The London Financial Times is reporting that BMW is negotiating with Ford to buy Volvo. Why would BMW want to buy Volvo? Why would Ford want to sell? Sources also reported that BMW initially considered a try to buy Alfa Romeo, but decided on Volvo instead. Is Volvo a good match for BMW, and does BMW really need to buy any other manufacturer? Both Ford and BMW have denied the rumors of the purchase.

The answer is "yes" to the question whether BMW needs to buy another manufacturer. They tried with the acquisition of Rover in 1994. This time you can be sure they will do more research before writing a check. BMW has plenty of cash to write that check too.

Porsche just bought a large part of Volkswagen. Evan pointed out that they didn't need to do that. Instead, they invested in Volkswagen to prevent its possible acquisition by investment bankers and keep it in the "family". Just watch Chrysler if you want to see an example of what happens when capital firms buy a car company. They aren't remotely interested in making cars. They are only interested in making money -- any way they can.

Why would BMW want to buy Volvo? The answer is both direct and complex. BMW needs to expand its range of brands to help the company's future growth as well as providing a larger range of front-drive platform production to allow the future growth of the MINI division.

BMW looks at Volvo as a global marque complimentary to its parent brand and still capable of growth. BMW has always emphasized driving pleasure. Volvo would add safety and environmental concerns to the party.

The plan after acquisition is not known in detail, but one can speculate. It's likely that the larger sedan and wagon models would eventually migrate to a BMW platform that would be either rear-drive or all-wheel-drive. The smaller cars in Volvo's range would certainly switch to a BMW platform related to the current MINI platform which is front-drive.

In fact, it is the future of MINI that really concerns BMW. One wouldn't think that there would be a problem with a marque that sells some 200,000 plus cars a year, but there is. BMW has made major investments again in MINI with the newly designed car plus the future Clubman wagon. This is causing BMW a major headache.

MINI sales are down from their 2005 peak, and it is known that BMW can produce 250,000 to 270,000 cars a year. That, however, is not enough to ensure that the marque will be profitable in the long-term future.

If, on the other hand, BMW could have produced the new MINI wagon and SUV on the same platform that is under the Volvo S40 and V50, it would have made a different financial picture. An annual production of 500,000 upmarket front-drive cars split between Volvo and MINI would have ensured long-term profitability.

BMW really does need to buy another marque. Because, as things stand, it will be pretty difficult for BMW to expand beyond its target or 1.6 million sales by the end of the decade. It would also be pretty expensive to develop new product to do that as well.

BMW's profit was down some 34 percent in March when compared to 2006. They face rising raw material costs as well as a plunging dollar value. Those ambitious growth targets coupled with those problems could put even relatively modest profit margins under considerable stress.

Even more serious is the fact that BMW (as well as most other German automobile manufacturers) is faced with potential European Union legislation designed to slash the average CO2 emissions of cars produced in Europe to as low as 130 g/km. The upshot of that, say financial experts, is that BMW's medium-term future is not completely assured.

But why would Ford want to sell Volvo? There can be only one reason: Ford needs the money. Both Evan and I have said in the past the Ford is in serious trouble that won't cured in the immediate future. Their cash will run out soon, perhaps sooner than they will be profitable. BMW would have to pay something north of $9 billion for Volvo. That cash certainly would help Ford in the near future, but I think it wouldn't be best in the long term for Ford.

Late news from the Wall Street Journal alters this picture. Ford has already mortgaged Volvo to the hilt. Volvo assets are part of the package of collateral for an $18 billion loan that Ford has taken out to raise cash for operations. This is part of a $49 billion package of cash Ford has acquired for Alan Mulally's turnaround plan.

It appears that the company really isn't in need of cash, then, but if that's true, why did they sell Aston Martin? Even if Ford did get a lot of money from BMW (the Wall Street Journal values Volvo at $6.4 billion), the financial package that Ford agreed to has some strict terms: If Ford sells more than 20% of Volvo, at least half of the proceeds need to be used to pay back the loan.

So, given that news, it appears that the rumors of BMW buying Volvo aren't likely to be true. Maybe someone will find some fancy financial maneuvers to make it work, but it does look unlikely.