March 13, 2007

After Aston, Could Jaguar Be Next?

Eight hundred forty-eight million. In the automotive world, it's a small sum. But it's what Ford Motor (F) accepted to take luxury car maker Aston Martin off its hands.

Ending months of speculation over the future of one of the automotive world's most storied -- and expensive -- brands, Aston went to an investment group led by British auto racing champion David Richards. Ford, which took full control of Aston in 1993, still owns preferred stock in the company worth $77 million, putting Aston's valuation at $925 million.

For Ford, the deal raises badly needed cash for an automaker still reeling from last year's $12.7 billion loss. The company also borrowed $23.5 billion to help its restructuring. New Chief Executive Alan Mulally and his team can also forget about one more distraction as Ford tries to fix its many problems. "Ford needs simplicity and focus right now," says John Casesa, a partner with Casesa Shapiro Group, an industry consulting firm that advised Aston's buyers on the deal.

Aston gets an owner who is not only passionate about the pricey sports cars, but about the brand itself. Richards' company Prodrive operates racing teams and even builds Aston Martin's race cars.

Is Jaguar for Sale? One big question for Ford: Now that Aston Martin is sold, is Jaguar next? Ford executives in the past have said that Jaguar isn't for sale. But one source close to the company says there is some internal debate about the British luxury brand. Jag has been bleeding red ink in recent years.

While Jag might be a tough sell, Aston generated more interest. The brand, which Ford has owned for 20 years, sold a record 6,500 cars last year. It is profitable, but Ford doesn't split out financial figures for its individual luxury brands.

And in terms of cachet, the already prestigious brand has been on the upswing. Its Vantage, DB9 and Vanquish coupes, all of which sell for more than $100,000, have garnered praise from the motoring enthusiast press, and sales have been strong.

Big-Screen Star Aston has a great brand. Its cars have been the getaway ride of choice in most James Bond films, and the $260,000 Vanquish sports car got prominent play in the new edition of the film The Italian Job.

Aston has a new car, the four-door Rapide, on the way. That's one thing that makes Aston attractive, says Car and Driver Editor-in-Chief Csaba Csere. The company has a platform and the engines it needs already. "Aston seems to have a pretty good product plan for the next five to eight years," Csere says. "But the question is, what will they have beyond that?"

Indeed, small independent carmakers have had a tough time going it alone, even one like Aston Martin, whose cars sell for $110,000 to $260,000. Rolls-Royce is now owned by BMW and Volkswagen owns Bentley. But one thing that helps the newly independent Aston Martin is Ford's minority stake. Since Ford still has an interest in seeing the company succeed, the Dearborn [Mich.]-based automaker has an incentive to help Aston Martin develop engines, vehicles, and parts.

New Opportunities Aston Martin CEO Ulrich Bez will stay on board for five years to push current vehicle projects and steer the brand. The new ownership group, which also includes John Sinders, an American investment banker, and two Kuwaiti investment firms, has growth plans for their prize. They want to push into markets like Russia, China, and India.

Aston has just 125 dealers worldwide, according to Ford financial statements, and few in those emerging markets. Says Casesa: "Aston Martin doesn't have distribution in some of the world's key wealth centers."

Parting with Jaguar in a similar fashion could be tough, even if Ford were to eventually decide to do so. The luxury car division now shares engines and other parts with its British cousin, Land Rover, which is also part of Ford's Premier Automotive Group. [Volvo is the only non-British brand in the group.] They rely on each other to achieve economies of scale that help defray the cost of developing essential parts.

The Aston sale could help Jaguar in one sense. Ford wouldn't let it venture into super-luxury territory because its executives didn't want Jaguar stepping on Aston. Now, says Csere, "they can move it up and help the brand."