Buyers rev up for pursuit of Jaguar and Land Rover

Leading private equity groups are jostling to get into pole position for the £3bn sale of Jaguar and Land Rover, two of the world's best known motoring brands.

Ford parked the two famous marques on the forecourt yesterday and appointed the investment bankers Goldman Sachs and Morgan Stanley to find buyers as soon as possible.

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The US car giant is racked by heavy losses in its volume manufacturing business and desperate to hive off the luxury brands which it sees as a distraction.

Potential buyers include Alchemy Partners, Apollo, Cerberus Capital - which has just bought Chrysler - and Blackstone.

The German group BMW, which owns Rolls-Royce, is likely to be taking a keen interest in the sale, along with the Korean car maker Hyundai. Fiat has ruled itself out. But the chance to acquire two leading luxury brands such as Jaguar and Land Rover could well attract Middle Eastern or Russian billionaires.

Ford appears to have performed a massive U-turn, having rejected ideas of a sale a year ago. Motor industry experts say the eventual destination of Jaguar and Land Rover, the maker of four-wheel-drive vehicles, is clouded in uncertainty.

The two famous marques have been lumped together under the Premier Automotive umbrella, which represents Ford's up-market interests. But the performance of the two models has been markedly different. Jaguar, which Ford bought for £1.6bn in 1989, has seldom made a profit. Land Rover, acquired in 2000 for £1.7bn, is believed to have performed strongly.

However, the shared manufacturing overheads - they employ around 19,000 at three plants - make it difficult to establish the precise profitability of each marque.

One potential buyer has already dropped out of the frame. Fiat, the Italian giant, had discussions with Ford about buying Jaguar and Land Rover, but scrapped the idea because of concerns over its own credit rating following any deal, according to reports in Milan.

The discussions also involved the purchase of Volvo, also part of Premier Automotive but unlikely to be retained when Jaguar and Land Rover are shunted off.

Apparently, Fiat thought Land Rover would fit well with its Alfa Romeo brand which is due to be re-launched in the United States in 2009.

Despite the chequered financial history of Jaguar, it remains one of the few truly global brands and as such is likely to attract keen interest from Hyundai. Industry observers say it is keen to expand into luxury car making, having admired Toyota's hugely successful marketing of Lexus in the US. Hyundai has a new plant in Alabama capable of being upscaled to launch a new luxury model by around 2010.

Private equity groups have the financial muscle to take over Jaguar and Land Rover, but they may consider there are easier pickings elsewhere.

Typically, private equity works to a fairly short timescale between purchasing a business and re-floating it or finding new buyers. As part of that process, there is usually intense cost-cutting. In the case of Jaguar and Land Rover, there would be huge opposition to any factory closures or job losses.

Motor car manufacturers also have to invest heavily in future models. That would not suit the typical private equity house which uses the cash flow from the business to repay interest costs, leaving little over for reinvestment.

Jaguar has about 10,000 staff in Coventry, Birmingham and Liverpool, while Land Rover employs 9,000 in the West Midlands and Warwickshire.

Union bosses yesterday pressed for urgent meetings with Ford to discuss its intentions, while Jon Moulton, the chairman of the private equity firm Alchemy Partners, said "they would be right to be concerned".

One observer said the brands would represent "sizeable trophy assets" for a wealthy Middle Eastern or Russian buyer but thought they might be daunted by the manufacturing issues involved in either reducing UK production or shifting it to a cheaper base abroad.

However, there are precedents. The MG plant at Longbridge was closed last year with the loss of 5,000 jobs after it was bought by China's Nanjing Automobile. The two-seater cars will be assembled in Birmingham from parts constructed in Nanjing's new plant in China but the Midlands factory will employ hundreds rather than thousands.

One component of Ford's luxury car unit has already gone. Ford sold Aston Martin for £450m to a venture capital consortium led by the racing driver David Richards.

The break-up of the luxury end of Ford has been inevitable since its mainstream volume market turned sour. Last year, Ford recorded the worst losses in its 103-year history, finishing £6.6bn in the red. Ford tried to get to grips with the luxury side, closing Jaguar's historic Browns Lane plant in Coventry in 2005 with the loss of 1,150 jobs and merging the manufacturing process with Land Rover.