Ford to Buy Volvo’s Car Operations for $6 Billion
Ford Motor Co. will announce this morning that it is buying the automobile operations of Sweden’s Volvo for about $6 billion, insiders at Ford said late Wednesday.
Analysts and Ford insiders say the U.S. company, the world’s second-largest car maker, sees Volvo as a perfect fit between its Lincoln luxury-car unit and its Jaguar performance-car subsidiary.
Volvo’s reputation for building safe and environmentally friendly cars also attracted Ford, whose chairman, William Clay Ford Jr., has vowed to make his company the auto industry’s environmental leader.
“In a lot of ways, this looks like a very good fit for Ford,” said industry analyst George Peterson of AutoPacific Inc. in Santa Ana.
“Ford has cars in Europe covering the marketplace in the $10,000-to-$25,000 range and in the $45,000-and-up performance market. Volvo would give them a good product for the lower end of the luxury market,” he said.
The deal will not turn Volvo into a bigger player. Ford would have to spend heavily on new factories to boost production much beyond current levels, Peterson said, noting that the industry is already plagued by overcapacity.
“But Ford will be able to use the power of its purchasing network to make sure Volvo’s component costs are much less expensive than before, giving them their same high quality for less money, improving their operating efficiencies and really boosting Volvo’s profits,” he said.
The Swedish car maker is one of several auto companies that have been courting merger partners or potential buyers since Chrysler Corp. of the U.S. and Daimler-Benz of Germany rocked the industry last year with their $33-billion union.
The announcement follows publication of an unconfirmed report of the pending sale Wednesday on industry journal Ward’s Automotive Reports’ Web site.
The trade paper said Ford’s president, Jac Nasser, was in New York earlier this week to work out the deal with Volvo.
Volvo shareholders vetoed a proposed merger with Renault of France in 1993, citing concerns about jobs being moved outside of Sweden, where manufacturing costs are high.
That would be of less concern with Ford as an owner. When it bought Britain’s Jaguar Motor Cars for $2.5 billion in 1989, Ford kept it a separate entity and pumped $3.5 billion into improving the company’s aging assembly plants.
Ford also owns Britain’s Aston Martin and has a controlling interest in Japan’s Mazda Motor Corp.
The U.S. auto maker recently sold its minority stake in South Korea’s Kia Motors after that company was acquired by Hyundai Motor.
Italy’s Fiat and Germany’s Volkswagen had also reportedly talked to Volvo about a merger. But Ford, with at least $22 billion in cash to deal with, has been considered the most likely suitor.
“It makes a lot of sense for Ford,” said analyst Joseph Phillippi of Lehman Bros. “As long as they don’t overpay for it in the eyes of [Wall] Street.”
Volvo sold almost 400,000 cars last year, including 101,171 in the U.S. It ranked 14th in U.S. sales.
Volvo is expected to keep its commercial truck operations.
The report of the Ford-Volvo deal surfaced after the close of trading Wednesday on the New York Stock Exchange, where Ford shares fell $1 to close at $60.31.
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Associated Press was used in compiling this report.
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