Ford completes sale of Volvo to China's Geely

Paul McVeigh
Automotive News -- August 2, 2010

Ford Motor Co. said today it has completed the sale of Volvo Cars to China's Zhejiang Geely Holding Group for $1.8 billion. Geely named Stefan Jacoby, CEO of Volkswagen Group of America, to be the new CEO of Volvo Cars.

Divesting Volvo completes Ford CEO Alan Mulally's strategy of exiting European luxury brands to focus on the core Ford brand, following the U.S. carmaker's 2007 sale of Aston Martin, and of Jaguar and Land Rover to India's Tata Motors Ltd. in 2008.

Ford paid $6.5 billion for Volvo in 1999.

“Volvo is an excellent brand with a strong product line, and it has returned to profits after a successful restructuring. We are confident Volvo has a solid future under Geely's ownership,” Mulally said in a statement.

He added: “At the same time, the sale of Volvo will allow us to sharpen our focus on the Ford brand around the world and continue to deliver on our One Ford plan serving our customers with the very best cars and trucks in the world.”

Ford said agreements between Ford and Geely will allow both Volvo and Ford to establish "the proper use of each other's intellectual property."

The company said it will continue to cooperate with Volvo in several areas to ensure a smooth transition, but has not retained any ownership in the Volvo business. Ford will continue to supply Volvo with powertrains, stampings and other vehicle components.

The automaker will also provide engineering support, information technology, access to tooling for common components, and other selected services for a transition period.

Volvo challenges

Jacoby succeeds Stephen Odell, who is returning to Ford as chairman and CEO of Ford of Europe. Stuart Rowley, Volvo's finance head, is also returning to Ford as chief financial officer of Ford's European unit.

“Volvo is a proud company with a talented and dedicated team of employees,” Odell said in a statement. “I am especially pleased that with Ford's continued investment in recent years, Volvo is well positioned for the future with an exciting range of products that remain true to its core values – safety, quality, environmental responsibility and modern Scandinavian design.”

Jacoby said: "I am honored to join a company with the prestige and growth potential of Volvo. Our employees, suppliers, dealers - and above all our customers - can be confident that Volvo will preserve its special status as the industry leader in vehicle safety and innovation - even as it pursues new market opportunities."

Booming auto sales in China made the nation the largest auto market last year, generating profit that's allowing its manufacturers to reach out to Western markets and technologies.

Geely's plan for Volvo includes using the Swedish nameplate to produce luxury brands in China, while maintaining its operations in Europe to supply the international market.

Geely, which only started making cars in 1986, faces a challenge to restore Volvo to long-term profits. Volvo Cars posted revenue of $12.4 billion in 2009 by selling 334,000 cars, but it recorded a pre-tax loss of $653 million.

The last time Volvo made an annual profit was in 2005, when it posted a pretax profit of $377 million. It has been profitable the first two quarters of this year, posting a pretax profit of $53 million in the second quarter, compared with a $237 million loss in the same period a year earlier.

“Geely is not necessarily stepping into a clear-sailing situation; the challenges aren't over for Volvo,” said Rebecca Lindland, an auto analyst for IHS Automotive based in Lexington, Massachusetts. “The Chinese business culture is very different than the Swedish business culture. A lot of this will depend on how they interact.”

But, despite China's dismal record at overseas mergers and acquisitions, Geely may be better equipped for success due to its experience working with foreign partners, including its acquisition of Australian gearbox maker Drivetrain Systems International and its tie-up with British cab maker Manganese Bronze, IHS Automotive analyst John Zeng said.

"Geely is not a beginner in global M&A like many people think," he said. "In China, Geely has established itself as a mass market carmaker, the acquisition of Volvo provides an opportunity to bring it to the next level."

Geely Chairman Li Shufu, who got his start in refrigerator parts and motorcycles and has since been dubbed China's Henry Ford, has already been named chairman of Volvo.

Chinese cities vie for Volvo plant

Geely's plans would see its new Volvo China plant nearly double its annual global production, with an aim to sell 150,000 Volvo cars in China annually by 2015.

Volvo builds its S40 and S80L models for the Chinese market at a factory co-owned by Ford and Chongqing Changan Automobile Co. Volvo will be able to use this plant even after Geely's takeover, but a number of Chinese cities, including Beijing, Shanghai and Chengdu, are courting Geely for a new Volvo manufacturing site. No decision has been made so far.

Geely has said it is prepared to pump up to $900 million in capital into Volvo on top of the $1.8 billion it is paying Ford for the carmaker.

Volvo sold 191,832 cars in the first half, a 20 percent increase from a year earlier. In China, Volvo's fourth-biggest market, deliveries surged 88 percent to 15,497 cars in the period, helped by last year's introduction of the S80L, a longer version of the S80 that's sold only in that market.

Bloomberg and Reuters contributed to this report