Geely Picks Up a Bargain in Volvo
The Chinese conglomerate Geely is paying Ford $1.8 billion for Volvo and promises to preserve its identity, though it may build another factory to produce the cars in China. Not bad for a company that started in the ‘80s making refrigerators and motorcycle parts. Not so good for Ford, which paid $6.45 billion for Volvo in 1999.
In the last five years, Geely has moved to become China’s second largest (after BYD) auto company without a state-owned interest. Its pursuit of Volvo for two years finally bore fruit in a deal that will give it not only a premium brand, but also access to significant intellectual property as well as engineering and production resources.
The intellectual property issues initially seemed to be the sticking point for Ford, along with Swedish labor and government resistance. But the pressure to reduce the company’s nonessential holdings and concentrate on its core brands was great. Ford in recent years has sold off all its interests in Aston Martin, Jaguar, Land Rover, and Mazda. Finding a buyer for Volvo was a tougher case.
Volvo cars under Ford have pretty much lost their former image as suburbia’s favorite wagon (the V70) and the industry’s vehicle par excellence for safety and durability. Some have called it an identity crisis for the company, which needs to both stabilize its offerings and offer people something new. The new 2010 S60 looks to be a good car and may indeed inspire Chinese buyers, much as Buick has.
Geely has made no secret of its ambitions, and chairman and founder Li Shufu is looking to sell two-thirds of its output as exports. I’m not sure Volvo will do well in that market; there is too much competition, and the brand no longer offers much in the way of significant difference.
But Li also knows that these things take time. He was quoted in 2005 as saying, in what sounds like something Confucius or the Buddha might have said of another subject, “developing a car industry is like growing one tree slowly to cover a whole forest.”
Give us your thoughts on the prospects for Volvo under Chinese ownership. Is Geely the right firm to grow the company?