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Volvo deal to help Geely's going-global ambition

(Xinhua)
Updated: 2009-12-25 17:24

At a time when the world auto industry was experiencing huge difficulties caused by the global downturn, Geely's aim, as it said on the company website -- "let Geely cars go to the whole world", seemed very ambition.

Geely's going-global strategy latest move was the high-profile bid for Volvo, the almost century-old Swedish luxury car brand.

The United States automaker Ford Motor Co said in a statement on Wednesday that it was close to finalizing a deal to sell Volvo to Geely, China's largest privately-owned car maker.

Ford confirmed that "all substantive commercial terms relating to the potential sale of (Volvo) have been settled," but added that "some work still remains to be completed before signing -- including final documentation, financing and government approvals."

Ford put Volvo on sale in December last year and confirmed it had picked Geely as the preferred bidder on October 28.

No details were given of how much the deal was worth, but it was widely rumored that Geely prepared to pay around $2 billion for Volvo, about one third as much as Ford spent to acquire it in 1999.

Some media comments considered Geely's move as having eyes bigger than the stomach for acquiring an unprofitable Volvo, which posted $1.5 billion loss in 2008.

Li Shufu, founder and chairman of Geely, had his own idea, however. "It (the Volvo bid) is related to the new energy-powered vehicle," he told Xinhua, it was about the technology, on which Ford and Volvo had invested millions of dollars over the past decade.

"The new energy-powered vehicle will be the future of the world's auto industry. But based on current investment in research and development, China will be left far behind the pace of developed countries," he said.

Although Li refused to give details about the negotiation process because of a confidential contract, the 46-year-old entrepreneur admitted that negotiations over the issue of intellectual property rights (IPRs) involved in the acquisition was "more complicated" than the price.

The significance of the deal is far beyond acquiring advanced technology, however. It offered a shortcut for Geely to get access to the world auto market, said Zhao Hang, director of China Automotive Technology and Research Center. In Li's words, it was "a way for Chinese made cars to enter the global market".

Volvo's brand as a safe and reliable car would also help dispel quality concern about Geely, which was unfamiliar to foreign consumers, analysts said.

"If the deal succeeds, nothing will change for Volvo, except the boss turns to Li Shufu," Li said. "Volvo and Geely will be two independently-managed brands."

Geely would keep intact Volvo's existing production and research and development facilities, union agreements and dealer networks.

According to Li, Volvo has the brand and technology while Geely, based on the booming Chinese market, could help Volvo reduce production costs and tap into the huge market.

His Hong Kong-listed Geely expanded fast thanks to a sales boom in China, which has replaced the US to become the world's largest auto market this year. China is expected to sell more than 13 million vehicles this year, up more than 40 percent from 2008.

Geely netted a profit of 560 million yuan ($82 million) in the first half of the year, up 110 percent year on year. It aims to sell 300,000 vehicles this year, up from 204,000 units in 2008.