Last year Ford put Volvo up for sale, a premier U.S. auto brand known for both its quality and dependability.  The sale was necessary to help Ford raise enough capital to pay down upcoming debt.  The attempted sale was part of a larger strategy to divest of non-core businesses (generating large and lucrative fees for investment bankers) and streamline operations.  At the same time, GM announced that it is abandoning its Swedish Saab unit, after selling some of its assets and intellectual property to another Chinese automaker, Beijing Automotives.  Construction machinery manufacturer Sichuan Tengzhong Heavy Industrial Machinery Corp. also acquired GM’s Hummer Brand this year.

Geely, a prominent Chinese automaker was named the preferred bidder for the franchise in November of 2009.  The deal is expected to close in the first half of 2010.  If the deal is completed, it would be the largest deal ever completed by a Chinese automotive firm.  Geely is rumored to be offering  between $1.8 and $2.3 billion for the firm, which is less than 30% of what Ford paid for Volvo in 1999, $6.45 billion.  The deal should help Geely break into the Western market, a possible turning point for Chinese auto manufacturers.  Already, Chinese annualized auto sales for 2009 have surpassed those in the United States.

The largest obstacle in the deal negotiations is disagreement about how to deal with intellectual property rights and controlling Geely’s use of U.S. technology and safety equipment.  Ford and Volvo have shared technology for over a decade and will continue to share IP in the future.  Much of Volvo’s production is rumored to be moving to China, while development and research will remain in Sweden.  One large question auto analysts have is whether or not Volvo can remain a leader in auto safety and environmental protection after the acquisition.  The Chinese have been looking to develop safety technology for years.  Geely is also looking for $1 billion in financing from the Chinese government before the transaction can get approval.

While losing Volvo could damage Ford’s long term growth potential, Ford itself has made a very impressive turnaround, recently making a $1 billion profit for the first time in years.

The first Volvo was manufactured in 1927.  Today the company employees 20,000 employees worldwide.  In 2008, sales fell by 18.3% to 374,297 units.

Geely was founded in 1986 and started as a refrigerator parts supplier.  It currently employees 12,000 and has an auto production capacity of 300,000 cars per year.  It is China’s largest automaker and is led by its charismatic founder Li Shu Fu, the equivalent of the Chinese Henry Ford.

~IS

For more information, please visit BBC news…

For more information, please visit CBC news…

Can you read Mandarin? Please visit Geely’s website…