Two years after India’s Tata Motors bought Ford’s Land Rover and Jaguar for US$2.3 billion, on Sunday, China’s Zhejiang Geely Holding Co. agreed to buy Volvo Cars from Ford for US$1.8 billion. The deal not only marks the biggest overseas acquisition by a Chinese automaker, it also marks the end of a firesale of Ford’s Blue Oval brands.
Buoyed by Asia’s economic giants, and demonstrating a significant shift East, Ford ended three years of losses with a net income of US$2.7 billion in 2009 and is the only major U.S. automaker to avoid bankruptcy.
The Geely-Volvo sale comes close on the heels of the failed deal between General Motors’s Hummer line of sport-utility vehicles and Sichuan Tengzhong Heavy Industrial Machinery Co. due to lack of Chinese government approval.
Owned by Li Shufu, the rags-to-riches self-made head of Geely, the Hangzhou based small car company plans to make China, Volvo’s largest market. Besides recognition on a global scale, the buyout will give Geely much-needed support by way of technology, research and development, service and quality.
Geely which plans to set up another manufacturing plant outside either Beijing or Shanghai said it plans to sell 200,000 Volvos a year in China, up from 22,405 last year. Ford already builds a small number of Volvos and Mazda’s for the domestic Chinese market in Chongqing, central China. Volvo plans to produce 390,000 cars worldwide this year, compared with 330,000 in 2009 according to CEO Stephen Odell.
Volvo sold 334,808 cars worldwide last year, a decline of 11 percent from 2008 and 27 percent from a peak of about 460,000 in 2007, according to the company. Its sales in the U.S. have risen for nine consecutive months and increased 40 percent this year through February.
According to the agreement, Volvo’s headquarters will remain in Gothenburg, Sweden and Ford will continue to invest in helping Geely to improve customer experience and human resource management, just as they did for Jaguar and Land Rover.
Ford is also hoping the sale, and massive China potential will add substantially to Volvo’s profits. Tata Motors reported Jaguar and Land Rover’s first quarterly profit in the quarter ended in December after paying off the remaining debt from the Jaguar and Land Rover acquisition in October by raising US$750 million. Tata plans to have seven Jaguar and Land Rover dealerships in India this fiscal year, including ones currently operating in Mumbai and New Delhi.
Furthermore, coming from a country where minimal domestic brands have made it big internationally, brand analysts do wonder, how Geely will manage and maintain the quality of the Volvo brand? King of the small car market, a booming industry in traffic snarled Asia, Geely will now also have raise its standards and play the game like an international auto giant. Selling cars and maintaining profitability, might be Geely’s simplest challenge yet.
