Off the Beaten Path

March 19, 2000

Capping the break-up of BMW AG’s troubled Rover Group, Ford Motor Co. has agreed to acquire Land Rover for $2.9 billion. The announcement came barely a day after BMW sold the core of its unprofitable British subsidiary to a new venture capital company, Alchemy Partners, for an undisclosed sum. Alchemy will rename the operations the MG Car Company. BMW, meanwhile, will keep just one piece of Rover, the pint-sized Mini car, which will be re-launched roughly a year from now.

As for Land Rover, the respected manufacturer of high-end sport-utility vehicles will become part of Ford’s Premier Automotive Group, along with Jaguar, Volvo, Aston Martin, Lincoln and Mercury. BMW’s decision to divest itself of Rover was long anticipated. Ford’s bid to buy Land Rover wasn’t. Publisher TCC Team met with Ford CEO Jac Nasser to discuss the deal.

TCC: What’s the logic behind this acquisition?

NASSER: It’s driven, essentially, by several imperatives: strong brands, consumer focus, and our goal of strengthening our position in the sport-utility and light-truck segment. Complimentary to that, it can help make sure the Premier Automotive Group has products it needs for growth. We already have a good stable…but this opportunity came up and it fits quite well in almost every regard. It is an opportunity that could return good shareholder value in the long-term, more for us than for BMW.

TCC: Why would it be a better value for you than BMW?

NASSER: I think BMW could have been very successful over time. But their strategy now seems clear. They want to focus on their core brand. They have limited resources and whenever you allocate your resources outside your core, you may miss an opportunity within your core strategy. It would have been difficult for BMW to compete, in the long-term, with a base of 200,000 off-road vehicles. On the other hand, we already have 1 million, and that gives us economy of scale.

TCC: Regarding that issue of core strength, some critics feel you could have better spent this money upgrading your troubled European operations. Is that a valid issue?

NASSER: I don’t understand that at all. This will help Europe by giving them a better marketing presence. Also, you have to look at what your areas of strengths are, and what opportunities this gives us. We clearly have strength in marketing off-road vehicles, and in our premier brands. So, I think (the acquisition) is totally on track to build our strengths, while at the same time, transforming our weaknesses. It’s not diverting resources from Europe at all.

TCC: Did you consider the acquisition of the entire Rover Group, not just Land Rover?

NASSER It was clearly available. We never say never, and look at everything, but if you used the adjective, "seriously," did we seriously consider it? Not really.

TCC: This acquisition comes at a time when oil prices are skyrocketing, and some folks fear that could have an impact on light truck sales. Isn’t that a concern?

NASSER: When you look at the Land Rover products, the natural inclination is for people to think of (the big, fuel-hungry) Range Rover. But they also have the Freelander, Discovery and Defender. The Freelander is the size of our Escape, so they have fuel-efficient off-roaders, as well. So, though they are at the premier end of our business, they are not all at the larger end of our (lineup). We have a pretty good view of their products, and it’s a strong line-up. There are great opportunities for growth for them.

TCC: Based on the way you’re seeking to grow Jaguar and Volvo, we might expect you to be looking for significant sales growth for Land Rover. Is that accurate?

NASSER: I won’t answer that directly. We’d be giving away too much. We have aggressive growth plans for the Premier Automotive Group, a target of 1 million-plus. Land Rover has the same type of future growth potential. But even more, it helps us maintain the brand essence of the other Premier Automotive Group marques, because it allows them to grow where it is more natural for them to grow. Every one of those brands will look, feel, smell and touch consistent with their brand image and character.

TCC: We discussed the issue of oil prices. If we can return to that but on a broader scale, may we discuss its impact on the broader market, which seems to be defying logic and maintaining record levels?

NASSER: It has surprised a lot of people. It’s above the expectations we had, and is hitting almost 20 million (annual) units on a seasonally adjusted basis. Is this irrational or based on solid economic reasoning? I think it’s the latter. There are fantastic new concepts and products coming out all the time. That level of creativity stimulates the market. The second thing is that when you look at prices, unadjusted for inflation, they have been flat for several years. Certain segments have come down substantially. It’s even more significant when you adjust for inflation. The third reason for strong demand is the basic strength of our economy. The factors are all pretty positive.

TCC: So, will it continue?

NASSER Our projections have industry volumes marginally weaker for the balance of the year. But I have to admit, that’s what our projections have said the last three years. There are some signs out there of a marginal decline, yet it could proceed at a record pace for the rest of the year."

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