If Ford is about to sell Jaguar and Land-Rover and if private equity is about to buy them - both not very big ifs, according to the well informed - then what will those two venerable British companies look like in five years' time?
For their 16,000 employees, it's a chilling question. For the unions that represent those workers it will leave a sour taste, too: only weeks ago Ford was saying it had no plans to sell. It will be made all the worse if acquisition is by a private equity firm of the kind unions have campaigned against and accused of self-enrichment built on asset-stripping.
But it looks quite likely. According to one banker who hopes to act for a buyer when a sale is announced, major car companies such as Hyundai, Peugeot/Citroen, Renault/Nissan and Fiat have all looked at the pair and walked away. Cerberus, the private equity player buying Chrysler along with other firms including Blackstone and component maker Magna, is more interested, as are Russian and Chinese carmakers.
So, what would a private equity takeover of one or both of these companies look like? And, in the long run, would it necessarily be a bad thing? After all, MG Rover was 'saved' from asset-stripping Alchemy in 2000, only to be destroyed by a wayward team of businessmen without a business plan over the next five years.
Might private equity do a classic 'strip and flip' - slashing the workforce, closing plants and gearing up with debt before selling on in five years? Jon Moulton, head of buyout specialist Alchemy, who has been linked with the Jaguar sale, says: 'You would have to be totally ruthless here, and I don't think Ford would allow that. The asset-strip will never be capable of being done, it's fundamentally wrong with a company like this.'
Although he denies it, bankers say quietly that Moulton will be considering a bid. For now, however, he is content to list the problems. 'You have 16,000 expensive employees in the wrong country. You have a model range that is far from perfect. And it falls into that difficult niche - "medium-sized car business".' Jaguar has only recently introduced diesel engines and, with its 2.8, cannot match BMW, Audi or Mercedes in this hugely important market.
Most important, from a buyout perspective, is the money. Moulton says: 'One thing I am sure about is that Land-Rover and Jaguar combined are consuming cash.' Indeed, one City source says Jaguar lost between $800m and $1bn (£406m-£507m) last year.
This will not put off bidders, who sniff a bargain in renowned brands that, experts say, have been poorly managed (Jaguar) or suffered from indifferent quality (Land-Rover), and who will be puzzling out how to shake them up.
Question one will be: should they be bought together or split? One well-placed banker who advised Ford when it bought Land-Rover in 2000, says: 'Ford has spent five years integrating these companies so they are not easy to pull apart. Some of the vehicle architecture is the same, many of the components are, and they both use Halewood [the Merseyside plant that makes the Land-Rover Freelander and the Jaguar X-Type].'
If he is right, and the companies come together, a buyer would be getting four manufacturing plants (although Browns Lane in Coventry stopped making cars in 2005 and now has 500 employees turning out wood veneer only), along with two West Midland design and development centres at Gaydon and Whitely.
The next question, bearing in mind private equity's record of doing property deals to realise value on 'underperforming' balance sheet items, is which facility to sell. The main plants are Halewood, which employs 2,200; the Jaguar plant at Castle Bromwich in the West Midlands, which has 2,500 people making the large XJ, the XK sports car and the S-Type saloon; and Solihull, also in the West Midlands, employing 5,900 people to produce Range Rovers and Land-Rover Discoveries and Defenders.
The plants are owned freehold. With combined sales dipping from 277,000 to 267,000 between 2004 and 2006 (Jaguar fell, Land-Rover rose); continuing exchange-rate pressure (the US is a key growth market); and high manufacturing costs, some experts expect one or more of these to be sold.
The prime candidate is Solihull, set in 308 acres surrounded by an affluent residential district. Moulton says: 'If you were to sell it, you could expect to get £60m to £70m.'
There would be a lot of interest, says Anthony Glossop, chairman of St Modwen, which bought most of the Longbridge site from MG Rover: 'Solihull would be a dream development. It was built at the edge of a conurbation that has grown to surround it.'
As for valuation: 'If you got industrial-only use, £60-£70m is on the nose. But if you could persuade the local authority to build houses on it as well as industrial and commercial, it could go for three times that.' Glossop says he would be very interested if a sale was announced, adding that Castle Bromwich, which spans 112 acres, could also be developed, though more likely as a purely industrial or commercial site.
But there is then the question of whether selling one is just doing half the job. The banking adviser says: 'It is not just about realising the plant's value. You have to ask if the current configuration is right. The workforce is in the wrong place. It is too high-cost. It is not in the growth market [the US] or in a low-cost centre like China. You need to open a plant in the southern US and take advantage of state funds to regenerate some areas - one in China and leave one or two in the UK.'
Ford, which has its own plants at Dagenham and in Wales, and a long history of mass manufacturing in the UK, has not found it possible to do this. Private equity might be able to - if Ford were to sell to such a buyer.
Closing plants is expensive, however. Moulton says: 'You would be looking at about £50,000 a head - that's £1bn for the UK workforce,' although not all would be made redundant.'
And then there are pension costs. According to the latest figures from Ford, the combined pension fund deficit was just under £500m in 2005 (Land-Rover's was £193.5m, Jaguar's £298.2m). As KKR has found in its bid for Boots, pension fund trustees can demand extra payments - in the case of Boots, £1bn - to ensure the integrity of the funds.
The next question, then, is: how to minimise or avoid these costs?
The extreme option is to do what Russian oligarch Nikolai Smolensky is said to have done at TVR, the formerly Blackpool-based sports car maker. Smolensky, who bought TVR in 2004 and failed to turn it around, said that he would build a new plant near Blackpool, but resigned just before the company was put into administration last December with £30m debts.
He bought the company back earlier this year minus its liabilities, and is reported to be looking to start production again in Italy.
Moulton says: 'I think this is unlikely. You have to pay a very large number to buy it, then you have to bet on buying it out of insolvency, which you might not do - in which case you really have wasted an awful lot of money.'
But there are alternatives, according to other observers, such as not paying a huge amount at all. 'What you do is say to Ford: we will pay you so many billion as a headline price but are going to have to close x and y and lay off so many thousands and we want you to bear the cost,' says a City banker. 'What will end up happening is Ford paying someone to take it off their hands while saying it has got a whacking great price. Because, don't forget, it is not making money.'
Whatever costs are saved and assets are stripped, however, private equity will want to sell on within, say, five years, and it will need a viable business to sell. The range of models will be key to this.
Bailey says: 'Ford has spent a lot on developing models. The Land-Rover line-up is good, with the new Range Rover Sport and Discovery 3. The first thing a private equity player would do is scrap the Jaguar X-Type, which feels like a Mondeo because it shares so many parts with it.'
Much will then depend on how the new XF car - which breaks from Jaguar's fuddy-duddy 'heritage' styling - does when it is launched next year, forming a replacement for the S-Type. An owner would have to ponder whether to restyle the Sixties-looking XJ or spend upwards of $500m on replacing the X-Type.
More crucial, however, are engines, which are supplied centrally to Jaguar by Ford. One expert says: 'They have a 2.8, which does not get you far at the golf club, where people have their big Audis and Mercedes. They are missing out on the most important European market here.'
So a new owner must do a deal with Ford to keep supply going - raising the prospect of Ford retaining a stake in the businesses - while developing new engines, preferably diesel, with engineering companies such as Ricardo. 'I would work with Ricardo or whoever, build a plant in Shanghai and make them there,' says the expert. 'Then you would have a real proposition to sell on in five years' time.'