Chinese Carmakers Target Volvo and Saab

Geely and Beijing Automotive are angling to get their hands on the Swedish luxury brands, currently owned by Ford and GM, respectively

By Ian Rowley

Confirmation that Chinese automaker Geely is interested in buying Ford's (F) Volvo unit and that Beijing Automotive Industry (BAIC) has an agreement to help finance Sweden-based high-performance sports-car maker Koeningsegg's acquisition of Saab from General Motors has once again highlighted the global ambitions of China's numerous car companies.

Rumors about Geely's interest in Volvo have been around for months, but yesterday the head of the group's Hong Kong-listed Geely Automobile subsidiary made the news official. CEO Gui Shengyue told Reuters: "I believe if Volvo is for sale and Ford has a global announcement, then our parent company will participate."

On the same day that Gui confirmed Geely's interest in Volvo, Beijing Auto teamed up with a partner in a deal for another Swedish automaker, Saab. In a statement issued Sept. 9, Koenigsegg Automotive said it had signed a memorandum of understanding with the Beijing-based company "to explore growth opportunities in the Chinese and international markets for the products of Saab Automobile and BAIC." The deal calls for BAIC to become a noncontrolling minority shareholder in Koenigsegg, which in turn would take full ownership of Saab.

Safe and Sturdy Image

Backers of the overseas expansion reckon that such deals can help the Chinese automakers get footholds in European and U.S. markets, access to advanced technologies, and, in the case of Volvo and Saab, a chance to piggyback on their reputations for sturdiness and safety.

But whether such deals make sense for China's auto industry remains to be seen. While there are successful big-ticket alliances in the global auto industry, such as Nissan and Renault's (RENA.PA) partnership, there are plenty of failures. The teaming up of Chrysler, Daimler, and Mitsubishi Motors (7211.T) is one example.

And while it's too early to write it off, India's Tata Motors (TTM) is finding that the costs of its $2.2 billion purchase of Ford's Jaguar and Land Rover brands last year can quickly outweigh the benefits. On Aug. 31, Tata announced a quarterly loss of $67 million, compared with a profit of $147 million for the same quarter in 2008, thanks largely to red ink at Jaguar and Land Rover. Tata needs to spend $1 billion-plus a year in research and development on new models and making power-hungry Jaguars and Land Rovers meet new European emission standards. Given Tata's experience with the two British brands, it's not surprising that names of other Indian automakers, such as Mahindra & Mahindra, are no longer automatically bandied about when rumors of imminent purchases appear.

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