The usually quite reliable Chinacartimes has it from the not always reliable auto.sohu.com that Ford and Geely have reached a deal for Volvo. According to Sohu, the Chinese-owned Volvo will put a production line into Dongguan City in Guangdong Province, one of China’s rustbelts. Supposedly, the first Geely owned Volvo is a XC90 SUV.
As BS lacks the necessary puthongua, Ms. Zhang, my trusted Chinese adjutant, translated the Sohu report as follows:
The rumor might finally become true. Geely has signed a letter of intent with Volvo about buying Volvo. The new Volvo will land in Dongguan. The first car type made in China will be the XC. Both parties will have more negotiations about employee reductions, product range, technology transfer. Experts say that Geely should focus on how to operate the Volvo brand once purchased.
In 1999, Ford spent $6.49 billion for Volvo. It was their attempt to enter the high-end market of Europe. However, Volvo always ran at a loss. According to some analysts, the market value of Volvo is already less than $3b. The actual purchase price might be lower than $1.5 billion.
Experts say, Ford cannot sustain the losses by Volvo. Ford is trying hard to survive itself in a competitive landscape. Ford has no energy left for Volvo. In the economic crisis, GM and Chrysler received a new lease on life through bankruptcy. Ford wants to do something similar: Sell Volvo to gain some urgently needed cash.
A reporter who contacted top management of Geely heard that Geely indeed had close contacts with Volvo regarding this matter. Geely has also conducted a large amount of market research. The new Volvo project will land in Dongguan, where it already has been approved by local government. Geely expects a loan guarantee of RMB8b ($1.17 billion).
The XC90 will be the first car type. The price of the China made XC90 should be reduced by 40 percent. If everything goes smoothly, the project will be ready for use on 2010 or 2011.
Things are murky, and the official wire services are silent. A “local government” approval won’t do. In China, if a deal costs more than $100 million, then it needs to be approved by the central government. If it is below $100 million, a permit from the provincial government is required. The State Administration of Foreign Exchange also looks at all overseas investments by Chinese companies.
We will follow the story and keep you posted as things develop.