China’s ambitions for global growth were underlined yesterday when Ford agreed to sell Volvo Cars to Zhejiang Geely Holding, the country’s largest private carmaker.
The £1.2 billion deal, signed in Gothenburg, marks the biggest acquisition yet of an overseas carmaker by a Chinese company. It comes only weeks after China officially overtook the United States as the world’s leading car market. This month Geely also took a controlling 51 per cent stake in Manganese Bronze, the maker of black London taxis.
The purchase of Volvo Cars, for a sum slightly less than than the £1.25 billion believed to have been under discussion in December, will help to protect about 19,000 jobs worldwide at Volvo.
The transaction also positions Geely, until now little known outside its home country, among the foremost players in the industry.
Geely, whose car division was founded in 1997, paid £1.07 billion ($1.6 billion) in cash plus a £134 million note for the marque, which has not made a full-year profit since 2005 and which Ford had been trying to offload since 2008. However, Ford, which paid £4.3 billion for Volvo in 1999, said yesterday that adjustments for pension deficits, debt, cash and working capital that it was obliged to cover would leave it facing a “significant” reduction to the cash proceeds.
Keen to preserve the Volvo brand, Li Shufu, the Geely chairman, who began eyeing up the Swedish rival in 2007 on the advice of Rothschild, the investment bank, said yesterday that Volvo would retain its Swedish identity and would be run independently from its existing headquarters.
Mr Shufu also emphasised that the plants in Belgium and Sweden would remain the company’s main manufacturing base, in response to unions’ fears about job losses.
Output will be given a boost by a new plant in China capable of building 300,000 vehicles a year. Geely expects that Volvo could sell a further 200,000 cars a year in China.
Mr Shufu said: “I see Volvo as a tiger. The tiger belongs to a forest; it can’t be found in a zoo. We need to liberate this tiger. The tiger has a heart and it lies in Sweden [and] in Belgium — but its power should be projected all over the world.
“I see China as one of the markets where Volvo can show it has the opportunity to liberate itself.”
Ford, which also manufactures the Lincoln and Mercury brands, said that the deal would enable it to sharpen its focus on building the Ford brand around the world.
The company, which has also disposed of Jaguar, Land Rover and Aston Martin since 2007, will continue to supply Volvo with components and other services during a handover period.
Stephen Odell, the chief executive of Volvo, said: “The Volvo management team fully endorses Ford’s sale of Volvo Cars to Geely. We believe this is the right outcome for the business and will provide Volvo Cars with the necessary resources, including the capital investment, to strengthen the business and to continue to move it forward in the future.”
The deal is the latest in a string of attempts by Chinese car manufacturers to expand globally. Beijing Automotive Industry agreed in December to acquire parts of General Motors’ Saab division. Meanwhile, last month Sichuan Tengzhong Heavy Industrial Machinery backed out of a planned purchase of General Motors’ Hummer brand after the deal failed to gain government approval in China.
Rebecca Lindland, an IHS Global Insight analyst, said: “This could set the benchmark for more Chinese deals to come. It potentially could allow Geely to come into the West with its own brand of vehicles.”
The Chinese car industry is the biggest in the world by sales volumes, after receiving a huge boost from 50 per cent growth in domestic vehicle sales last year.
Geely, which operates six car assembly and power-train manufacturing plants in China, as well as a number in Ukraine, Russia and Indonesia, has a workforce of about 11,000, making models such as its Geely FC, MK and LC models. Its sales target for this year is 400,000 units, which would represent a 23 per cent increase on last year.
Volvo sold 324,000 cars in 2009, down 10 per cent on 2008 figures. However, Volvo sales in the United States were up by 40 per cent in the first two months of this year.
The takeover, subject to regulatory approval, is expected to be completed in the third quarter of 2010 and is subject to regulatory approval.
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