Ford, Geely deal on Volvo points to growing clout of Chinese industry

ERJ staff report (AN)

Beijing / Stockholm (Reuters) -- Ford Motor Co. said it expects to wrap up the sale of Volvo to China's Geely in the first half of 2010 in a deal that underlines China's arrival as a major force in the global auto industry.

The agreement, which Ford said it expected to sign in the first quarter and close in the second quarter, would be the largest acquisition of a Western auto brand by a Chinese company.

It comes at the end of a year that may see China overtake the United States as the world's biggest auto market, a feat that would have been unthinkable only a few years ago.

It also coincides with General Motors Co.'s effort to abandon its Swedish Saab brand after selling some of its assets, including intellectual property, to another Chinese automaker, Beijing Automotive Industry Holding Corp, or BAIC.

Geely is China's largest private automaker. Its charismatic founder, Li Shu Fu, is known as the Chinese Henry Ford. He has shown global ambitions and has pushed for Geely to become a global brand.

As U.S. automakers have faced deepening distress over the past two years, Chinese automakers have had preliminary talks about buying a range of assets, but those deals have been small in scope and difficult to close until now.

Chinese automakers have been short on the know-how to make quality cars, although they have been making rapid advances, and have sought the technology and intellectual property to improve their product lineups.

Today's update on negotiations from Ford and Geely that they have agreed on all the major issues and are closing in on a deal is seen as a signal to China's government, which must approve the sale. Such approval is needed for Geely to be able to borrow $1 billion or more from Chinese banks.

Some work remains

"While some work still remains to be completed before signing ... Ford and Geely anticipate that a definitive sale agreement will be signed in the first quarter of 2010," Ford said in a statement.

The U.S. automaker also said it had agreed on all substantial commercial terms in a deal to sell Volvo to Zhejiang Geely Holding Group, parent of Geely Auto.

The value of the deal has been estimated at $1.8 billion, far short of the $6.45 billion that Ford paid for Volvo in 1999.

Geely has indicated that it wants to maintain Volvo's production in Sweden, where the labor leader on Volvo's board said he likes what he hears of the sale.

"It was very much expected; we had met Geely twice and they were both positive meetings," said Mikael Sallstrom, chairman of the Volvo cars union IF Metall. "They said Volvo would remain an independent company ... if they live up to what they have promised, it (the sale) will be a positive thing."

BAIC, China's fifth-largest automaker, said separately it would launch an aggressive campaign to develop its brand both at home and overseas, after buying the rights to old Saab models from GM for $200 million.

Saab Automobile itself faces closure unless a last-gasp offer by Dutch sports car maker Spyker Cars is accepted by GM, which said last week it would begin winding down the brand after failing to find a suitable buyer.

"Someone has commented that the purchase of Saab's intellectual property can help cut short the development time for Beijing Auto's own-brand passenger vehicles by four to five years," BAIC Chairman Xu Heyi told reporters today.

"We basically agree with the view."

Immediate action

The Chinese automaker plans to immediately start integrating Saab technology into its vehicles, with an aim to sell 100,000 self-developed passenger vehicles in 2011, Xu said.

The sales target is a bit aggressive, said Tan Kunyuan, an analyst at Changjiang Securities.

"It will take at least a year for the market to recognize the brand, and BAIC probably would need to modify the appearance of Saab cars to fit with Chinese market demand."

The Beijing-based automaker is in production partnership with Daimler AG and Hyundai Motor Co., with most of their joint output for sale in the domestic market. Xu said BAIC sold 1.24 million vehicles in 2009.

BAIC's Saab acquisition includes the intellectual property for Saab's 9-5 and 9-3 sedans and some equipment to make them, leaving the fate of the Sweden-based automaker itself up in the air.

From Automotive News (A Crain publication)