Memo To Ford: Don't Sell Mercury Or Volvo

Implications: With Ford's share price falling, Kerkorian's offer is looking better to current Ford stock holders. Kerkorian's team has already said that they have no interest in keeping Mercury and Volvo. However, selling off the two brands may not make much sense.

Analysis: Armed with a substantial new shareholding in Ford, Kerkorian's team has said that while they endorse CEO Alan Mulally's plan for the firm, they would like to get rid of Mercury and Volvo.

How do I count the ways this doesn't make sense?

Let's start with Mercury.

First of all, Mercury has no assets, there's nothing to sell. The Mercury lineup is basically a subset of the Ford showroom with different colors. Despite that, Mercury does attract customers who would otherwise not consider a Ford product. My two Lincoln Mercury auto dealer clients, while they scream about lack of product, would be hard-put to replace those lost sales.

Mercury sales also help pay the overhead for Lincoln Mercury dealers, which make most of their profit selling pricier Lincolns. The engineering cost for the Mercury version of a car is essentially zero, and the sales justify the brands marketing and advertising budget.

All that gives Mercury value to Ford but offers nothing to an outside buyer. In addition, selling the brand would almost certainly lead to years of lawsuits from dealers who would lose a revenue stream.

In the unlikely event that Ford did sell Mercury, whatever value the brand-and its model names- has would immediately transfer to whoever bought it.

Volvo also reaches customers who would never darken the door of a Ford dealership, but it is a more expensive operation to run. Volvo, with its premium European image, demands unique models and upscale features.

However, Volvo also provides Ford with engineering know-how its depleted U.S. operations lack. A Volvo platform underpins key Ford models in North America, including the promising-looking Flex wagon that goes on sale shortly.

Ford faces a lot of work to make the best use of Volvo, however. The Swedish brand is still much of a stand-alone, as evidenced by the unfortunate necessity of building its small crossover, the upcoming, VC60, on a platform that can't come out of Ford's North American plants.

Mulally's global product-development strategy aims to end that kind of folly, and Ford should benefit if it keeps Volvo in the fold.

Selling Mercury-if you could do it-would be the beginning of a brand new headache. Selling Volvo would end a productive relationship.