What's Really Behind Ford's Cutting Volvo's Output?

Implications: It is no surprise that Ford is cutting production at its Volvo Cars unit. However, there may be more at play here than just cutting costs. 

Analysis:

That Ford is cutting costs at its upscale Swedish brand comes as no surprise. The plan to reduce production may have more to do with setting up the company for sale than balancing inventories.

A year ago, reports that Ford was considering a sale of Volvo to BMW, raised eyebrows in the auto industry. After all, a few months earlier Ford told Renault in no uncertain terms its Swedish luxury brand was not for sale.

At the time, Ford denied the reports, which had been floating around for several weeks, finally coming to light with a report in a Swedish newspaper.

You'd expect the denials, couched in the usual business speak about "assessing our operations and portfolio." But the leak is said to have originated from within Ford, not BMW.

A lot has happened since Ford knocked back Carlos Ghosn's enquires. There's a new man at Ford, and Alan Mulally is not so enamored with the Ford portfolio. Aston Martin, Jaguar and Land Rover are already gone.

A new buyer would likely face a long haul in making it profitable again. Volvo is being hit by adverse currency movements. A kroner and euro-based cost base alongside dollar revenues...well, it doesn't get much worse than that and we believe Volvo is loss-making.

Ford has made its intentions very clear: Volvo is not part of the Ford core. The question is, who would be a buyer? Whoever it is better have a very long time horizon, be prepared to invest a lot of money and absorb losses for the next three to five years if currencies stay where they are.

But the Volvo brand has value and there are not many brands that have that sort of value in the market. They'll find a home somewhere.