It looks very much as if the Detroit Big Three are going to get the $36bn in loan guarantees they say they need from the US government to stay in business. The conditions attached are certain to be numerous and arduous, and are certain to include lots of government intervention in future management decisions.
One near-certainty is that Ford (Volvo) and GM (Saab) will be ‘encouraged’ to get rid of the Swedish car marques they own as soon as possible, to simplify the rescue procedures for the parent groups and ensure that US loan funds are directed to US activities. The German government made the same stipulation when it began recently began discussing the case for providing rescue loans funds for Opel.
The question is, what will become of the Swedish marques? One thing seems certain: the two automotive giants are likely to be a lot less fastidious about choosing new owners for them than Ford was when it sold Aston Martin and Jaguar-Land Rover. The situation is far more urgent, and it’s likely to be the US government driving the process. Ford has already let it be known that it values Volvo at around $6bn ($500k less than it paid in 1999) though few expect the Blue Oval to find a buyer at such a price.
Credible buyers are hard to find. Proposals so far include Renault-Nissan (which once nearly merged with Volvo), Chinese interests (already spurned several times over the sales of Aston and JLR), a consortium led by the Swedish government (which rapidly disqualified itself) and the inevitable “Middle Eastern interests” where huge cash reserves still repose, and where are acquisitions of European automotive businesses are still reasonably in fashion.
Of the two companies, Volvo seems the one with the most secure foundations. It has a a wide-based model range and some impressive recent models. It has a mature reputation in the US, where cars could even be made. It makes good use of well-engineered European Ford basic components too. But this last fact could limit the choice of buyers for Volvo: Ford was notably careful about handing over access to its technology to Tata, the purchaser of Jaguar-Land Rover. After that deal, incidentally, group chief Ratan Tata announced a moratorium on further big-note acquisitions for the time being.
Saab, on the other hand, looks shaky. GM people have produced some enticing concepts in recent times and were at pains this year to let it be known that they were thinking about Saab's future at last. But there has been a succession of poorly developed and oddly based models in the recent past, and volume is well under a quarter of Volvo’s 400,000 a year. GM has made no statement about Saab’s worth, and the supposition must be that raising any money from the sale would be a surprise.
The situation this time next year? I believe Volvo will survive but Saab may have to die. But it’s very hard to see who Ford would let Volvo go to, given that every single model now has a direct connection with Ford technology. It’s hard to see the Blue Oval enjoying striking a deal with Renault-Nissan for that reason, but the US government may insist. One thing’s for sure. This story has a long way to run.