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TwitterAmerican multinational Ford Motor Co. has sold its Volvo brand to Chinese Automaker Geely Automobile, in a $1.8 billion virtual all-cash deal. This is China’s largest off shore auto deal.
Ford bought Volvo in 1999 for $6.45 billion, then struggled to make the brand profitable as the U.S. auto industry slumped. It began looking for potential buyers for Volvo in 2008. By October 2009, Geely was named the preferred bidder, and the two sides had been negotiating since. The deal is expected to close in the third quarter, Ford said in a press release. Ford will not retain any ownership in Volvo.
“We think it’s a fair price for a good business, and yes, we’re happy with the deal we’ve achieved with Geely,” Lewis Booth, Ford’s chief financial officer, told the Associated Press. “Volvo can continue to build its business and return to profitability.”
Ford Sells Volvo to Geely Automobiles
This marks one of the most significant attempts of a Chinese car maker to tap the overseas markets. Attempts at capturing high proficiency in service, quality and research, through overseas deals, have been made in the past as well, though. For example, Beijing Automotive Industry Holding Co. reached a deal with General Motors Co.’s Saab unit to purchase powertrain technology.
In a separate development last month, Sichuan Tengzhong Heavy Industrial Machinery scrapped a plan to buy GM’s Hummer brand because the company was denied government approval. Geely makes small cheap cars and it is developing a line of new mid sized cars. Utilizing the premium brand name of Volvo can certainly, atleast in theory, prove to its best bet. The privately owned Geely was ranked 11th in total sales last year in China and will benefit from Volvo’s research center and reputation for high safety standards. Also, China surpassed the United States last year as the top auto market, but its domestic car manufacturers faced an uphill battle acquiring brand awareness and technology overseas. Geely will thus make a first attempt at building high end luxury cars. Sales of the segment grew 29% in 2009 compared with a year earlier and were expected to rise steadily, according to J.D. Power and Associates, which makes this deal all the more likely-to-be-fruitful. Volvo will have to compete with Audi, which dominates the luxury market in China, followed by BMW, Lexus and Mercedes-Benz.
“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 market,” said Li Yizhong, China’s minister of industry and information technology, who attended the signing ceremony at Volvo’s headquarters in Goteborg, Sweden.
However, success is on the platter for Geely only if it can turn the tables for Volvo and do what even Ford could not. Bring it to turn a profit. It is believed that Geely can raise Volvo profits because Mr Li, the head of Geely, “is not fettered by 100 years of automotive history”. For the time being, Volvo will remain very European: R&D will remain in Sweden, and the main production base will stay in Europe, says Mr Freeman Shen, Geely’s head of international operations.
“We want to be careful not to damage the Volvo brand,” he says. “We don’t want the image of a luxury car made in a third world country. We want the image of a European luxury car, owned by a Chinese.” he said.
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[...] sales figures for Ford include the company’s Volvo brand, which declined 17.6 percent from March 2009. Sales of Ford, Lincoln and Mercury vehicles increased [...]