Ford takes a $4.2 billion hit in its sale of Volvo to a Chinese company:
Chinese Company to Buy Volvo
By KEITH BRADSHER
New York Times
March 28, 2010
HONG KONG — Ford Motor Co. reached an agreement on Sunday to sell its Volvo subsidiary to a Chinese conglomerate, in the clearest confirmation yet of China’s global ambitions in the auto industry.
Zhejiang Geely Holding Co., based in Hangzhou, agreed to pay $1.8 billion for Volvo, with $1.6 billion in cash and the rest in a note payable to Ford.
The sale of one of Europe’s most storied brands shows how China has emerged not just as the world’s largest auto market in the past year, but also as a country determined to capture market share around the globe as well.
Zhejiang Geely said it planned to retain production of Volvo cars in Sweden, but build another assembly plant for them in China, most likely near Beijing or Shanghai. Ford already builds small numbers of Volvos for the Chinese market at an assembly plant in Chongqing. Most of that factory’s output is Fords and Mazdas for sale in China.
Zhejiang Geely’s majority-owned automotive subsidiary, Geely Automobile Holdings, is China’s 12th-largest automaker based on production so far this year. But it is China’s second-largest automaker, after BYD Group, that is not at least partly state-owned.
Michael Dunne, an independent auto analyst based in Bangkok, said that acquiring a well-known brand name is the fastest way for a company like Geely Auto to try to move up from making affordable cars for the masses to manufacturing respected cars for the affluent.
“This is all about Geely’s efforts to bust out of the basement,” Mr. Dunne said. “Volvo happens to be available.”
Many automakers in China are loaded with ambition, but Geely Auto stands out even by Chinese standards. While making most of its money on inexpensive compacts and subcompacts, it has turned heads at auto shows with ambitious concept cars that look like Western sports cars and even Rolls Royces.
Zhejiang Geely has said repeatedly that it planned to keep Volvo as a separate unit from Geely Auto. The company has promised to retain Volvo’s existing management, but said it has already hired several executives with international automotive experience to help it oversee the new subsidiary. Zhejiang Geely is dominated by its founder, Li Shufu, the son of farmers from Taizhou, in southeastern China, who turned a small business manufacturing motorcycle parts there into one of China’s fastest-growing companies.
Yale Zhang, the director of greater China vehicle forecasts for CSM Worldwide, an international consulting firm, said that the acquisition would benefit Geely Auto’s image at home, because many Chinese are likely to take pride in the acquisition of such a famous brand by a Chinese company. But Zhejiang Geely may also face a difficult time in becoming a multinational concern, since it has focused mostly on its domestic market up to now.
“It will help Geely’s brand, that’s for sure,” Mr. Zhang said. “The challenges and the risks are equal to the opportunity.”
China overtook the United States in 2009 as the world’s largest auto market in terms of the number of family vehicles sold — although the value of the U.S. market remains greater, because the typical American car sells for than the typical Chinese car.
Zhejiang Geely owns 51 percent of Geely Automobile Holdings, which is publicly traded in Hong Kong. Zhejiang Geely also still owns the original motorcycle parts manufacturing operation, along with several technical institutes and a hotel complex in southern China.
In a letter to the Hong Kong stock exchange last summer, Geely Automobile publicly assured its minority investors that it would not try to buy Volvo. Such a deal would have greatly increased its debt at a time when the automaker was already investing heavily to expand in the Chinese market.
Instead of making a bid for Volvo through Geely Automobile, the privately held parent company made the deal. With its pledge to keep Geely Automobile and Volvo as separate automotive subsidiaries, Zhejiang Geely may address possible concerns in Sweden about the sale of a national icon to a Chinese company.
Geely Automobile has already carried out one international deal. It purchased 23 percent of Manganese Bronze of Britain two years ago, and set up a joint venture with it to make the famous boxy London taxis in Shanghai for markets around the world. Manganese Bronze announced earlier this month that Geely was set to take a majority stake in the company.
Ford lost money on its purchase of Volvo, having paid $6 billion in 1999 to acquire it. Ford has shifted its strategy to focus on its core brands, and has already sold off other luxury brands including Jaguar and Land Rover.
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