Investors Keen on Auto Industry, Aston Sale Advisor Says

The auto industry is ripe with investment opportunities for equity firms, says the man who helped orchestrate the purchase of Aston Martin Lagonda Ltd. from Ford Motor Co.

“It’s amazing how many people are attracted to automotive,” says Justin Mirro, managing director of Jefferies’ Automotive Investment Banking Group, which served as the exclusive financial advisor to the consortium of investors that acquired the ultra-luxury, performance-oriented auto maker. Price Tags $925 million.

Interest thrives despite potential hurdles such as unprecedented competition, rising material prices and – in some markets – prohibitive labor costs, Mirro tells Ward’s, suggesting the promise of emerging markets offsets these challenges.

Investors find the auto industry attractive “because it’s global, typically fragmented and, for the most part, there’s a predictability to it,” he says.

This could explain the growing list of equity groups that are performing due diligence in response to DaimlerChrysler AG’s expressed interest in selling Chrysler Group. The Financial Times reports today from Frankfurt that Cerberus Capital Management LP has upped the ante by hiring former Chrysler product guru Wolfgang Bernhard as a consultant.

Such a climate could also spur more activity at Ford as analysts continue to suggest the cash-strapped auto maker would be wise to dump Aston’s former sister brands Jaguar and Land Rover.

“Frankly, I had guys knocking down the door that wanted to do this (Aston) deal,” Mirro says. “Investors like any company that has a unique market position that can’t be replicated. There’s a lot of value to that.”

Many analysts say Jaguar should be sold off next.

Exclusivity was a cornerstone of Ford’s Premier Automotive Group, a stable of luxury marques assembled – largely through acquisitions – in 2000. At the time, PAG consisted of Jaguar, Land Rover, Volvo, Aston Martin and Lincoln.

Since then, Lincoln has been extracted from the mix. And expectations that PAG would deliver one-third of Ford’s overall profits by mid-decade, have come and gone.

But Ford officials maintain PAG – consisting now of Jaguar, Land Rover and Volvo brands – will be profitable next year. And they insist no more units are on the block.

Ford, which lost a record $12.7 billion last year, cannot afford to continue to prop up money-losing subsidiaries such as Jaguar Cars. Observers estimate the storied brand posted a loss between $700 million and $800 million.

Ford does not break out individual PAG numbers. Overall, PAG, posted a full-year loss in 2006 of $327 million, substantially worse than the 2005 loss of $89 million.

Wall Street’s reaction to the Aston Martin sales mostly has been positive, with Standard & Poor’s rating Ford stock as a “hold” following the announcement.

“We think the price is a good one, and the cash proceeds would help shore up the company’s balance sheet,” Standard & Poor’s says in a research note. “We would not be surprised to see Ford sell another brand from its portfolio.”

Ford’s reluctance bewilders Douglas McIntyre, editor of 24/7Wall St.com, who says investors want Ford to part ways with all subsidiaries that are not core to its business.

“(Investors) don’t want (Ford) to be in businesses that aren’t core to the turnaround,” McIntyre says, adding Ford should consider selling Land Rover, Jaguar and Volvo.

Although that wouldn’t raise enough money to make a significant difference in Ford’s turnaround, it would please investors and Wall Street.

“I think Wall Street wants (Ford) to get whatever they can for things that aren’t critical to the business,” he says. “You’ve got a new CEO (Alan Mulally) in there, and people can only do so much on any given day. Do you really want to have (Mulally) or key subordinates worrying about small units?”

Gerald Meyers, a University of Michigan business professor and former chairman of American Motors Corp., agrees, noting that while PAG was a great idea when it was formed in 2000, Ford now should divest itself of most PAG units.

“It’s a shame, but (Ford) would be wise to (sell PAG) because it’s turned out, under the circumstances, to be a distraction, soaking up management time and resources that need to be concentrated on saving the mother lode,” he says.

Meyers says money-losing Jaguar should be the first to go, followed by Land Rover. Should Ford’s troubles continue, even the prized Volvo brand should be put on the market.

“The whole bunch is only worth a couple of billion dollars, which is no small thing, but that could make a big difference (for Ford),” says Meyers, adding buying Aston Martin in 1994 was a “vanity purchase” and didn’t fit into the auto maker’s overall portfolio.

“It’s wise and prudent and good strategy to have a balanced product line to capture the top end of the market and exploit it in the next generation, but Ford does not have the luxury of planning for the long run right now,” he says.

If Ford were to decide to sell other PAG units, the type of buyers would vary for each individual brand, Mirro says.

“I think if they do end up selling assets, you’re going to see very different buyers,” he says. “Volvo would probably go to an IPO (initial public offering). Jaguar would maybe go to some Asian investors, maybe the Chinese. With Land Rover, I think that could be saleable to private equity investors.”

Aston Martin was an easy sale, largely because it’s a niche maker, is profitable and has a storied history, Mirro adds.

And while selling off the remainder of its PAG lineup might be painful for Ford, it might also be beneficial for the affected brands.

According to an Aston Martin spokesman, the mood at the sports car maker’s Gaydon, Warwickshire, U.K., headquarters is “very much positive.”

“We’ve got 1,500 (employees) at Gaydon, 1,800 in total, and we just see a very bright future,” he says, adding the new owners, a consortium led by Prodrive Ltd., a motorsport company headed up by racer and businessman Dave Richards, has promised to invest in the company.

Plus, while Ford no longer has control over the British sports car company, its minority stake means it will “continue to support us with things like access to test and development facilities and certain technologies and facilities,” the spokesman says.

Ford also will continue to supply Aston Martin with engines from its Cologne, Germany, engine plant.

[email protected]