• by Karl Greenberg , December 1, 2008

Ford Motor may jettison Volvo Cars of North America, the Sweden-based automaker's U.S. operations, which Ford acquired in 1999 for around $6.45 billion.

In a release, Ford cited declines in the global auto industry. Alan Mulally, Ford's president and CEO, said the company's reassessment of Volvo is in concert with Ford's efforts to grow its global business through production efficiencies.

Still, the real need is cash. The announcement of Ford's possible sale of Volvo's U.S. arm comes as the Detroit automaker's executives return to Congress to explain how they would put a $25 billion government loan to work. Last month, during the first such meeting and after Ford posted a $2.98 billion quarterly loss, Mulally told Congress that the company has enough cash to survive 2009 if the economy doesn't get any worse.

It may get worse, as analysts predict that the (now official) recession--which began last year, per the National Bureau of Economic Research--may not turn until 2010.

Adolfo Laurenti--an analyst with Chicago-based Mesirow Financial, which expects the recession to hang on through next year and possibly into 2010--says the growing affluence in the U.S. through the '90's and in recent years has been a major driver for luxury sales.

The affluence boom, which saw more people getting rich, and the rich getting richer, was a boon to brands like Volvo, Lexus and BMW. It is also one reason why, despite economic burps in recent years, the luxury market has remained stable. "But I think that process is over now," he says. Laurenti argues that the recession's origins in housing and reverberations through credit markets mean that brands like Volvo feel as much pain as brands like Kia.

"Across the board--even for affluent customers--easy credit was a key component [of sales] because it made the difference between changing a car once every three or four years and changing it every two years," he says. "And this isn't a traditional recession in which the blue-collar worker suffers while the white-collar workforce is insulated. This is a recession that hit white collar first in real estate, financial and insurance sectors, who tend to have higher salaries."

Ford said the review would probably take several months to complete. Stephen Odell, who took the CEO post at Volvo this year, said--also in a release--that Volvo is undergoing its own restructuring.

Odell said Volvo also will bow seven low-emission models in 2009. "We have a strong brand presence in Europe, North America and the Asia-Pacific region, and are growing in key markets such as China and Russia, where we are the leading premium brand." Volvo posted sales of 3,717 in October, a 52% drop versus the period last year. Year to date, Volvo has sold 71,104 vehicles in the U.S., a 28.3% decline versus the same period last year.

Art Spinella, president of CNW Market Research in Bandon, Ore., says that, despite Volvo's declines, Ford's consideration of a spin-off has the feel of a fire sale--since the company will get nowhere near what it paid, and because of Volvo's brand equity. "The interest in Volvo has always been very strong, and it hits right in the demographic group that is reasonably well off."

Spinella says that even though Volvo buyers rely on home-equity loans to buy vehicles, the brand will recover when the economy does.

"Consideration of Volvo is extremely high; it appeals to a perfect market group, too, in the sense that it tends to be a somewhat younger than competitive set, and very mobile and much into work and family. From that perspective, it is one of the most healthy brands out there."