The WSJ has a very interesting article today explaining that Ford’s main motive for thinking about selling off Volvo is the need to raise money to pay for a deal with the UAW:
General Motors Corp. and Ford Motor Co. have moved in recent months to pare assets and build up cash as they seek answers for their loss-plagued North American auto operations. Potentially adding to the moves, people familiar with the matter said over the weekend that Ford is considering selling its Volvo car unit, a profitable business expected to receive considerable interest from other car companies and financial buyers such as private-equity firms.
GM, meanwhile, agreed to sell its Allison Transmission unit for $5.6 billion after nearly 80 years of ownership. It has also raised more than $10 billion in recent months in credit markets, all of which was won by pledging assets essential to running its automotive business.
A key part of GM’s plan, according to people familiar with the matter, is to amass a cash hoard big enough to offload tens of billions of dollars of current health-care liabilities for blue-collar retirees to a new, union-run fund outside the company known as a VEBA, for voluntary employees beneficiary association. Industry observers say Ford’s move also fits that goal.
Whenever I write that the Detroit Three have become retiree-benefit providers that make a few cars on the side, I wonder if maybe I’m overstating things. But here’s Ford thinking about selling off one of its more valuable assets just so it can pay to get retiree benefits off its books. After that, the idea is, Ford will just be a carmaker again. From the perspective of the automakers, I think this a great idea. It will remove their executives’ perennial excuse for losing ground to Toyota and Honda and Nissan. But that’s a good thing, right?
For the retirees, it’s a somewhat tougher call. They will no longer be at the mercy of Detroit, and no longer at risk of losing their benefits in a bankruptcy. But if health costs keep going up and the VEBAs turn out not to have enough money, retirees won’t be able to hit up the automakers for more. Still, they’ve got Medicare already, and this seems like an eminently reasonable solution to a really difficult problem.