Goteborg-based Volvo Cars, which Ford bought in 1999, has been struggling against a weak U.S. dollar and declining demand. Volvo sales through October are down more than 28 percent compared to the month in 2007, according to Autodata Corp.
Ford said Monday it expects its strategic review of the Swedish luxury automaker will take several months. The move is one of several actions Ford is taking to strengthen its balance sheet amid what it called "severe economic instability worldwide."
"Given the unprecedented external challenges facing Ford and the entire industry, it is prudent for Ford to evaluate options for Volvo as we implement our One Ford plan," said company president and CEO Alan Mulally in written statement, referring to a plan the standardize the company globally.
Ford officials would not speculate on how a potential sale would affect the companies. Spinning off Volvo into a separate entity may be a possibility, as both companies have already taken steps to allow Volvo to operate on a more standalone basis. That effort began in 2007, after a previous strategic review of Volvo.
"Our relationship with Volvo during this time remains unchanged, and we will continue to work together," said Ford spokesman Mark Truby. "What's most important is that we make the right decision."
The Swedish government has said it has been in talks with Volvo and with General Motors Corp.'s Saab unit following reports that the U.S. parent companies were seeking aid for their Swedish carmakers.
The chairman of Swedish union IF Metall, Stefan Lofven, said it is now extremely important that the Swedish government steps in and shows its support for Volvo in the sales process.
"Volvo is a strong brand. Now they have to find a serious owner who wants to and can develop Volvo in the future," he said.
He said previous talks with the government about a worst-case scenario had considered temporary government ownership and did not rule out that could be a solution now.
"I have seen for a long time what problems Ford has. In that situation it becomes natural for an American company to focus on the American market," she said.
Despite its high safety ratings, which makes it a popular, high-end family vehicle, Volvo captured 0.5 percent of the market through October, compared with 0.8 percent a year earlier. That accounts for 3.7 percent of Ford's total sales this year.
For the 2009 model year, Ford and Volvo led all brands with 16 vehicles on the Insurance Institute for Highway Safety's list of the safest cars.
Even with tight credit worldwide, Ford could pull off a sale because Volvo would be attractive to automakers in emerging markets such as Tata Motors Ltd. of India, said Kevin Tynan, an analyst with New York-based Argus Research Corp.
"There's probably enough money out there for either an emerging market automaker or somebody looking to get a brand with a little bit of cache to it," Tynan said.
The Land Rover and Jaguar lines are not as intertwined, making the sale of those assets less complicated. Depending on how it's structured, a Volvo sale could end up hurting the Ford brand because the companies are intertwined with safety technology and some Ford vehicles share Volvo underpinnings.
But Tynan said the companies could maintain relationships even if Volvo is sold.
"I think there's enough mutual benefit going back and forth. There's some benefit to whoever buys it to maintain the relationships," Tynan said.
Ford's Taurus sedan and Taurus X crossover vehicle, and the Mercury Sable sedan are built on Volvo underpinnings, but Tynan said Ford can keep relationships long enough to put the vehicles on new platforms.
Ford, GM and Chrysler LLC will go before Congress this week to present a proposal for $25 billion in loans to keep them afloat as sales sag. Ford's Mulally will travel by car to Washington, D.C., after he and General Motors Corp. CEO Rick Wagoner and Chrysler LLC CEO Robert Nardelli were criticized last month when they flew to Washington in separate private jets to seek the government bailout.
Ford shares fell 5.2 percent, or 14 cents, closing at $2.55 Monday. Shares were up nearly 4 percent in early trading.