Will China Sell Volvos in WalMart?

The Chinese have shown an impressive ability to build good products and sell them at low prices. Can they do the same with Volvo? Will the new Chinese owners transform this Swedish auto-maker into a company with a pricing strategy that will make the vehicles appeal to shoppers at IKEA or Walmart?

Meanwhile, Ford probably feels lucky to have gotten out of Volvo without having to send it to the junkyard. Little more than a decade ago, Ford bought Volvo for about $6.5 billion. The Chinese buyer is paying less than $2 billion. Let's hope the Chinese succeed.

Geely to buy Volvo from Ford for $1.8 billion

China's Geely inks binding deal to buy Sweden's Volvo Cars from US automaker Ford for $1.8B

March 29, 2010

STOCKHOLM (AP) -- Zhejiang Geely Holding Group signed a binding deal Sunday to buy Ford Motor Co.'s Volvo Cars unit for $1.8 billion, representing a coup for the independent Chinese automaker which is aiming to expand in Europe.

The stock purchase agreement is subject to regulatory approvals and is expected to be completed in the third quarter, representatives of the two automakers said as they presented the deal at a news conference at Volvo Cars headquarters in Goteborg, on Sweden's west coast.

The agreement was signed by Geely's chairman, Li Shufu and Ford Chief Financial Officer Lewis Booth, and witnessed by Li Yizhong, the Chinese minister of industry and information technology, as well as Swedish Minister for Enterprise and Energy Maud Olofsson.

The transaction will be made through a $200 million note, while the remainder will be paid out in cash, Booth said at the Webcast news conference.

"We think it's a fair price for a good business, and yes, we're happy with the deal we've achieved with Geely," he said, adding that his company believes that, under Geely, "Volvo can continue to build its business and return to profitability."

The deal also covers further agreements on intellectual property rights, supply, and research and development arrangements between Volvo Cars, Geely and Ford.

Li, whose comments were translated by an interpreter, described the deal as "a milestone" for both Geely and Volvo, adding his group will make a Volvo CEO public "in due course."

In a statement, Geely said it has secured all the financing necessary to complete the deal, as well as "significant working capital facilities to fund Volvo Cars' ongoing business."

Geely said it aims to keep Volvo's existing manufacturing facilities in Sweden and Belgium, but that it will also explore manufacturing opportunities in China.

"China, the largest car market in the world, will become Volvo's second home market. Volvo will be uniquely positioned as a world-leading premium brand, tapping into the opportunities in the fast-growing China market," Li said.

Ford, which bought Volvo Cars from AB Volvo in 1999 for $6.45 billion, has been trying to sell the unit since late 2008 to focus its resources on managing its core Ford, Lincoln and Mercury brands.

As Western automakers unload unprofitable assets, they are finding keen buyers in Asia.

In 2008, Ford sold its Jaguar and Land Rover brands to India's Tata Motors Ltd. for $1.7 billion, a third of what it paid for them. In addition, General Motors Co. attempted to sell its rugged Hummer brand to a Chinese heavy equipment maker, but is now winding that brand down as the deal collapsed.

China's Beijing Automotive Industry Holdings has also agreed to buy some powertrain technology from GM's Swedish Saab unit.

Geely, an independent automaker that has struggled to upgrade its image in overseas markets, has long coveted a bigger foothold in Europe and has earlier been rumored to be bidding for Opel and Saab. The long-awaited Volvo acquisition is therefor important for the company, which has gradually built its business with little government support.

Analyst Zhang Xin, with Guotai Junan Securities in Beijing, said Geely has pledged to keep Volvo's factory and business teams in Sweden after the takeover, limiting its leeway to cut costs.

"Reality is always much crueler than what people would wish. Geely wants to build itself as a new 'international Geely,' so they sought a strong foreign brand like Volvo," Zhang said.

"Geely should foresee many difficulties. How will it manage to run Volvo well? How will it deal with the factory and employees? How much more will Geely have to spend to operate Volvo?"

Volvo, whose first car left its Swedish factory in 1927, employs nearly 20,000 workers, most of them based in Sweden. The group, initially a subsidiary of ballberaing maker SKF, was listed on the stock exchange in 1935.

