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Old 08-05-2004, 08:25   #1 (permalink)
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US:Ford's struggling British luxury brands sinking in red ink

Ford's struggling British luxury brands sinking in red ink

By MARK RECHTIN | Automotive News

LOS ANGELES -- How bad are things at Ford Motor Co.'s British luxury brands? Perhaps worse than you think.

Jaguar, Land Rover and Aston Martin lost more than $800 million combined during the first half of 2004, according to an analysis of financial documents.

Ford was counting on $500 million to $600 million in profits from its Premier Automotive Group luxury division this year. But only Volvo Car Corp. among the four PAG brands is making money.

Ford doesn't break out results for individual brands. But Volvo sources confirm reports that the Swedish carmaker earned $488 million in first-half operating profits.

Meanwhile, Ford reported that PAG lost $342 million overall in the first half. That means the struggling British brands lost $830 million in the first half of 2004.

"You can't assume that we can continue at this rate," says Ford Motor Co. President Nick Scheele.

For all of 2003, PAG posted a pretax profit of $164 million, compared with a loss of $740 million in 2002.

Ford says PAG lost $362 million in the second quarter of this year, compared with a profit of $166 million in the second quarter of last year. CFO Don Leclair says the luxury group would be lucky to break even this year.

The Swedish business newspaper Dagens Industri estimates that Volvo earned $335 million in first-quarter operating profits and $153 million in the second quarter. Volvo sources don't dispute the estimates. Dagens Industri obtained its estimates by analyzing Volvo's filings with Swedish tax authorities.

PAG boss Mark Fields declines to talk about the financial performance of specific brands, though he says Volvo is "doing well."

In an e-mail message, Fields said PAG has suffered from "unfavorable exchange, higher costs, the effects of the significant model changeover at Land Rover, unfavorable mix and lower net pricing."

"We are accelerating our plans to address the deterioration we have seen, particularly at Jaguar," he said.

The strong pound sterling has reduced the value of British exports to the United States, though Volvo has been hurt by exchange rates, too. Volvo deals in the euro and Swedish kroner, which have shown equal strength against the dollar.

While Fields excuses Land Rover for its LR3 SUV launch costs, Volvo's second-quarter profits include the financial impact of launching its redesigned S40 sedan and V50 wagon, its largest volume vehicles.

In the first half, Volvo sold 234,234 vehicles globally, compared with 211,078 in the first half of 2003. It expects to sell about 450,000 units for the year, which would be an all-time high.

Jaguar presents the biggest problems for PAG. It has too much capacity - three plants in England - for a company that produces only about 150,000 cars a year.

Senior executives plan a review of Jaguar's operations during the next several weeks.

About 30 percent of Volvo sales are in the United States. But about 45 percent of Jaguar production goes to the United States, making its exposure to the weak dollar that much harder to overcome. Jaguar and Land Rover also have spent heavily on incentives in the United States.

Ford executives had said that Jaguar was on the mend, Land Rover was on track to break even in 2004, and that Aston Martin could show a narrow profit starting in 2005. But these projections seem to be unraveling.

Scheele says the "largest single constituent" of PAG's red ink was currency exchange losses. He also accuses the Japanese government of managing the value of the yen and thus keeping Japanese luxury brands more competitive.

"Because so much of PAG's revenue is sterling-based, it has been more impacted because the pound moved earlier than the euro," Scheele says. "Our hedges unwound earlier than those of our German competitors. One would hope there will be some pricing relief on the horizon, but I don't see us being bailed out by pricing.

"We have to take some action to attack structural costs at all PAG brands," Scheele says.

Ford also is examining the cost structures of PAG's suppliers. But product development is sacrosanct.

"It is absolutely true that you can save costs by cutting programs," Scheele says. "But by cutting programs, we suffer in the marketplace. New models are the lifeblood."
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Old 08-06-2004, 06:17   #2 (permalink)
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Re: US:Ford's struggling British luxury brands sinking in red ink

'deterioration' to be addressed after hols

AutoWired UK

LOSSES at Jaguar - which is being hit by exchange rates - could force the maker to cut night shift operations in Coventry.

Losses within Ford's PAG unit, of which Jaguar is a member, dived to 198m in the quarter to June compared with a profit of 90m in the same period last year.

Sales of Jaguar in the US - its biggest export market - fell 22% in July to 4,045 units. By comparison, sales in Europe, in June, were up over 43%, reaching 4,185 units.

But Jaguar employees have now been warned that efforts to cut losses in the Jaguar unit will be increased once the summer break is over.

Mark Fields, head of Ford's Premier Automotive Group, said that exchange rates, especially the weak dollar, is a major contributor to the PAG losses. He also said that development of new models, especially at Land Rover, was another factor.

"We cannot simply throw-up our hands and blame exchange (rates)," said Mr Fields. "We need to address the deterioration, particularly at Jaguar, and we are accelerating our efforts to do this."
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