Geely will buy Volvo from Ford for $1.8 billion

By Keith Bradsher
New York Times / March 29, 2010

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HONG KONG — Ford Motor Co. reached an agreement yesterday to sell its Volvo subsidiary to a Chinese conglomerate, in the clearest confirmation yet of China’s global ambitions in the auto industry.

Zhejiang Geely Holding Group, based in Hangzhou, agreed to pay $1.8 billion for Volvo, with $1.6 billion in cash and the rest in a note payable to Ford.

Ford paid $6 billion in 1999 to acquire Volvo, leaving the company with a substantial loss on its investment. Ford has shifted its strategy to focus on its core brands and has already sold off other luxury brands, including Jaguar and Land Rover to Tata Group of India for $2.3 billion a year ago.

The purchase of one of Europe’s most storied brands shows how China has emerged not just as the largest auto market by number of vehicles sold in the past year, but also as a country determined to capture market share around the globe.

Zhejiang Geely said it planned to retain production of Volvos in Sweden, but it is expected to build another factory for them in China, most likely near Beijing or Shanghai. Ford already builds small numbers of Volvos for the Chinese market in Chongqing. Most of the vehicles built at that factory are Fords and Mazdas for sale in China.

China overtook the United States in 2009 as the world’s largest auto market, in terms of the number of family vehicles sold. But the average car in China sold for $17,000 last year, while the average price tag in the United States was close to $30,000, according to the consulting firm J.D. Power & Associates. So the US car market is still bigger, by value, than China’s.

Zhejiang Geely’s majority-owned automotive subsidiary, Geely Automobile Holdings, is China’s 12th-largest automaker, based on production so far this year. But it is China’s second-largest automaker, after BYD Group, that is not at least partly state-owned.

Last fall, Ford said Geely was the preferred bidder for Volvo, but there were problems to overcome, involving trade secrets, financing, and the initial hostility of Swedish labor and political leaders. In late December, the two had settled on most of the details of a deal, but financing and government approvals remained to be completed.

Michael Dunne, an analyst in Bangkok, said acquiring a well-known brand was the fastest way for a company like Geely to move up from making cars for the masses to cars for the affluent.

“This is all about Geely’s efforts to bust out of the basement,’’ Dunne said. “Volvo happens to be available.’’