Kwik-Fit price 'reflects present market value'

Jeremy Grant writing for FT.com reported that Ford was adamant last month that it would not launch a "fire sale" on any of the businesses earmarked for the disposal of non-core assets expected to raise $1bn this year.

This included Kwik-Fit, the European exhaust and maintenance company that the world's second-largest carmaker bought for $1bn in 1999.

But there was no trace of irony in its announcement yesterday that it had agreed to sell Kwik-Fit to CVC Capital Partners for just £330m ($505m). "We think the price reflects what is the present market value of the business," Ford said.

When Ford bought the business from Sir Tom Farmer, the Scottish businessman who founded the Kwik-Fit tyres and exhausts chain in Edinburgh in the early 1970s, it clearly felt growth prospects were good.

But with the global economic downturn, such hopes have been dashed. Ford said it would take an after-tax charge of about $500m in the third quarter of 2002 related to the sale. The company is now focused on the far larger task of restoring its entire business to sustained profitability.

The sale of Kwik-Fit is a small milestone in that process. It puts Ford within striking distance of achieving its target of raising $1bn in cash from asset sales.

The fact that it has pulled the sale of the much smaller Hertz Equipment Rental Corporation shows that Ford's resources are now likely to be better used accelerating the company's restructuring.

The task is not easy. Ford plans to pump out 20 new products in North America alone, each year, for the next five years as part of what it calls a "product-led" recovery.

This involves increasing capital expenditure in product development. Yet the carmaker is at the same time desperate to cut costs by a total $9bn by 2005.

The most stubborn of these are the material costs involved in product development.

Last month Allan Gilmour, chief financial officer, revealed that the company was six months behind in reducing those costs by $3bn, out of the total $9bn in planned savings.

The company can take comfort from the fact that it has about $25bn in cash. Analysts say cashflow from operations is currently healthy, although any sign of a softening in consumer demand could alter the picture significantly.

Mark Reuter, a Ford spokesman, said that the company was looking at ways of speeding up the launch of certain products. The added urgency reflects the fact that Ford's rivals are also working on a raft of new product launches for next year.

"Ford has inherently good product development skills that you don't see right now in terms of launching timely quality products," said John Casesa, auto analyst at Merrill Lynch in New York. "Even though Ford is walking through the valley of death right now, it's still a very liquid company and has the resources to see this through."