Motor Co.'s $6.45 billion purchase of AB Volvo's car division isn't on the scale of - AG, but it is another step in the consolidation of the global auto industry.
For, it means access to more luxury buyers and a more expansive dealer network worldwide. For Volvo Cars, the deal means a more secure future through increased financial resources,greater economies of scale and the chance for a broader product range.
Following regulatory and Volvo shareholder approval of last month's sale, Ford will take ownership of Volvo's two major assembly plants, two engine plants and the luxury automaker's research and development center in Gothenburg, Sweden. In Asia, Ford will own three assembly facilities; one each in Thailand, Indonesia and Malaysia. It also will now equally share ownership withMotors Corp. of Netherlands Car BV (NedCar) in Born, The Netherlands, and 49% of AutoNova in Uddevalla, Sweden - Volvo's car-building joint venture with TWR.
With the sale, Ford will have the right to use the Volvo brand name on passenger vehicles, including cars, minivans, sport/utility vehicles and light trucks, while AB Volvo retains the right to use the Volvo name on commercial vehicles and non-automotive products. AB Volvo plans to increase its presence in heavy trucks with the cash from the sale.
"It's a tremendous opportunity for us," says Jacques Nasser, Ford's president and chief executive.
The sale vaults Ford further into the growing and profitable luxury car market. During 1998, Ford's Lincoln, Jaguar andmarques sold 250,000 units worldwide. With the help of Volvo, Mr. Nasser sees luxury sales reaching 750,000 next year with the potential for 1 million units.
Volvo - at least initially - will attract a different type of luxury vehicle buyer for Ford: One that is female and young. But that's a distinction that could get blurrier for Ford in the future, as its now California-based Lincoln division tries to get younger and hipper and Jaguar moves to more volume segments.
The purchase now puts Ford closer toCorp.'s No.1 spot among global automakers. In 1998, GM sold 8.14 million units. The Ford/Volvo match-up pushes Ford more securely in second place with 7.21 million vehicles and helps the company shore up a slipping market share in Europe. Volvo has about a 1.6% share of that market. Combine that with its existing 10.1%, and Ford would place between AG's leading 18.4% share and ahead of GM's 11.5% share.
Ford says the deal will boost its earnings in 1999 by about 10 cents to 15 cents a share. While some analysts say it may be difficult for Ford to earn a return on the sale, others say the move could produce significant cost savings for Ford.
Ford could see substantial savings by integrating Volvo and Ford platforms for future products, such as Volvo's new S80 large-car platform. "Short term, that will not be needed," says Mr. Nasser. "In the long term, I certainly hope so."
For Volvo, the sale will improve the Swedish automaker's prospects for the company and employees, says Leif Johansson, AB Volvo chief executive.
"I find this a very difficult emotional decision to make," he says. "But when I look at the numbers ... I see this as a good thing."
Ford is expected to do for Volvo what it has done for Jaguar, including building the brand, upping sales and financing growth. But the American automaker won't change Volvo's company philosophy, which runs deep with both the company and most Swedes.
Most activity will continue to take place in Sweden. The No.2 automaker says Volvo's management and research and development will remain in Sweden, and the company will continue to be led by Tuve Johannesson.
The sale, however, does open the possibility that Volvo vehicles could be built at Ford plants. For Volvo to achieve its goal of 500,000 global sales, it may have to use more production sites outside of Western Europe. This would give Volvo the chance to increase its presence in emerging markets, such as Brazil, Eastern Europe and Asia, where Ford has spent years developing its activities.
AB Volvo will continue to control its truck operations and says it is looking for a partner and is considering companies in Europe, Asia, North America and South America. Last month, the company purchased 12.85% of rival Scania, and Mr. Johansson says it is in discussions to acquire more.
But the deal is not without major hurdles. AB Volvo shareholders will meet March 14 to decide the fate of the sale. While Volvo has said it expects the transaction to go through and sees only minimal risk, opposition could come from a small but powerful group of Volvo shareholders that make up about 31% of the company. These stockholders helped stop the 1993SA-Volvo merger after the two already had begun taking equity positions in each other. But unlike that arrangement, the Ford/Volvo deal has the approval of Volvo's board of directors.
Also with potential to scuttle the deal - however unlikely - is the possibility of an 11th hour bid by a rival carmaker.
The purchase of Volvo could exacerbate Ford's capacity problems in Europe. Ford recently announced further cutbacks at its Dagenham, U.K., and Cologne, Germany, plants due to slow sales of its Fiesta-based vehicles in southern Europe.
While no closings were announced or implied for Volvo Cars, Ford has made no guarantees to Volvo employees. Union leadership in Sweden is reacting cautiously. Bertil Jonsson, head of the Swedish Trade Union Confederation, says he remains firm that production must not be moved out of Sweden.
Volvo suppliers, meanwhile, say they are upset over the deal. Lars Holmqvist, director of the suppliers' organization in Sweden, says he estimates that "60% of Volvo's suppliers will have a problem servicing Ford."
They are not equipped to supply such a large company and cannot compete with Ford's established suppliers, he says. With Herb Shuldiner in New York and Ariane Sains in Stockholm