Geely To Bid $2 Billion for Volvo

Bertel Schmitt
by Bertel Schmitt
geely to bid 2 billion for volvo

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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2 of 16 comments
  • Gunit Gunit on Jul 17, 2009

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

  • Joel Joel on Jul 17, 2009

    @ 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.

  • SCE to AUX How long until that $90k yields a profit for my grandchildren?
  • Ajla I do wonder what the legacy of the Alpha Camaro will be. It was higher performing than the Zeta but lacks the pop culture imprinting of that gen or the earlier F-body. And somehow it managed to be less comfortable than the Zeta. I guess it depends if this is really the last traditional Camaro.
  • SCE to AUX I'd admire it at the car cruise, but $20k gets you halfway to a new truck.
  • Lou_BC Panther black? Borrowed from Dodge panther pink? One could argue that any Camaro is a limited run.
  • SCE to AUX I much prefer the looks of the Tucson version, but either is a great value.How was the driveability, namely the electric/gas transition? I had H/K's first attempt in a 13 Optima Hybrid (now in my son's garage), and it was gruff and abrupt in that phase of driving.