Geely agrees to buy Volvo from Ford for $1.8 billion
Automotive News -- March 28, 2010 - 12:01 am ET
UPDATED: 3/28/10, 12:51 a.m. ET
GOTHENBURG, Sweden (Reuters) -- Zhejiang Geely Holding Group, China's
largest private-run automaker, agreed on Sunday to buy Ford Motor's Volvo
car unit for $1.8 billion, the country's biggest overseas auto purchase.
The takeover underscores China's arrival as a major force in the global auto
industry and ends nearly two years of talks with Geely over Volvo -- the
last sale from Ford's former premier group, which also held Aston Martin,
Jaguar and Land Rover.
"Today represents a milestone in the history of Geely," Geely chairman Li
Shufu told a news conference, adding that Volvo Cars would remain a separate
company with its own management team based in Sweden.
Such a deal would have been nearly unimaginable a few years ago for the
Chinese carmaker, which on 2009 forecasts has a turnover of only 16 percent
of Volvo's, and has just over half the workforce.
The deal highlights in particular the big opportunities that have emerged
from the financial crisis for smaller players. Tiny Dutch sports car maker
Spyker clinched a deal in January to buy Sweden's Saab from General Motors
Geely said it had secured all the necessary financing to complete the deal,
though it remained open to a possible loan from the European Investment
Bank. The mostly-cash deal includes agreements on intellectual property
rights, supply, and research and development arrangements between Ford,
Volvo and Geely.
Addressing questions regarding Geely's plans to keep production lines
running in Europe, Li said it was important Volvo stayed close to key supply
"I have a deep belief that the manufacturing footprint in Gothenburg and
Belgium will be preserved in the longer term," he said.
Volvo labor unions, which had been critical of the proposed deal and
complained about a lack of information about the future of the company, said
they now backed the takeover.
A 'fair price'
The deal, which both sides aim to close in the third quarter, will help free
up cash for the number two U.S. automaker and enable it to focus on its core
Geely, parent of Geely Automobile Holdings, was named by Ford as the
preferred bidder for its loss-making Swedish unit in October 2009.
The Chinese carmaker clinched Volvo at a price tag well below the $6.5
billion Ford paid for it in 1999.
"We think it's a fair price for a good business," Ford Motor's Chief
Financial Officer Lewis Booth told the news conference.
China raced past the U.S. to become the world's top auto market last year,
with sales surging 46 percent to a record 13.6 million units. It is keen to
move into Western markets but has so far lacked the technology and brand
recognition to do so.
The Volvo deal should help the Chinese carmaker to get around some of those
obstacles more quickly.
Geely's chairman is already planning a factory in Beijing which will make
300,000 Volvo branded cars, or as many Volvos for China as are now made
abroad for foreigners.
Unlike General Motors' failed deal to sell its gas-guzzling Hummer brand to
Tengzhong, a little known Chinese machinery maker, Geely's Volvo purchase
has been backed by Beijing.
Said Li: "China, the largest car market in the world, will become Volvo's
second home market. Volvo will be uniquely positioned as a world-leading
premium brand, tapping into the opportunities in the fast-growing China
Made-in-China Volvo may get a boost from Beijing's plan to support domestic
brands and replace Volkswagen AG's Audi A6 as Chinese state officials' car
"We want to stabilise and enhance the traditional markets in Europe and
North America, and at the same time develop the other Volvo business in
emerging markets, including China," Li said.
The carmaker has already announced an aggressive target of boosting its
sales to 2 million vehicles by 2015 from last year's roughly 330,000
units -- about the same as Volvo's global output.