Done Deal: Volvo Is Chinese

by Bertel Schmitt

Published: August 2nd, 2010

Did we say last Thursday that the sale of Volvo from Ford to Geely „could close as soon as next week?” Did I believe it? Did I live in Chine for six years? Honestly, there was an element of surprise when, this Beijing afternoon, my inbox made that noise and there was an email from Ford, titled “Ford Motor Company Completes Sale of Volvo to Geely.” The deal is closed. Volvo is Chinese.

Today, Geely gave Ford $1.3b in cash and a promissory note to pay another $200m. Wait a minute, says the dedicated follower of the Volvo-Ford-Geely drama, wasn’t the purchase price $1.8b? Ford’s press release explains: “The total purchase price for Volvo and related assets set forth in the agreement signed in March 2010 was $1.8 billion, including a $200 million note and the balance in cash, with the cash portion subject to customary purchase price adjustments at closing.” Well, anyone who has ever sold a house can sympathize with those “customary purchase price adjustments at closing.”

Apparently, there was some haggling over $300m, and it might continue for a while. Says Ford: “The estimated purchase price adjustments used at closing are expected to be finalized and settled following final true-up of the purchase price adjustments later this year. The final true-up is expected to result in additional proceeds to Ford.” From the sound of it, they don’t expect a whole lot more “true-up”. The Chinese are masters of last minute bargaining, and they won.

There is no reason to haggle too hard, because Ford can make a nice business out of this on the back-end. They are now a supplier of critical parts to Volvo and Geely. Ford will supply Volvo with, “powertrains, stampings and other vehicle components. Ford also has committed to provide engineering support, information technology, access to tooling for common components, and other selected services for a transition period.” That can cost a pretty penny.

As far as personnel is concerned, Ford is only mentioning those who won’t go to China: “Stephen Odell, CEO of Volvo Car Corporation, is returning to Ford as group vice president and Chairman and CEO of Ford Europe. Stuart Rowley, CFO of Volvo Cars, is returning to Ford as chief financial officer, Ford Europe.”

No word about Hans Olov Olsson, former Volvo president, who will be vice chairman of Volvo, or of Stefan Jacoby, formerly head of Volkswagen of America, who will ( if the rumors are true, and still current) be CEO of the Chinese-owned Volvo. That’s Volvo’s business, and has no place in the announcement of Ford.

But there’s word from the head of Sweden’s IF Metall union, Stefan Lofven. He likes the deal now: “Volvo will have a management and governance of large industrial and international expertise. With production, research and development and headquarters remaining in Sweden, while China is the biggest growth market for the automotive industry, we hope for positive employment effects,” said Lofven to the Wall Street Journal. He’ll travel to China in a few months to meet the new bosses.

They’ll probably show him the plans for a new Volvo plant in China. “When you look at the car industry in China, if you want to be even a 2 percent player there — and 2 percent is not a bad aspiration — you have to have local manufacturing,” said outgoing Stephen Odell to Bloomberg last week. “It’s clear Volvo needs more capacity to grow.”

#BertelSchmitt #China #Ford #Geely #Volvo

Bertel Schmitt

Bertel Schmitt comes back to journalism after taking a 35 year break in advertising and marketing. He ran and owned advertising agencies in Duesseldorf, Germany, and New York City. Volkswagen A.G. was Bertel's most important corporate account. Schmitt's advertising and marketing career touched many corners of the industry with a special focus on automotive products and services. Since 2004, he lives in Japan and China with his wife <a href="http://www.tomokoandbertel.com"> Tomoko </a>. Bertel Schmitt is a founding board member of the <a href="http://www.offshoresuperseries.com"> Offshore Super Series </a>, an American offshore powerboat racing organization. He is co-owner of the racing team Typhoon.

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Monty on Aug 02, 2010

I think that FoMoCo will eventually regret selling Volvo. Of the four marques in the PAG group (Aston, Jaguar, Land Rover and Volvo) it probably had the most value - manufacturing processes, safety engineering etcetera - that Ford was able to purloin for it's own systems. If Ford maintains the same relationship with Volvo that it still has with Mazda it might not have been a bad move, but I suspect the Chinese will squeeze Ford out of the picture very quickly and eventually claim Volvo as a homegrown luxury brand with international cachet.

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Sam P on Aug 03, 2010

In ten years the quality of Chinese-built vehicles could easily be where the quality of Korean-built vehicles is today. 15 years ago, Hyundai was largely regarded as a joke, and Korean electronics didn't have many virtues besides being cheap.

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