In 2009, it sold 334,808 cars. It currently has 10 models on the global market, with its cross-over XC60 being the best-seller. The United States, Sweden and Britain account for its three biggest markets.

Dead Batteries

Electric-carmakers need cash today, tax credits to spur sales next year and every year thereafter and battery technology that makes electric cars perform like gasoline-powered vehicles.

Obama says he wants to hit taxpayers on this issue. Tax credits and other subsidies are part of his plan. Immediate cash is another matter. If GM, Ford and Chrysler are to get little from the Economic Stimulus plans whipped around these days, it's tough to cut makers of electric cars a slice of the pie.

Then there is the chief question: Why would someone buy a $40,000 Chevy Volt when a a dozen cars with internal-combustion engines sell for less than half the price?

Electric cars are not simple alternatives to gasoline-powered cars. If equivalent electric and internal-combustion models were available for roughly the same price, a real market would develop. But we are years from that point. Today, electric vehicles offer only a psychological advantage that matters to some people. But most car buyers do not care.

Who would pay $40,000 for a car with limited operating capabilities when lots of great all-around gasoline-powered vehicles are available for half as much? Furthermore, if the government pushes the public to accept electric vehicles, the prices of gasoline-powered cars will ease down, making them a better deal for anyone who considers the long-term cost of ownership.

There are 250 million internal-combustion vehicles registered in the US today. Consumers love their cars and they are not ready to switch to vehicles offering less for more money. Would more than a handful spend larger sums than they've ever spent on a car if the new high-priced model requires a lot of behavior modification to accomodate its limitations? No.

Personal computers stayed mainly in the hands of hobbyists, engineers, scientists and technology lovers until better software made them useful to millions of buyers. The Graphical User Interface did the trick. But the biggest accelerant was the Internet, a thing apart from the computers themselves.

Is there a similar advance ahead for electric vehicles? No. But if there were, it would appear as a battery that held a charge equal to the energy found in a tank of gas.

Or, perhaps, like gasoline, a universal battery pack might emerge. Every car can accept gas from any gas station in the country. Possibly the electric carmakers can create a universal battery pack that can be stocked at Recharging Stations and switched in minutes. Pull out the discharged pack, and drop in a fresh one. An operation that can be completed in a minute or two. But that means pricing the service for more than the cost of plugging in the car at home.

On the other hand, for anyone who barbeques on a gas grill, the consumer behavior is already in place. When the propane tank on the grill is empty, the barbeque chef takes the empty tank to Home Depot and exchanges it for a full one. Unfortunately, I doubt this idea will fly. That means we need batteries that hold a lot of energy. But those batteries are decades away from reality. In fact, given our understanding of chemistry and physics, we may never see batteries capable of powering electric vehicles like their internal-combustion alternatives.


Electric-Car Makers Struggle

Companies Face Similar Problems as Detroit Auto Makers -- And Some Others

The heads of the struggling Detroit auto makers aren't the only car makers looking for help from Washington. The electric vehicle industry has its hands out, too.

If anything, representatives of the electric and electrified vehicle business jumped ahead of the "legacy" auto industry in the transportation bailout queue that formed in the nation's capital last week.

The Future of Electric Vehicles

The electric-vehicle industry positions itself as the future of personal transportation. President-elect Barack Obama is now the industry's highest ranking advocate. He's said he wants to see one million plug-in vehicles by 2015, as part of his broader goal to end U.S. dependence on Mideast oil.


The credit crunch and the economic slump are slamming the crop of electric-vehicle companies that sprung up in recent years, fueled in part by Silicon Valley venture-capital money.

Tesla Motors LLC, once the darling of the green car movement, is now scrambling to stay afloat and is asking for a $400 million loan from the same $25 billion federal Energy Department program that Detroit's car makers are looking to tap in their own fight for survival.

Tesla is now taking some flak for seeking handouts from taxpayers, most of whom could never afford its current product, a racy electric sports car that starts at more than $100,000. Detroit's chiefs might say: Welcome to our world.

