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Geely, Ford sign Volvo deal

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Geely, Ford sign Volvo deal

Post by petershen1984 »

I hope Volvo will regain its market dominance under the new administration. Anyone else just die a little inside just now?

China's Zhejiang Geely Holding Group Co. bought Volvo cars from Ford Motor Co. on Sunday for $1.8 billion, a landmark agreement designed to elevate the Chinese company's profile onto the global automotive stage.

Geely's acquisition of Volvo offers the latest illustration of how China's economic rise is reshaping large swaths of global business, as its huge market and increasingly powerful companies play a growing role in industries from cars to natural resources to telecommunications equipment. The Volvo deal, which comes after China surpassed the U.S. last year as the biggest auto market, puts a Chinese company for the first time in charge of a major global car brand.

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Bloomberg News
The deal makes Volvo one of the most prominent foreign brands to be purchased by China.

"I think Volvo is a Tiger," said Li Shufu, chairman of Geely, who confirmed that Geely will build a Volvo plant in China. "To liberate the tiger we need to think on how to uncover the value in Volvo."

The sale also marks the latest milestone for Ford Chief Executive Alan Mulally, who has pushed the Dearborn, Mich., auto maker to shed noncore brands in an effort to return Ford to sustainable profitability.

Under the deal, Ford will get $1.6 billion in cash and a $200 million note from Geely. Ford, however, will still be obligated to cover some preexisting pension plans and other debt, according to Ford Chief Financial Officer Lewis Booth. The companies didn't detail the timeline for the transition period.

"We think it's a fair price for a good business," Mr. Booth said at a Sunday press conference at Volvo's headquarters in Gothenburg, Sweden.

Ford must use about half of its sale proceeds to help pay down the $23.5 billion in debt the company secured in 2006, but Mr. Booth said it was still unclear what the total proceeds of the sale would be until the transfer is complete.

The purchase agreement still needs government approvals, followed by an official transfer of the Gothenburg, Sweden-based company before the end of the third quarter—a push back from the original deadline to close the deal by the end of June.

Mr. Li's vision for Volvo is to radically slash the Swedish brand's costs for some of its primary activities, such as product-development and manufacturing, by tapping the relatively cheap labor available in China, people familiar with the situation say. On Sunday, Mr. Li said at a joint press conference he doesn't plan to merge Volvo and Geely. Volvo would remain as an independent brand, and Mr. Li would retain Volvo's current management team for the time being, he said.

One challenge for Ford: Pulling Volvo out of its operations, having deeply integrated the two since Volvo's purchase for $6.4 billion in 1999. In China, for example, Changan Ford Mazda Automobile Corp.—a joint venture among Ford, Mazda Motor Corp., and the Chongqing Changan Automobile Co.—produces the Volvo S40 and the S80 sedans.

"The intellectual property agreements are between Ford and Volvo," Mr. Booth said, adding that other uses of the technology, evidently for Geely, would be limited.

Mr. Booth said that Ford and Geely signed separate agreements covering intellectual property to aid Volvo's current business plan. But it was largely designed to address a fear that jointly developed technologies by Ford and Volvo will soon be in the hands of a Chinese company expected to become a direct Ford competitor in Europe and North America.

In 2007 Ford sold Aston Martin, and in 2008 the auto maker shed Jaguar Land Rover and a significant portion of its ownership in Mazda. Early last year, after months of speculation, Ford officially reported Volvo was for sale, and it recognized a pretax impairment charge of $650 million related to its total investment in the Swedish company.

As Ford neared the completion of the Volvo sale, the brand has been able to stem its losses, which had grown to more than a $1 billion in recent years. Volvo lost $934 million in 2009, down from $1.6 billion loss in 2008.

Volvo sales have suffered in recent years amid a downturn in the U.S. and Europe markets. Volvo sold 324,000 cars around the world in 2009, down 10% over 2008 figures. But Volvo expects the market to rebound and is scheduled to build 390,000 vehicles this year, according to Volvo Chief Executive Stephen Odell.

In the first two months of this year Volvo sales in the U.S. are up 40%.
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Post by matthew1 »

I died a little when they went to Ford :wink:. They're keeping R+D and HQ in Sweden, so I don't think this will be that bad actually.
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Post by vegasjetskier »

Maybe the Chinese will improve on the abysmal quality control Volvo had while Ford owned it. I hope so.

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Post by petershen1984 »

Volvo has solid base in China already with a production plant in China (Ford-Mazda-Volvo). They make the S40 and S80 exclusively. They're also making the S80L in China, which is like the Executive Series but following the Lexus and BMW "L" convention..
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Post by billofdurham »

If the Chinese Volvo is anything like the Chinese Jaguar it will be a winner.

Work was good - retirement is better.

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