE: TTM) may be interested in the two British luxury brands, but so far Ford has denied that it is selling Volvo. Ford's denials have been fairly weak, however, and it stands to reason that given Ford's rather desperate need for cash, it would sell the Swedish car maker -- the only profitable part of the Premier Automotive Group -- if the price were right.It's pretty clear that Ford is in trouble, having mortgaged its plants and property -- and even its hallowed name -- to raise cash to support current operations. As Kevin Shult wrote last week, Ford is a symbol of the hard times facing American automakers, which are stuck offering large, heavy, inefficient vehicles to consumers who now want something better. There's plenty of blame to go around for the problems in Detroit. While many analysts focus on labor costs, especially retiree health care, I would argue that poor management, weak investment, and mediocre design and engineering are at least as important. And that's where Volvo can play an important role in helping Ford recover.
Ford needs to focus on the basics and Volvo could help them do that, and at a higher level than before. Ford, along with the rest of Detroit, needs to design and build good cars again. Not crude, low-tech pick-up trucks with leather seats bolted in the back -- also called SUVs -- but real passenger cars that are safe, attractive and get good mileage. And Volvo has been doing that for years. Volvo is a world leader in engineering and safety, and its recent designs have moved the brand far beyond its old boxy image. Ford could and should borrow that design and engineering expertise more heavily. Ford could even try to become the American Volvo -- the maker of cars and trucks that are safer and better engineered than those made by General Motors Corp. (NYSE: GM) or DaimlerChrysler (NYSE: DCX).
Now, this isn't exactly a new idea. A Ford advertising campaign last fall made the claim that Ford and Volvo were working together to make Ford products safer. And this seems to be true to some extent. The Ford 500 (now rechristened the Taurus, strangely enough) is based on the Volvo XC90 and as a result achieves excellent scores in test crashes. But apparently the cooperation goes only so far. In the course of a $10 million wrongful death lawsuit against Ford in 2005 -- filed after a woman was killed when her Explorer rolled over and the roof collapsed -- it became clear that Ford was ignoring Volvo's expertise on rollover safety. A number of news reports suggest that an internal battle was fought between Ford and Volvo engineers, with the latter arguing for stronger roof supports and the former arguing against them. To this day, Ford denies that stronger roof supports make any difference in rollovers, which kill and injure 40,000 people a year in the US. Intriguingly, advertisements for the Volvo XC90 no longer mention its exceptionally strong roof, a Volvo trademark going back to the 1960s.
And that's the problem. It looks to me like Ford took the easy -- and cheap -- way out. It had a choice: embrace Volvo's superior engineering, or suppress it to avoid looking bad by comparison. If you know how Detroit has worked for the last 30 years, you won't be surprised that Ford chose to look the other way when it came to improving safety. But now that Ford has its back against the wall -- the company sold 445,000 weak-roof, high-profit Explorers in 2000, but will sell only 150,000 this year -- it has a second chance to make the right move. Keep Volvo, and put the Swedish engineers in charge of all safety design. Sure, it will cost more to design and build better cars and trucks. But that's the only way Ford is going to make it.
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Reader Comments (Page 1 of 1)
7-26-2007 @ 1:13PM
Prasad said...
Great analysis Michael, I completely agree with you. Ford management should think about increasing the company's strength not reducing the assets and costs.
7-27-2007 @ 1:53PM
Jobu37 said...
Ford already is considered the "American Volvo" or very nearly there. Ford has more 5-star crash test rated vehicles than any other manufacturer selling in the U.S. The Taurus is rated safest car in America if you look at frontal, side, and rollover ratings. Ford has taken Volvo's safety engineering and applied it. They will continue to do so with each new vehicle introduced moving forward. So what you suggest has already been in the works going back a couple of years and it now being seen in the product showing up in the showrooms.