The electric-vehicle industry's need for government assistance doesn't stop with subsidized loans. Mr. Wynne says the government's existing tax credits for purchases of electrified vehicles – meaning all-electric and gas-electric hybrids – should be expanded. Currently the credits, which range from $2,500 for a plug-in hybrid vehicle with a four kilowatt per hour battery pack to as much as $7,500 for an electric vehicle weighing under 10,000 pounds.

The U.S. should also do more to promote development of advanced vehicle batteries. After access to capital, batteries are one of the biggest anxieties among U.S.-based electric and hybrid vehicle manufacturers – from the Detroit Three down to the smallest Silicon Valley EV upstart. Right now, there's no company producing advanced automotive batteries suitable for electric vehicles or hybrids in the U.S.

To the extent that such batteries are made in volume anywhere, it's in Japan, Korea or elsewhere in Asia.

Finally, U.S. electric-vehicle makers are hoping that the government can be not just the financier of last resort, but also a customer. "The federal government owns 600,000 vehicles," Mr. Wynne says. The government should be a buyer for electric vehicles – not just cars, but commercial vehicles.


Established auto makers, including Toyota, GM, Chrysler, Nissan Motor Co., all are talking about plans to field significant numbers of partially electric or fully electric vehicles over the next several years.

Not so long ago, the electric-vehicle industry's moment seemed to have arrived, after nearly a century of frustration and failure. Soaring oil prices, technology advances and the enthusiasm of deep pocketed investors appeared to be coming together to overcome the obstacles that have relegated electric vehicles to the auto market's sidelines since the days of Thomas Edison.

Now, oil prices have crashed, clouding the economic case for switching to expensive battery-boosted cars.

Road Hogs

The Three Families of Detroit continue to threaten the US with economic catastrophe unless Taxpayers cough up at least $34 Billion NOW. And maybe more next year. Do they believe they are making an offer Taxpayers cannot refuse? If so, they had better adjust their thinking. Do they believe that America will collapse without them? If they do, then threatening the country with economic collapse if $34 billion is not forthcoming sounds worse than criminal extortion to me. It sounds like treason.

Why do the Auto Companies believe they deserve special consideration? Are the Big Three unaware of corporate history in this country? The answer must be Yes. It seems Chrysler CEO Nardelli has forgotten that it took over American Motors a couple of decades ago because the company was in collapse. What did Chrysler get? Jeep. Probably Chrysler's best line. Where did all the Ramblers go? Into the corporate history books. To business school case studies. Gone, and mostly forgotten.

The list of failed US car companies is long. But this time it's different. The heads of Detroit's Three Families refuse to do what managements are hired to do -- run profitable operations. Instead, they now want to acquire money from an alternative source -- the government. More accurately, the Taxpayers. What does this show? It shows that the auto companies have become the biggest rent-seekers in history. They refuse to be capitalists when it counts. They want to be socialists. Actually, it's worse. They're looking like communists.

According to the current plan, the government will acquire ownership of the means of production. Obama has said he wants to appoint a Car Czar. Central Planning, here we come!! Do we need a bureaucracy to tell us the number of cars to be built during the next 5-year plan?

Let's try this: Let's end the eternal struggle between Labor and Capital. If the Auto Companies want money, let the Taxpayers buy GM at its current market price of less than $3 billion and GIVE the stock to the UAW. Let the United Auto Workers own GM and let them take full charge of the company and make it work. I'll bet they'll find a way before Christmas.

The Auto Industry seems to have missed the business news during the last few decades. Probably because the main venue for getting that news is disappearing.

The Newspaper Industry is vanishing. Print media jobs have been disappearing for years. Now the Print Media itself is disappearing. Some newspapers are shutting down. Others are cutting back, becoming weeklies instead of dailies.That's just a gambit to slow the the pace of decline.

Is anyone crying over the loss of the Newspaper Industry? How about the Shoe Industry? We once made most of our own shoes here in America. Today we import 99%. Textiles. Similar story. Check your shirt collar. The label probably reads Made in Pakistan. By the way, has the loss of shoe manufacturing led to barefootedness among Americans? Or do we have so many shoe choices at so many price points that it's tough to decide which shoes to buy? How about shoe repair shops? They're everywhere.

