Ford sells Volvo to Chinese group
• £1.2bn Volvo deal underscores China’s world role in business
• Beijing factory will make 300,000 Volvos a year
The acquisition of the loss-making Swedish unit by Zhejiang Geely Holding Group underscores China’s arrival as a force in the global car industry, as well as flagging up its ambition to become a big player on the world business stage.
China has more than £1.4tn in reserves and its companies are investing heavily overseas, particularly in energy and commodities in an attempt to secure supplies for its fast-growing economy.
Yesterday’s announcement demonstrates the ambition of the Chinese to snap up western consumer industries and so gain greater industrial expertise.
Geely is planning a factory in Beijing that will make 300,000 Volvo-branded cars a year, or as many Volvos for China as are now made abroad for foreigners.
The Chinese company will gain access to Volvo’s technology, as well as an image boost because of the brand’s premium status in China, said Vivien Chan, an analyst at SinoPac Securities.
China raced past the US to become the world’s top auto market last year, with sales surging by 46% to a record 13.6m vehicles. 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 it to get around some of those obstacles more quickly.
Unlike the abortive attempt by General Motors (GM) to sell its gas-guzzling Hummer brand to Tengzhong, a little-known Chinese machinery maker, Geely’s Volvo purchase has been backed by Beijing. The company is paying about £1bn of the asking price in cash.
Volvo may get a boost from Beijing’s plan to support domestic brands and replace Volkswagen’s Audi A6 as Chinese state officials’ car of choice.
“We want to stabilise and enhance the traditional markets in Europe and North America, and at the same time develop Volvo in emerging markets, including China,” Geely’s chairman, Li Shufu, said.
Today’s deal ends nearly two years of talks with Geely over Volvo – the last sale from Ford’s luxury brands division, which used to include Aston Martin, Jaguar and Land Rover.
“Today represents a milestone in the history of Geely,” Li said, 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% of Volvo’s, and has just over half the workforce. It highlights in particular the opportunities that have emerged from the financial crisis for smaller players. For example, Spyker, the tiny Dutch sports car maker, clinched a deal in January to buy Saab from GM.
Geely said that it had secured all the necessary financing to complete the deal, though it remained open to a possible loan from the European Investment Bank.
Addressing questions regarding Geely’s plans to keep production lines running in Europe, Li said that it was important Volvo stayed close to supply centres: “I have a deep belief that the manufacturing footprint in Gothenburg and Belgium will be preserved in the longer term.”
Volvo labour unions, which had been critical of the proposed sale and complained about a lack of information, said that they now backed the takeover.
The deal, which both sides aim to close in the third quarter, will help free up cash for the number-two US carmaker and enable it to focus on its core Ford brand.
Geely was named by Ford as the preferred bidder for Volvo in October 2009.
The Chinese carmaker clinched the company at a price tag well below the $6.5bn Ford paid for it in 1999. Ford’s finance director, Lewis Booth, said: “We think it’s a fair price for a good business.”