China May 7, 2009, 10:28AM EST

China's Geely Eyes GM's Saab, Ford's Volvo

Geely, the second biggest Chinese automaker, is reported to be in talks with the hurting Detroit giants about taking over their Swedish units

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First it was India's Tata Motors (TTM) that bought Jaguar and Land Rover from Ford (F) last year. Now it might be the turn of a Chinese automaker to take over some of Detroit's unwanted brands. China's Geely Automotive has put its name into the hat as a suitor for General Motors' (GM) Swedish unit, Saab, The Wall Street Journal reported on May 7, citing unidentified sources. The news comes a few weeks after Geely, the No. 2 domestic automaker, reportedly made a bid for Ford's Sweden-based operation, Volvo.

Is Geely, which trades in Hong Kong and is controlled by Zhejiang Geely Holding, based in the eastern Chinese city of Hangzhou, interested in picking up the Swedish pieces of GM and Ford? Lawrence Ang, an executive director of the Hong Kong-listed subsidiary, says there is no truth to either report. "We are not bidding for Volvo," he says, "and not for Saab." However, Ang does allow that talks might be taking place between Geely's parent company and the Detroit pair. "I can only speak on behalf of the listed company," he says. "So maybe it's the holding company, but not us." Wang Ziliang, spokesman for Zhejiang Geely, did not answer calls to his office.

Despite Ang's denial, some analysts suspect the Chinese company is indeed interested in making some deals. Michael Dunne, managing director of J.D. Power (China) (MHP), notes that Geely is constantly in talks "with several parties not only at the automaker level but at the private equity level, and in talks with lots of people in technology." While Zhejiang Geely is a privately held company without government ownership, Dunne says any foreign acquisition would still need the green light from Beijing. The company may therefore have received instructions to deny the existence of negotiations until the government is fully on board with the transaction, he says.

A deal with either Saab or Volvo would certainly help Geely get a leg up on its domestic rivals. The Swedish carmakers could provide superior technology and marketing know-how, and could also provide Geely with an eventual platform from which to sell into Western Europe. "Geely is looking at how to move upscale in terms of technology, quality, and image, and this may be a one-time opportunity to buy assets at a low price," says Dunne. Last year the group's domestic sales only grew 4% to 166,265 units. Total auto sales for 2008 were $1.2 billion, up 16%.

Heading Down a Bumpy Road?

China's experience purchasing foreign brands to jump-start its forays into overseas markets has met with little success. In 2003 Huizhou-based electronics group TCL acquired the TV operation of France's Thomson and the following year took over the cell-phone business of Alcatel. Neither partnership delivered on its promise for the Chinese company. In 2005, Lenovo bought IBM's (IBM) PC business in a much trumpeted deal that would establish it as China's first truly global brand.