BMW to Buy Volvo?
The chatter about BMW acquiring Volvo from Ford started in earnest a couple of weeks ago, and has gotten much louder in the last few days.
Neither BMW nor Ford will comment, but apparently sources within Ford, BMW, and Volvo have confirmed to various news entities that Volvo is in play, but there is no consensus on where Volvo will go when it leaves Ford. Some say Volvo will go to BMW, some say it’s going to a private-equity firm, a la Chrysler/Cerberus, and some point to VW as a dark-horse contender for the company. And, of course, it may not go anywhere. Although it’s worth pointing out that we predicted in December 2006 that Ford would certainly sell Jaguar, Aston Martin and possibly Volvo in calendar year 2007, and its only May at this point. We’re still sticking to our prediction.
Back to BMW – will they buy Volvo if Ford wants to sell? That’s a tough one to call. The debacle that was Rover has not receded into BMW’s collective memory at this point, and Daimler’s public embarrassment with Chrysler is awfully fresh as well. And BMW already has high-line sedans and SUVs. But, BMW would like to get more scale in their operations just like anyone else, and, Volvo is a healthy car company with good growth prospects no matter who owns them. They are not a reclamation project (Rover), nor are they susceptible to their product mix becoming irrelevant due to a changing market environment (Chrysler). Volvo is launching 7 new models, starting from 2006, and ending in 2009. It has market shares of only 1-2% in its strongest markets, Italy, Germany, U.K. and the U.S., suggesting there is still quite a bit of unrealized potential (safety and quality sell almost everywhere) to be had in those regions, as well as others, since Volvo sells their cars in over 100 countries. And, of course, it has approximately 20% of the market in its home market of Sweden, a relatively small market.
I think BMW will seriously, seriously consider acquiring Volvo. Ford bought Volvo for $6.5 billion USD in 1999 and if they don’t ask too much of a price premium in the time elapsed, BMW may be a player for the deal. I’m sure there are people at BMW, shouting “no more pain!” and there is another group shouting “grow or die!” and the biggest group of all is in the middle, saying “let’s think about it some more”. We’ll see who can build consensus in the next few weeks or months.