VOLVO PURCHASE: China's Geely group is the preferred bidder for Volvo, writes Clifford Coonan, in Beijing
FORD HAS named a group led by Geely, China’s largest privately-owned car maker, as the preferred bidder for the US company’s loss-making Volvo unit, a huge initial step towards China’s efforts to win a top international brand to help its expansion plans.
The news does not mean a done deal, simply that Ford and Geely are in exclusive negotiations, but Geely is reportedly prepared to pay about €1.35 billion for the Gothenburg, Sweden-based Volvo, less than one-third of Ford’s purchase price a decade ago. Its a sign of how far the auto industry has fallen in those 10 years.
Geely’s bid is the latest move by big Chinese companies to establish a foothold abroad by buying foreign brands and technology at a time of difficulty in the international business.
It’s sure to have been a tough idea to swallow for the people in Gothenburg that Volvo, a byword for safety and predictability, is possibly being subsumed into a Chinese upstart firm from Hangzhou in Zhejiang province. Unions have already expressed scepticism.
Geely insists that it is committed to keeping Volvo’s existing production and research facilities, and that it would stay in Gothenburg, while also saying it would boost Volvo’s access to China’s booming market.
A senior Geely executive said it is not clear how much longer negotiations might last between Geely and Volvo, which is Sweden’s third-largest private employer. There are plenty of hurdles that need to be overcome.
Groups like the FKG, which represents hundreds of automotive suppliers in Sweden, have expressed concern about patent protection and copyright issues.
Volvo Cars had a pretax loss of €173 million in the first quarter, which narrowed to €156 million in the second. In 2008, the pre-tax loss was €996 million.
Analysts have suggested that Geely would ultimately be shifting production to China in a bid to make Volvo profitable.
Ultimately the deal has to be a positive one as it gives Volvo special access to the world’s best performing car market.
Last month, Chinese annual car production surpassed 10 million for the first time as carmakers boosted production to meet growing demand. The only countries that have ever managed to produce 10 million cars in one year before were the US and Japan.
China widened its lead over the US as the world’s top motor market, with September sales vaulting 78 per cent, spurred by tax cuts and government stimulus spending. Sales were 1.33 million vehicles in September, with passenger cars climbing 84 per cent, according to data from the China Association of Automobile Manufacturers.
China sold 9.66 million vehicles in the first nine months of the year, while the US sold 7.8 million cars and light trucks in the same period.
The big sellers in China are the VW Jetta, GM’s Buick Excelle, Hyundai’s Elantra saloon and the Toyota Camry, although domestic brands are picking up and BYD’s compact F3 saloon has also been among the top brands this year.
As part of its 4 trillion yuan (€400 billion euro) stimulus plan, the Beijing government has drastically cut taxes on the purchase of passenger cars and is offering subsidies on light trucks and minivans in the countryside, where most of Chinas people live.
They also have subsidies for people trading in old bangers.
General Motors International operations president Nick Reilly said last week in Korea that he expects China’s car market to grow over 10 per cent next year, even without government incentives, and maintain its position as the world’s top car market for a long time.
China’s industry-wide car sales in 2010 are expected to grow to over 13 million vehicles from an expected 12.5 million this year.