So too are automotive repair shops. Transmission shops, Muffler Shops, Brake Shops, Oil Change facilities. Is there any part of a car that is left unserviced? No. Do people buy cars that lack comprehensive warranties? Yes. Millions of them every year. Used cars. They're cheaper than new cars, and the lack of warranty coverage is a big reason.

By the way, what's included in a warranty? Of course, the obvious. But GM loses about $1,500 per car. As we all know, warranties are a big source of profits. When a product is well built, the warranty is often a losing proposition for the buyer. Of course, if you have one of the few defective cars, then the warranty is a blessing. But given the higher quality of Detroit's vehicles, how much of the warranty price is actually absorbed by repair work?

The answer? Not much. The warranty is an overpriced insurance policy that is wildly profitable. But Detroit's labor & benefit costs are so high that even with a huge boost from warranty revenue, the companies cannot earn a profit.

Walmart is selling big flat-panel TVs. Why go to Walmart when you can get a better price on the same TV at Best Buy? Here it is: The Warranty. Walmart sells TVs for a little more than Best Buy. But it beats BB by a mile on the price of the warranty. Thus, the total price at Walmart is better than the total at Best Buy.

Maybe Walmart should get into the car dealership business. And maybe Toyota and Honda should teach Detroit how to make cars AND profits in the US.

Detroit Mafia -- Driving the Getaway Car

Give us the money -- Or Else!! The Big Three Detroit Families have learned something mobsters have known for a long time. Threats work.

For the last few months, Detroit car executives have demanded money from taxpayers. Lots of it. But Americans have been reluctant to hand over the billions the leaders of the Three Families have sought. Even though the offers they have made have been refused, so far, the lack of cooperation has not discouraged the heads of the Three Detroit Families. Today, a leader from one of three realized it was time to deliver a big threat that might get action, finally. The Offer They Can't Refuse.

The executive from the Chysler family threatened to take down the whole US economy if the taxpayers refuse to cough up the money within weeks. Smash it, burn it down, wreck the joint. Or. All it will take to save the nation, he suggests, is $20 or $30 or $40 or $50 Billion. Or more, if those initial sums fail to restore the health of the Three Detroit Families. He was backed by an executive from the GM Family.

Chrysler exec: Failure could spark Depression

Chrysler exec warns of depression as auto officials intensify fierce lobbying push

WASHINGTON (AP) -- A top executive of Chrysler LLC cautioned Wednesday that a carmaker collapse could send the economy spiraling into a depression, as the United Auto Workers union braced for contract concessions.

Jim Press, Chrysler's vice chairman, said the U.S. automakers were "down to months left," as industry officials ratcheted up a fierce lobbying push to persuade Congress to approve as much as $34 billion in emergency aid.

"We're on the brink with the U.S. auto manufacturing industry," Press told The Associated Press in an interview. "If we have a catastrophic failure of one of these car companies, in this tender environment for the economy, it's a huge blow. It could trigger a depression."

Fritz Henderson, president and chief operating officer of General Motors Corp., took to the TV airwaves to stress that bankruptcy isn't a viable option on the eve of a new set of congressional hearings on the auto bailout. At the same time, UAW leaders were immersed in intense discussions on possible givebacks for the companies at an emergency meeting in Detroit.

Under consideration were the possibility of scrapping a much-maligned jobs bank in which laid-off workers keep receiving most of their pay and postponing the automakers' payments into a multibillion-dollar union-administered health care fund.

In blueprints delivered to Capitol Hill on Tuesday, GM and Chrysler said they needed an immediate infusion of government cash to last until New Year's, and both said they could drag the entire industry down if they fail. Ford is requesting a $9 billion "standby line of credit" that it says it doesn't expect to use unless one of the other Big Three goes belly up.

But Chrysler said it needed $7 billion by year's end just to keep running. And GM asked for an immediate $4 billion as the first installment of a $12 billion loan, plus a $6 billion line of credit it might need if economic conditions worsen. The two painted the direst portraits to date -- including the prospects of shuttered factories and massive job losses -- of what could happen if Congress doesn't quickly step in.

All three plans envision the government getting a stake in the auto companies that would allow taxpayers to share in future gains if they recover.