By on July 16, 2009

China’s Geely is expected to make a formal offer for Volvo within the next few days, if the Wall Street Journal is not mistaken. The offer “is anticipated to be around $2 billion.”

Geely is one of China’s top 10 passenger-car brands, it is also one of the China’s few independent companies, building cars without foreign joint venture partners. Industry watchers believe that Geely will export its models to the US or Europe within three to five years. To do this successfully, owning a Western brand with Western technology and a stable of safety-tested and homologated cars is indispensable. Geely is keenly aware of this. Says the WSJ:

The company has been working for almost three years on its takeover plan for Volvo, key elements of which people familiar with the plans described to The Wall Street Journal. Geely is bidding at the parent company level, not through its Hong Kong-listed unit Geely Automobile Holdings Ltd. It has hired consultants to advise it, including a former top executive at Volvo. It has also appointed a veteran Chinese finance executive to spearhead the effort.

In 2007 Geely hired Peter Zhang, a financial controller from BP PLC, to lead the pursuit of Volvo. They also signed Hans-Olav Olsson, Volvo’s former top executive, as an adviser.

Ford, owner of the brand, began to take Geely seriously. Last December, they sent John Thornton, a longtime Ford board member and former president of Goldman Sachs to China to review Geely’s strategy. Thornton reported back that Geely’s strategy has merit.

Geely plans to radically slash costs for product-development and manufacturing, by tapping the relatively cheap labor available in China. According to Gasgoo, “Geely would use Chinese engineers — including graduates from four engineering colleges the company set up in cities around China — to conduct basic engineering tasks like generating digital blueprints of parts designed by more seasoned engineers in Sweden. A main goal would be to make and sell more Volvos in China.”

Before you snicker about this plan: It’s been done before. Read what the Wall Street Journal has to say:

GM’s tech outpost in Shanghai, jointly operated with a Chinese partner, recently designed the interior of a Buick car it sells in the U.S. The center also develops vehicles for the China market in collaboration with GM’s other R&D centers around the world. Honda Motor Co. recently opened a development center in Guangzhou with one of its Chinese partners.

Tens of thousands of engineers graduate each year from China’s top universities and vocational schools, making it fertile territory for technical talent. Couple that with government policy support and subsidies for automotive research, and “China may soon become the most significant hub of low-cost engineering for the global auto industry,” says Michael Laske, head of the China operations of Austrian engine-technology firm AVL List GmbH.

Geely is even receiving the nod from Steven Spear, a senior lecturer in engineering at the Massachusetts Institute of Technology. He points out that it took forty years for Toyota to crawl its way to the top. “Geely may be setting itself up to repeat the same process in a much accelerated fashion,” Spear said. Especially with a European brand that still stands for safety and technology.

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16 Comments on “Geely To Bid $2 Billion for Volvo...”


  • avatar
    PaulieWalnut

    $2 Billion?

    Sell sell sell!

  • avatar
    Stingray

    Shit just got serious…

  • avatar
    menno

    Will affluent Americans (such as my sister, who lives on Long Island) go for a Chinese owned Volvo? I don’t know, but in reality, with the relatively puny number of car sales in North America, it may be much more important for Geely to actually have access to the Volvo dealer network in order to “dual” the sales of Geely cars alongside Volvo, at a much lower price point. At which case, if they play their cards right, Kia will be wanting to watch their rearview mirror…

  • avatar
    PeteMoran

    $2b, is that one month or one quarter’s cash burn for Ford? (I haven’t been keeping up).

  • avatar
    Lokkii

    Well, Jaguar and Rover together only brought 2.3 B or so….

    I do believe that Volvo is a stronger brand that Jaguar was (in terms of sales volume)- but I also think it’s pretty much a case of “Take $2B or take nothing”.

    So, what’s the long term value of Volvo to Ford?
    Sufficient to justify its short-term cash burn?

    I think I might just keep Volvo if I weren’t absolutely desperate for cash. Really, if you think about it, Volvo is the true “Mercury” for Ford….(Jaguar was to be the new Lincoln, though, and we know THAT ended in tears. Still – no sale. Freeze model development for a year, except for minor quality improvements and soldier on.

  • avatar
    threeer

    And if Geely starts importing Volvos here in America, then Volvo will be permanently off my list of cars to consider.

  • avatar
    Daniel J. Stern

    Geely plans to radically slash costs for product-development and manufacturing

    Moving R&D and manufacturing to China has certainly slashed costs for the many Western company to do so over the last fifteen years, but at the penalty of reduced perceived and/or real product quality.

  • avatar
    John Horner

    Geely’s plan sounds very well thought out to me. Whether or not they sell lots of Volvos in the US in years to come probably isn’t their main concern. The US is quickly becoming just one of the world’s automotive markets, and not the top prize.

    Even so, if Geely could build S60 class Volvos in China and sell them in the US for $20k well equipped, they would sell zillions. How many people refuse to buy an iPhone because it is Made in China?

  • avatar
    PeteMoran

    @ John Horner

    …. if Geely could build S60 class Volvos in China and sell them in the US for $20k well equipped, they would sell zillions. How many people refuse to buy an iPhone because it is Made in China?

    In that statement is a profoundly difficult question for policy makers and business leaders in the USA. What will the US economy look like in a decade?

  • avatar

    Everybody:

    Target #1 for Geely’s Volvo is China. The Chinese love European brands.

    Target #2 is export. Currently. China exports next to nothing in terms of cars, and what little they export goes to Africa or 3rd world countries. Again, with already approved and certified cars, Geely can export Volvos to wherever they want. Any small increase over next to nothing will make them export heroes. A Volvo sold at 2/3 or 1/2 of its current price would be a smash hit amongst the granola crowd.

  • avatar
    50merc

    Seems like a no-brainer to me. Sell that money-losing critter! Let’s see, would that clean up the last remaining mess that Jac Nasser left behind?

    Volvo isn’t really a “Mercury” for Ford, because it sells at Lincoln prices.

    I don’t see why Volvos made in China (but presumably still engineered in Sweden) wouldn’t sell in the US. We buy everything else China makes. And if China can use its lower cost of manufacture to significantly undercut BMW prices, that could be a boon to Volvo sales.

  • avatar
    pb35

    If this goes through my XC90 will be my first and last Volvo.

  • avatar
    agenthex

    A Volvo sold at 2/3 or 1/2 of its current price would be a smash hit amongst the granola crowd.

    I doubt it’ll save that much $ since r&d and labor only comprise a small portion of the price. However, volvo’s will definitely be a better value than they are now. They can even move slight downwards and compete with the mid-tier japanese.

    I wonder how this’ll effect Changan which already makes volvo’s in their JV.

    If this goes through my XC90 will be my first and last Volvo.

    What do you use to post on the internet?

  • avatar

    I wonder how this’ll effect Changan which already makes volvo’s in their JV.

    Depends on their contract. If the contract is with Volvo, they need to deal with the successor. If the contract is with Ford, they need to deal with Ford. Also not unthinkable that both continue making Volvos. See SAIC/FAW and VW.

  • avatar
    Gunit

    From that picture I’d say Volvo and the Chinese look pretty good together.

  • avatar
    Joel

    @ Daniel J. Stern
    I completely agree. I wonder how much hand wringing people will be doing if Volvo goes to the land that brought us the 0 star crash test subject.

    @ Bertel Schmitt
    Depends on their contract.
    I was thinking the same thing, especially since Ford and Volvo share so many parts. I realize that Ford has been trying to jettison everything it possibly can, but it seems a bit much to send off a major parts and R+D design segment of the company.

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