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.

Pound pressure

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.

Cuts coming

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."

 

I'm only surprised that Land Rover is losing money. Land Rover seems to be doing well. Pretty much expected Jaguar & Aston Martin to be in the red.

Ford just spent a large fortune making an all alumunum Jaguar XJ, and will take years before they even begin seeing any of that money back. The mini Jag (the X-type) simply isn't viewed as a Jaguar at all, and isn't doing well at all. The S-type is about the only thing doing well at Jaguar, despite the fact that you can get the same car in Lincoln showrooms as the LS for $10-15K less (they have a smaller Jaguar based V8, but make only 10 or so less horsepower).

As for Aston Martin, does anyone besides old money rich Brits and Middle Eastern royalty buy them anymore?

 

Maybe there will be more customers once they obtain a reliable electrical system?