Global Biz

Automakers Geely, Ford may pen Volvo deal Sunday

(Agencies)
Updated: 2010-03-28 11:59

SHANGHAI - Zhejiang Geely Holding Group appeared set to sign a binding deal Sunday to buy Sweden's Volvo Cars from Ford Motor Co., in a coup for the ambitious Chinese automaker, and also a challenge.

Geely earlier had said it expected to reach a final agreement on the deal by the end of March. Chinese Vice President Xi Jinping is visiting Sweden, and a signing ceremony could be timed to coincide with his visit.

Xi was due to visit Goteborg, Sweden, where Volvo is headquartered, on Sunday, the official Xinhua News Agency reported. No more specific details of Xi's schedule were available.

Ford, which purchased the Swedish car maker in 1999 for $6.45 million, has said it expects the deal to be finished by the end of the first quarter.

The long-awaited acquisition would represent a coup for Geely, an independent automaker that has gradually built its business with little government support and has been striving to upgrade its brand image.

Headed by prominent entrepreneur Li Shufu, the company has long coveted a stronger foothold in Europe. The company earlier had been rumored to be bidding for Opel and Saab.

Geely officials were not available for comment over the weekend, and the company had not issued any official statements. The most recent notice on its Web site was an article featuring a meeting between Li and Chinese President Hu Jintao - the ultimate symbol of the company's arrival as a major player.

Volvo spokesman Per-Ake Froberg said Friday that the deal could be reached on Sunday, "but it's not set in stone yet."

He declined to comment on the price. Analysts have estimated the deal at about $2 billion.

Ford has been trying to sell Volvo since late 2008 to focus on its core Ford, Lincoln and Mercury brands.

As Western automakers unload unprofitable assets, they are finding keen buyers in Asia.

Ford sold its Jaguar and Land Rover brands to India's Tata Motors Ltd. in June 2008 for $1.7 billion, a third of what it paid for them. General Motors Co. is selling its rugged Hummer brand to construction machinery maker Sichuan Tengzhong Heavy Industrial Machinery Corp., and China's Beijing Automotive Industry Holdings has agreed to buy some powertrain technology from GM's Swedish Saab unit.

Such acquisitions fit well with China's plans to consolidate its own highly fragmented auto industry into world-class manufacturers.

Earlier, Nanjing Automobile (Group) Corp. bought technology for the MG sports car, and then tied up with Shanghai Automobile Industry Corp. (SAIC) in hopes of building up its competitiveness.

But big acquisitions pose challenges as well as opportunities.

SAIC, a state-owned partner of both GM and Volkswagen AG, bought a majority stake in troubled South Korea's Ssangyong Motor as the SUV-maker went through bankruptcy. Late last year, Ssangyong gained approval for a rehabilitation plan, following months of labor protests against mass layoffs.

The Shanghai-based company has been building up its alliance with GM, forming a joint venture to build small cars in India, but has yet to make itself a household name outside its home market.

As for Geely, it has pledged to keep Volvo's factory and business teams in Sweden after the takeover, limiting its leeway to cut costs, says Zhang Xin, an analyst at Guotai Junan Securities in Beijing.

"Reality is always much crueler than what people would wish. Geely wants to build itself as a new 'international Geely,' so they sought a strong foreign brand like Volvo," Zhang said.

"Geely should foresee many difficulties. How will it manage to run Volvo well. How will it deal with the factory and employees? How much more will Geely have to spend to operate Volvo?"