Chinese Carmaker Geely Wants Volvo

Posted by: David Kiley on September 09, 2009

volvo_logo2006_lg.jpg

Chinese automaker Geely has made its intentions clear that it wants to buy Swedish automaker Volvo from Ford Motor Co.

Ford has been formally exploring a sale of the unit since last year, through CEO Alan Mulally had decided very early in his tenure, which began in 2006, that he wanted to sell all the brands in what was Ford’s Premier Auto Group. They included Volvo, Land Rover, Jaguar and Aston Martin. The other brands have all been sold.

Volvo has been losing money for Ford for the past few years as sales have plummeted in the U.S. and abroad. Costs remain high. And the company has no manufacturing footprint in North America, leaving it vulnerable to currency swings. Also, the current product line is aging and has been short of investment in new products.

Geely is a small, independent automaker in China. Its privately held parent, Geely Holding Group Co., would make a bid for Volvo with a government-backed investor, CEO Gui Shengyue told Reuters. “I believe if Volvo is for sale and Ford has a global announcement, then our parent company will participate,” Gui said.

Gui added that Geely’s parent is waiting for Ford to decide whether to sell the Swedish car maker. Rather than merely taking a stake in Volvo, Geely’s parent would seek full ownership, Gui said, adding that Ford will make a decision on whether to sell Volvo within a month.

That Ford intends to sell Volvo is hardly in question. At an industry conference last month, Ford chief financial officer Lewis Booth told BusinessWeek that the company’s plan had not changed and that “Ford is in negotiation with a buyer.” A Ford spokesman said, however, that the automaker has not narrowed the field to one buyer yet.

Geely, which once sold the cheapest cars in China, has been upgrading its models to tap the country’s increasingly affluent drivers. And the company has exhibited cars at the North American International Auto Show in Detroit.

The Chinese automakers have been rumbling about entering the U.S. market for years. And major Chinese automakers, including Beijing Automotive Industry Holding Corp., have attempted several overseas acquisitions in recent years with mixed results.

“Chinese automakers are not short of capacity or equipment, so an acquisition is meaningless for us if we cannot fully acquire intellectual property rights,” Xu Heyi, chairman of Beijing Auto, said in an interview with Reuters.

“Currently, Chinese companies are not welcome in global acquisitions partly due to political reasons, as some people discriminate against us because China is a socialist country led by the Communist Party,” he said.

There is another side of the story, though. Some Westerners who have tried to negotiate deals with Chinese automakers point to executives who are difficult to deal with from the standpoint of culture and language, as well as the absence of Western-style contract law in China. “Talks I have had with Chinese businesses in the past often break down because their idea of a contract, or even a commitment, and ours are two very different things,” says Los Angeles-based marketing consultant Dennis Keene.

Chery Automobile, Hunan Changfeng Motors Co. and several other Chinese automakers have held initial talks with European and U.S. auto brands, but refrained from making any commitments, industry executives have said.

China’s largest automaker, SAIC Motor group, may take a passive stake in Saab Automobile by teaming up with Koenigsegg Group AB, a source with knowledge of the situation told Reuters on Tuesday. Chinese battery maker BYD seems far along with a plan to bring vehicles under its own brand into the U.S., and the company has received some investment from Berkshire Hathaway chairman Warren Buffett.

Sichuan Tengzhong Heavy Industrial Machinery, a little-known heavy machinery maker, is the only Chinese firm to have announced a significant overseas auto buy, agreeing to acquire GM’s premier off-road brand, Hummer. That deal is still pending.

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