Geely to acquire Volvo from Ford

FORD has formally confirmed its intention to sell Volvo to Geely by the second quarter of next year.

Announced on December 23, the move is subject to finance and governmental approvals, with the Zhejiang Geely Holding Group now expected to seek permission from the Chinese government to go ahead with the deal.

The Ford Motor Company announced its intention to sell Ford last December, before naming Geely as its preferred bidder in October.

It paid $US6 billion ($A6.77b) for Volvo in 1999, while unconfirmed reports from Sweden have stated Geely could now pay just $US2 billion ($A2.26b).

Ford said it had agreed “all substantive commercial terms” of Volvo’s sale to Geely, which is expected to be signed within months and officially closed before mid-2010.

“Ford Motor Company confirmed today that all substantive commercial terms relating to the potential sale of Volvo Car Corporation have been settled between Ford and Zhejiang Geely Holding Group Company Limited,” said FoMoCo in a statement two days before Christmas.

“While some work still remains to be completed before signing – including final documentation, financing and government approvals – Ford and Geely anticipate that a definitive sale agreement will be signed in the first quarter of 2010, with closing of the sale likely to occur in the second quarter 2010, subject to appropriate regulatory approvals.

“The prospective sale would ensure Volvo has the resources, including the capital investment, necessary to further strengthen the business and build its global franchise, while enabling Ford to continue to focus on and implement its core One Ford strategy.” Ford said it will continue to co-operate with Volvo “in several areas” after the sale, but does not intend to retain a shareholding in the company.

Geely last month said it had agreed with Ford to own the intellectual property rights on key Volvo safety and the environmental technologies.

Last week, it moved to assure Volvo workers that it will not radically alter the company, following “constructive meetings with Volvo management, labour representatives and government officials in Sweden and Belgium – where its key manufacturing plants are based”.

“Geely is committed to work with all stakeholders to complete the transaction in the best interest of all parties,” said ZGH chairman Li Shufu in a statement on December 23, when the company said it “expects to sign a definitive stock purchase agreement with Ford in the first quarter of 2010”.

Left and below: Volvo's Torslanda plant was opened in 1964 and produces the S80, V70, XC70 and XC90. “Should a stock purchase agreement be finalised, Volvo will retain its leadership in safety and environmental technologies, and will be uniquely positioned as a world-leading premium brand to exploit opportunities in the fast-growing China market,” said Geely.

Ford and Volvo’s most significant component sharing arrangement is the compact vehicle platform that underpins a number of small cars from Ford, Volvo and Mazda.

Designed by 30 engineers from each company under the direction of Derrick Kuzak, who is now Ford’s global product chief, the front/all-wheel drive chassis architecture first appeared underneath Ford’s then-new C-Max in 2004, in which it is known as C1.

C1 also underpins the current Focus, Kuga and Mazda3, while Volvo’s version, named P1, underpins the C30 hatch, S40 sedan, V50 wagon and C70 coupe/convertible.

Ford’s mid-size EUCD platform is also derived from C1 and while the Blue Oval’s latest global C-car platform will emerge under the redesigned Focus in 2011, future Volvo models are expected to employ the existing P1 and EUCD underpinnings.

Founded and based in Hangzhou in 1986, Geely is one of China’s fastest growing vehicle brands and the nation’s largest privately owned automotive group. The former refrigerator parts supplier entered the automotive industry in 1997.

As we revealed in August, one of Perth’s biggest multi-franchise car dealers and former director of original Hyundai importer Bond Motor Sales, John Hughes, plans to introduce the Geely brand in February, initially only in West Australia.

While Ateco Automotive introduced Australia’s first Chinese vehicle brand (Great Wall Motors) this year, Geely could be the country’s first Chinese passenger car brand available here, following delays in car launches from Chery and Lifan.

The first shipments of a 1.5-litre small car are expected in January and Geely could be joined by other Chinese brands in Mr Hughes’ Chinese Automotive Distributors stable.

While Scandinavia’s largest car-maker was founded in Gothenburg in 1927 and has 22,000 employees worldwide, North America’s number two auto-maker was the one of the US Big Three not to file for Chapter 11 bankruptcy and accept government loans this year.

The deal will give Volvo access to China, which is now the world’s largest single automotive market, and at the same time marks the first major inroad by a Chinese company into Europe.

While Sweden’s Spyker group has also launched an 11th-hour bid for GM’s Saab brand - Sweden’s number two car-maker - Geely’s takeover of Volvo is the latest move in a Chinese expansion drive amid the global automotive industry downturn.

Heavy machinery maker Tengzhong agreed in October to buy Hummer from GM, but the state-owned Beijing Automotive Industry Holding (BAIC) failed in its bids for GM units Saab and Opel. Earlier this month it struck a deal to buy the intellectual property rights for some Saab assets.

However, news of a Chinese owner for Volvo has been received cautiously in Sweden, where it employs 16,000 staff.

“It is still unclear what Geely wants out of this agreement and that makes me worried,” the head of a Volvo trade union in Gothenburg told the TT newswire.

“Even though our sales are rising, Volvo Cars still operates at a loss,” said Unionen chief, Soeren Carlsson. “How Geely wants to solve that, we don't know.” Volvo's biggest plant is at Ghent in Belgium, followed by Torslanda in Gothenburg and its C70 factory at Uddevalla, 60 per cent of which is owned by Pininfarina.

Volvo also owns assembly plants in Thailand and Malaysia, while Changan Ford Mazda Automobile Coproration in Chongqing, China, produces the Volvo S40 and S80L.