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Ford, Geely agree to $1.8B Volvo deal

March 29, 2010 Ford, Geely agree to $1.8B Volvo deal | detnews.com | The Detroit News

Ford, Geely agree to $1.8B Volvo deal

Chinese automaker says it will take care to preserve brand image, develop business plan


Ford Motor Co.'s agreement to sell its Swedish luxury brand, Volvo, to Zhejiang Geely Holding Group Co. for $1.8 billion clears the way for the biggest Chinese acquisition of an overseas automaker.

It also marks the end of the controversial "house of brands" strategy Jacques Nasser sought to establish during his tenure as Ford's CEO.

Ford signed a binding deal with Geely at Volvo's headquarters in Gothenburg, Sweden, on Sunday. The Chinese automaker will pay Ford $1.6 billion in cash, and the remainder in the form of a $200 million note.

"We needed to find a new owner that would take the Volvo Cars business forward while also cherishing its unique Swedish brand values," said Ford Chief Financial Officer Lewis Booth, who attended the signing ceremony. "I am very pleased to say that we believe we have found such an owner in Geely."

Privately owned Geely is viewed as one of China's most promising automakers, and its chairman, Li Shufu, is regarded as one of the country's most remarkable business people. Speaking in Mandarin, he said he would protect Volvo and its highly regarded brand.

"Throughout our negotiations with Ford and Volvo Cars management, I have emphasized the special care with which we will manage and build this asset," Li said.

The deal is expected to close in the third quarter -- slightly later than the companies estimated previously. It marks an important milestone for China's fast-growing auto industry, which is profiting from the industry's global downturn to purchase world-class technology and know-how.

End of an era

"For Ford, the completion of the sale of Volvo Cars will conclude the divestiture of our global premium brand portfolio, allowing us to concentrate further on integrating the Ford core brand globally as we continue to execute our One Ford plan," Booth said.

Ford acquired Volvo in 1999 for $6.45 billion as part of Nasser's strategy to assemble a portfolio of global luxury brands. He wanted to build Ford's prestige and profits around the world -- a strategy his critics accused him of pursuing to the detriment of Ford's core brand.

When Alan Mulally took over as CEO in 2006, he immediately scrapped that plan in favor of a new strategy focused on fixing Ford. Under his leadership, the company already has sold off Aston Martin, Jaguar and Land Rover.

He also sold Ford's controlling stake in Japan's Mazda Motor Corp.

But finding a buyer for Volvo proved difficult after the collapse of the global credit markets in 2008.

Volvo's sales have suffered along with the rest of the global auto industry, and the company has defied Ford's efforts to return it to profit. Ford has made progress, however: Last year, Volvo lost $653 million, $812 million less than it lost in 2008.

"Frankly, we might not even be standing here were it not for the support of Ford," said Volvo CEO Stephen Odell. He said Geely has committed the resources necessary for Volvo's future success. "They absolutely understand and value the Volvo brand DNA."

Many inside and outside Sweden have been concerned about what Chinese ownership could mean for Volvo, which has one of the most positive brand images in the world.

Li sought to dispel those concerns Sunday. "I want to emphasize that Volvo is Volvo and Geely is Geely. Volvo will be run by Volvo management. It will have the strategic independence to develop its business plan, and we are determined to preserve the distinct identity of the Volvo brand."

Li said Volvo's headquarters will remain in Gothenburg with its own management.

Volvo will continue to produce cars in Sweden and Belgium, but Geely also plans to produce cars in China under the Volvo name.

"We regard Volvo as a Swedish business with a strong Scandinavian heritage, and we will preserve that," Li said, though he added that Geely's ownership will allow Volvo to grow globally. "We are committed to expanding the output and global reach of Volvo."

Michael Robinet, vice president of global forecasting at CSM Worldwide in Northville, said: "For Ford, it allows them to concentrate their resources on continuing to expand the Ford brand. It's going back to their core." "From Geely's side, it puts them on the global stage overnight and gives them a full portfolio of vehicles.

"By bringing some Volvo production to China, they're able to increase its scale -- and scale was Volvo's problem."

Geely gets technology

Last year, China became the world's biggest auto market after overtaking the United States, but its automakers are still struggling to become globally competitive. The Chinese auto industry is now benefiting as struggling global automakers shed assets at bargain prices.

The deal with Ford gives Geely access to key intellectual property, as well as engineering and manufacturing resources.

Both Ford and Volvo will continue to supply each other with engines, powertrain components and other parts required for current products. Ford also will provide Geely with engineering, information technology and accounting support during the transition.

The importance of the Volvo acquisition for China was underscored by the presence of Li Yizhong, minister of industry and information technology, at Sunday's ceremony.

Rick

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