After some initial hesitation Alan Mulally, the chief executive brought in from Boeing last September, decided to put bits of the PAG on the block. In March he sold Aston Martin for $848 million, and in June he appointed three banks to field potential buyers for Land Rover and Jaguar. The bidding period ended on July 19 with an unexpectedly high number of potential suitors, thought to include Cerberus Capital Management (the private-equity group that bought Chrysler in May), TPG Capital, Ripplewood Holdings and One Equity Partners (a private-equity firm where Mr Nasser now works), along with Indias Tata Motors and the Mahindra Group.
Ford is also considering a sale of Volvo, a Swedish maker of premium cars, and the most valuable and profitable bit of the PAG. Last year Volvo is believed to have made a profit, though the PAG as a whole lost $2.3 billion. (Ford does not break out details of the divisions financial results.) But although selling Jaguar and Land Rover would make sense, it is less clear that the same is true of Volvo, says Jonathan Steinmetz, an analyst at Morgan Stanley, an investment bank. Volvo is more integrated into Ford than the two other brands, with several Ford and Volvo vehicles sharing chassis designs and parts. Volvo is also far bigger by units soldit accounted for 7% of sales in 2006, compared with 3% for Land Rover and 1% for Jaguarwhich helps to spread development costs.
But Gerald Meyers, a former chairman of the American Motors Corporation, a carmaker bought by Chrysler, thinks Ford should sell all of the PAG and get what cash it can. Since Ford is in the middle of a multi-year turnaround plan, any distraction from rescuing its core American business is counterproductive, he argues. (In a sign that the plan might at last be working, Ford announced a surprise profit of $750 million for the second quarter on July 26.)
BMW of Germany is one possible bidder for Volvo. BMW says it is keeping its eyes open for takeover targets, though it has had its fingers burnt by acquisitions in the past. Volvo and BMW are compatible premium brands, says Marc-Ren Tonn, an analyst at MM Warburg, an investment bank in Hamburg. But they do not fit technically: Volvos rely on front-wheel drive, BMWs on rear-wheel drive. Renault would be a more logical buyer, says Thierry Huon at Exane, a brokerage in Paris. Renault needs a premium brand, having failed to build one itself. And the Renault and Volvo brands, with their common emphasis on safety, fit together well.
Another possible buyer is Volvo Group, the lorry-making parent firm that sold its car unit to Ford in 1999. This would reunite the two divisions, but there are no synergies between carmaking and lorry-making, which is why the cars were spun off. It is more likely that Renault will sell its 21% stake in Volvo to help finance its purchase of the carmaker.
Estimates of the proceeds from a sale of the PAG range from $8 billion to $16 billion. Ford could invest the money in its remaining brandsFord, Lincoln, Mercury and Mazdaor in product development. But it would probably be wisest to restructure its health-care liabilities, which it is currently discussing with the United Auto Workers (UAW), the car industrys main union. Mr Mulally is pressing the UAW to set up a union-managed trust that would enable Ford to take tens of billions of dollars of retiree health-care liabilities off its balance sheet. Such a trust would need to be funded up frontso cash from the sale of the PAG would come in handy.
The Economist Newspaper Limited 2007