Zhejiang Geely Holding Group
signed a binding deal Sunday to buy Ford
Motor Co.'s Volvo Cars unit for $1.8 billion, representing a coup
for the independent Chinese automaker that is aiming to expand in
Europe.
The purchase gives Geely a European luxury
car brand with a reputation for safety and quality at a time when China,
which last year surpassed the U.S. as the world's largest car market,
is eager to improve its competitiveness by acquiring foreign automotive
brands that might help it improve its technology and expand into
overseas markets.
The price, which includes a $200 million
note with the remainder to be paid out in cash, is far less than the
$6.45 billion Ford paid for the Swedish automaker in 1999. The U.S.
automaker has been trying to sell Volvo since late 2008 to focus its
resources on managing its core Ford, Lincoln and Mercury brands.
"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."
The agreement was
signed by 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.
In a statement, Geely said it has secured all the financing
necessary to complete the deal, as well as "significant working capital
facilities to fund Volvo Cars' ongoing business." The sale is expected
to be completed in the third quarter, subject to regulatory approvals.
The deal also covers further agreements on intellectual property
rights, supply, and research and development arrangements between Volvo
Cars, Geely and Ford. The U.S. automaker has committed to provide
engineering support, information technology, access to tooling for
common parts and certain other services for a transition period to
smooth the separation.
Li, whose comments were translated by
an interpreter, described the deal as "a milestone" for both Geely and
Volvo, adding that his group will make a Volvo CEO public "in due
course."
Geely said it aims to keep Volvo's existing
manufacturing facilities in Sweden and Belgium, but that it also will
explore manufacturing opportunities in China. Volvo Cars will remain
separate from Geely's other operations, with its own Sweden-based
management team and a new board of directors, the company said.
"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," Li said.
As Western automakers unload unprofitable
assets, they are finding keen buyers in Asia.
In 2008, Ford
sold its Jaguar and Land Rover brands to India's Tata Motors Ltd. for
$1.7 billion, a third of what it paid for them. In addition, General
Motors Co. attempted to sell its rugged Hummer brand to a Chinese heavy
equipment maker, but is now winding that brand down as the deal
collapsed. China's Beijing Automotive Industry Holdings has also agreed
to buy some powertrain technology from GM's Swedish Saab unit.
Geely, an independent automaker that has struggled to upgrade its
image in overseas markets, has long coveted a bigger foothold in Europe
and has earlier been rumored to be bidding for Opel and Saab. The
long-awaited Volvo acquisition is therefore important for the company,
which has gradually built its business with little government support.
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.
"Reality
is always much crueler than what people would wish. Geely wants to build
itself as a new 'international Geely,' so they sought a strong foreign
brand like Volvo," Zhang said. "Geely should foresee many difficulties.
How will it manage to run Volvo well? How will it deal with the factory
and employees? How much more will Geely have to spend to operate Volvo?"
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.
In a statement Sunday, Volvo Cars CEO
Stephen Odell said 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.
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.
"They do show concern, but we are assuring them
the quality of the car is still going to be there," said Chris
Gastmeyer, sales manager at Volvo of Orange County in Santa Ana, Calif.,
on Sunday.
He said customers are comforted by the fact that
the cars are still made in Sweden and that it's business as usual at
this point.
Mike Kessler, new car sales manager at Volvo of
Santa Monica, said he isn't seeing much worry from shoppers as it
appears the manufacturing will remain the same. But staff are eager to
see what changes are in store after the transfer in ownership.
"We are dying to see what happens because we need a jump-start," he
said.
The sales staff hasn't received any information yet
about the plans of its new owners but Kessler hopes Geely has plans to
help build new car sales and leases.
"We are basically on
hold," he said. "I'm hoping it gets exciting."
David Mikael Taclino
Inyu Web Development and Design
Creative Writer
