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Geely Buys Volvo from Ford for $1.8 Billion
Zhejang Geely Holding Group has announced that it has purchased Volvo from Ford. Otherwise known as Geely, this Chinese car company - the largest player in that developing market - paid a total of $1.8 billion dollars for the Swedish premium division. The final handshake on this deal, which is the largest acquisition ever by a Chinese automaker, takes place after a solid two years of negotiations and planning between the two forces in the automotive industry. Full ownership will be transferred, along with all intellectual property, by the third quarter of 2010.
The sale of Volvo also marks the end of a chapter in Ford history that was both a confused and expensive learning experience for the Dearborn-based company. Volvo was the last remaining member of the former Premier group, which also consisted of the luxury brands Jaguar, Land Rover and Aston Martin. Purchased and consolidated in one fell swoop in the 1990s, Ford was never able to leverage the prestige and reputation associated with each of these brands and instead was forced to sell them piecemeal, and largely at a loss, over the course of the next decade. Ford paid $6.4 billion for Volvo when it was purchased in 1999.
Geely is facing a definite challenge when it comes to continuing the production of Volvo vehicles. Part of Ford's decision to sell the brand came from the realization that in order to remain competitive globally, billions of dollars in investment in Volvo were required. This responsibility now falls into Geely's hands. Geely's founder, Li Shufu, has stated that the company plans to take Volvo to the next level in terms of both product and distribution. The key to improving Volvo's bottom line, according to Geely, is to expand aggressively past the European and North American markets which have traditionally formed the vast bulk of Volvo sales.
In particular, Li Shufu says that Volvo will push deep into the heart of the Chinese auto market, which is in fact the largest in the world with 13.6 million vehicles sold in 2009. The concept advanced by Geely is to create a 'second home market' for Volvo in China, and part of this will be to use Chinese factories to produce at least 300,000 units a year. This would be in addition to the close to 300,000 vehicles already produced in Gothenburg, Sweden and Belgium. Li Shufu has given no indication that Geely intends to shutter Volvo plants outside of China, and has called them critical to preserving the heart of the Volvo effort. Ultimately, Geely hopes to sell 2 million vehicles a year in total under its brand umbrella by 2015, which would be a huge step up from current sales of 330,000.
Geely is hoping that the acquisition of Volvo will also help the company not only expand in its own backyard, but also tap into the dollars spent by North American new car shoppers - a target that has remained elusive for Chinese car companies. Geely is well positioned to maximize the opportunity provided by Volvo's position in the United States, as Geely Automotive is one of the fastest growing and most structurally sound of all Chinese automakers.
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