Geely China $1.8 Billion Volvo Deal

Geely Holding Group, a major Chinese automaker signed a deal Sunday to purchase Volvo, a FORD Motor Company unit for $1.8 billion. The price and terms of the deal includes a $200 million note with the remainder to be paid out in cash. Geely China gains instant market share in the European luxury car brand sector building on the Volvo reputation for safety and quality.   

The deal is much less than the $6.45 billion Ford paid for the Swedish automaker, Volvo in 1999. FORD reports it has looked to sell Volvo since late 2008 in order to better focus on its core brand names Ford, Lincoln and Mercury. 

"We think it's a fair price for a good business, and yes, we're happy with the deal we've achieved with Geely," said Ford Chief Financial Officer Lewis Booth on Sunday at a news conference at Volvo Cars headquarters in Goteborg, on Sweden's west coast. Booth added that his company believes that, under Geely, "Volvo can continue to build its business and return to profitability." 

China's biggest auto makers are GM China and Germany's Volkswagen AG but ambitious Chinese automakers including Geely Automobile Co. , Chery Automobile International , FAW Group , Dongfeng Group  and BYD Auto Co.  are rapidly gaining market share. 

Officially the agreement was signed by FORD’s, CFO Lewis Booth and Geely's chairman, Li Shufu, and witnessed by Li Yizhong, the Chinese minister of industry and information technology, as well as Swedish Minister for Enterprise and Energy Maud Olofsson. 

Geely China, states it has already secured all the financing to complete the deal including significant working capital facilities to fund Volvo’s ongoing business. The sale is expected to be completed in the third quarter 2010, subject to regulatory approvals. CEO Stephen Odell released a statement Sunday that Volvo managers fully endorse the sale to Geely."We believe this is the right outcome for the business, and will provide Volvo Cars with the necessary resources, including the capital investment, to strengthen the business and to continue to move it forward in the future," he said. 

China now the largest car market in the world is preparing to absorb Volvo technology and innovative practices. Volvo will be uniquely positioned as a world-leading premium brand, tapping into the opportunities in the fast-growing and leading manufacturing Chinese market. See article: China Automobile Sales Rise 72% 

Analyst Zhang Xin, with Guotai Junan Securities in Beijing, said Geely's pledge to keep Volvo's factory and business teams in Sweden after the takeover limits its leeway to cut costs. 

Volvo, whose first car left its Swedish factory in 1927, employs nearly 20,000 workers, most of them based in Sweden. The group, initially a subsidiary of ballbearing maker SKF, was listed on the stock exchange in 1935. In 2009, it sold 334,808 cars. It currently has 10 models on the global market, with its crossover XC60 being the best-seller. The United States, Sweden and Britain account for its three biggest markets.  

Volvo dealers in the U.S. said Sunday that Geely's assurance that the cars will still be made in Sweden has allayed customers' concerns about quality control. Chinese automakers seeking to expand into U.S. markets have faced quality questions from consumers concerned about defects and problems with a number of Chinese exports ranging from drugs and foods to furniture and appliances. 

About Author: Mr. Rickman is a respected analyst, innovative expert in business development and sustainable media services with over 30-years experience, published worldwide. http://www.sustainablevirtualbiz.com