Done Deal: China's Geely Buys Volvo from Ford
By Michelle Krebs March 29, 2010Late Sunday, China's Zhejiang Geely Holding Group Company Limited completed an 
agreement with Ford Motor Co. to buy Ford's Volvo Car Corp. unit and its related assets.
The deal, under negotiation for more than a year, was said to be on the verge of collapse in recent weeks. But Ford confirmed the agreement on Sunday, saying the deal for Geely to buy Volvo will close sometime in the third quarter.
Geely paid $1.8 billion for the storied Swedish automaker that made safety innovations a brand watchword. Ford said $200 million will be paid in the form of a note and the remainder in cash.
Ford said it will continue to supply the Geely-owned Volvo with powertrains, stampings and other components "for differing periods" of time. Ford also will supply engineering support and other services for a transition period.
Stephen Odell, CEO of Volvo Cars, said in a statement, "The Volvo management team fully endorses Ford's sale of Volvo Cars 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."
Geely Connected
Questions linger about whether Volvo - on which Ford lost billions since its purchase of Volvo in 1999 for nearly $6.5 billion - will fare any better under Geely's banner. Geely is the first Chinese automaker to purchase a foreign automaker's operations and many wonder if the Chinese maker will be an able and understanding steward of Volvo, a company with a rich history but faltered in recent years under Ford ownership.
Geely chairman Li Shufu reputedly does not envision wholesale changes at Volvo after the Geely takeover and plans to continue with Volvo's current management. The Geely chairman does have seemingly bold sales targets that would see Volvo selling up to one million vehicles globally in the next five years, according to a report in the Wall Street Journal.
Although Geely ownership seems certain to boost Volvo's posture and sales volumes in China proper, the goal nonetheless is grand, given Volvo sales currently are in the 400,000-unit range. In the U.S., sales last year sputtered in a battered economy to a mere 61,435 units.
And Volvo barely scratched past 20,000 sales in China last year. Geely reportedly wants to increase that figure by no less than a factor of 10.
But Geely has at least one powerful card in its hand: reported strong ties with China's government - a connection that could be leveraged to have Volvo specified for government fleet contracts.
It is believed Sichuan Tengzhong Heavy Industrial Machinery's bid to purchase General Motors Co.'s Hummer sport-utility vehicle division went awry at least partly because the Chinese government did not look favorably on the deal. Although GM says it is pursuing other alternative offers, GM likely will be forced to close down the Hummer brand.
Ford Lifts The Anchor
"Volvo is a great brand with an excellent product lineup. This agreement provides a solid foundation for Volvo to continue to build its business under Geely's ownership," said Alan Mulally, Ford's president and CEO.
For Ford, resuscitating Volvo now will be Geely's problem as the company and industry watchers reminisce on an unhappy and unwise coalition formed in the merger- and acquisition-happy late 1990s when U.S. automakers determined it might be easier to simply purchase luxury cache rather than try to bolster and reposition their own flagging premium brands.
Ford's acquisition of Volvo came barely a year before GM purchased Sweden's Saab Automobile AB, although GM had owned 50 percent of Saab for more than a decade prior. For both Saab and Volvo, ownership by a full-line, volume-oriented automaker was not the recipe for prosperity for the quirky and individualistic Swedish brands.
Based solely on purchase and sale prices, Ford is losing more than $4.5 billion on buying and selling Volvo. But more so than GM did with Saab, Ford was able to leverage Volvo engineering and safety expertise. Several current (and some future) Ford and Lincoln vehicles are based on a Volvo-developed large-car platform typically referred to as D3 or D4. The Ford Taurus, Ford Flex and Ford Edge are derived from the D3/D4 architecture, as are the Lincoln MKS, Lincoln MKX and Lincoln MKT. The all-new 2011 Ford Expedition also is said to be based on the structure.
Letting go of Volvo will see Ford eventually forced to evolve away from Volvo's considerable contribution to Ford's large-car engineering, but cutting loose was necessary as Ford tries to rebound after years of decline, said CEO Alan Mulally.
"The sale of Volvo will allow us to further sharpen our focus on building the Ford brand around the world and continue to deliver on our One Ford plan serving our customers with the very best cars and trucks in the world," said Mulally in a statement. - Bill Visnic, Senior Editor
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I always thought this was misguided. Volvo and Ford have a good engineering collaboration that benefits Ford in the US and Europe. Ford has only one brand in Europe, Ford itself so having a more upmarket Volvo was always a good idea. In the US not necessary since there is Mercury and Lincoln (although Lincoln targets a different demograohic to Volvo).
Most of the cdevelopment cost of a car is the chassis and engine. These are shared so Volvo wasn`t that expensive to keep. I respect Mullaly but focussing only on Ford seems to be too narrow a focus.
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