Car companies: Congestion on the auction block

NEW YORK (Fortune) -- As the restructuring of the auto industry continues at a breakneck pace, fabled car brands are going on sale like so many grapefruits in a grocery store.

First Chrysler went on the block with its Dodge, Chrysler and Jeep lines and was whisked away at a bargain price by Cerberus Capital Management.

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Now, after months of vacillating, Ford (Charts, Fortune 500) has officially put Jaguar and Land Rover up for bid. At this early point in the process, it is difficult to see what the outcome will be. But it is clear that the auto industry is going through a once-in-a-generation rethinking of the principles that form the foundation of its business. With the exception of Toyota (Charts), nobody is immune.

In the 1990s, luxury brands were seen as the ideal complement to volume manufacturers like Ford. They provided an upward migration path for customers and higher profit margins than were available at the popular-priced end of the business.

So while Ford was buying Jaguar, and later Land Rover, General Motors (Charts, Fortune 500) went after Saab, and Chrysler dallied briefly with Maserati and Lamborghini. Toyota and Nissan (Charts) seemed to endorse the American moves by starting their own luxury brands, Lexus and Infiniti.

But just as they mismanaged their own businesses, the Detroit Three failed to make a success of their luxury ventures. Land Rover has traveled a rocky road while Jaguar has been nothing less than a money pit for Ford, consuming upwards of $10 billion.

Perhaps there is a lesson here that has been absorbed by other automakers; they haven't been stampeding to make an offer. Fiat (Charts) was rumored to be interested, but it has its own underperforming luxury brands in Lancia and Alfa-Romeo. BMW was said to be sniffing around, but having owned Land Rover once before, it isn't likely to want to go down that path again.

More likely buyers would be France's Renault, which doesn't have its own luxury brand, and Peugeot, which has a quasi-one in Citroen. But Renault's Carlos Ghosn has his hands full trying to get the automaker pointed in a new direction, and Peugeot seems more interested in exploring the lower reaches of the market than the upper ones.

Asian automakers would have a strong incentive to acquire a global brand like Jag or Land Rover with a U.S. distribution system. Ever-ambitious Hyundai is one possibility. Another is a Chinese automaker. It was the Chinese after all who snapped up the remains of MG Rover and started building cars carrying those fabled nameplates in China.

If no traditional automakers step up to the plate, how about private equity? Despite increasing interest rates, they seem to have no trouble getting access to capital. And a buyer like Blackstone, which lost out in the bidding for Chrysler, might welcome another opportunity to get into the auto business.

Anybody who does get in, though, will have some tough slogging ahead. Land Rover is making money at the moment but it is at the sweet spot in its product cycle. To stay successful, its antique manufacturing system will have to be rationalized. Plus it will have to find some way to modernize its vehicles without compromising the brand heritage that makes them so appealing to their upscale buyers.

Jaguar is at a different stage in its life, probably close to its nadir. Ford's ill-fated attempt to boost volumes by expanding into the entry-lux segment with the Jaguar X-type failed miserably and the line will probably be discontinued. For the time being, Jag will soldier on with the S-type, a striking redesign of which is due in a few years, the smashing XK coupe and convertible, and the unimpressive XJ sedan.

That is hardly a robust lineup with which to compete against the likes of Mercedes, BMW and a resurgent Audi. Jaguar will need continued infusions of capital to refresh its current model lineup and expand into new segments.

Pumping cash into a money-losing operation is hardly a familiar proposition for disciplined private equity investors. Rescuing Jaguar will be a difficult equation for them to master. Nostalgic feelings about Jaguar's storied past will likely have little influence, either. Ford may have to wind up pricing Jag the same way Daimler (Charts) priced Chrysler - giving the company away in exchange for the promise of significant investment.

Whatever happens to Jag and Land Rover, they will probably not be the last assets to be shuffled. The second century of the automobile industry is promising to be a lot more tumultuous than the first.