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.

Saab Story

Obama is showing the world what happens when the government buys 61% of a bankrupt motor vehicle manufacturer. GM is having no luck selling Hummer, Saturn and Saab. But why should Obama worry? Or GM? The bill goes to the taxpayers.

However, since almost all Saab's employees are in Sweden and GM cannot sell the company, you would hope that GM would simply give the business to the employees -- for free. Let them have a go at running it. However, that might be a frightening scenario in the socialist paradise of Sweden.

Saab likely to close as GM fails to sell car brand
GM sale of Saab fails; car brand likely to close down after Swedish buyer pulls out of deal

DETROIT -- A deal for General Motors Co. to sell Saab to a specialty carmaker has collapsed, leaving the storied Swedish brand born from jets in 1947 close to extinction.


Koenigsegg Group AB, a consortium formed by Swedish luxury sports car maker Koenigsegg Automotive AB, said Tuesday it pulled out of the deal in part because it was unable to agree with investors on how best to move the brand from mass-market to premium.

For GM, it was the third time this year that a deal to shed one of its brands fell apart as it tries to recover from a stay in bankruptcy protection by focusing on a core of four: Chevrolet, Buick, GMC and Cadillac.

The next move is up to GM's board, which will decide Saab's future in a few days. But with no apparent backup investors and the Swedish government refusing to buy Saab, GM may follow through on a contingency plan to let the brand die.

That jeopardizes the jobs of Saab's 4,500 employees, most of them in Sweden.

Joran Hagglund, a senior official at Sweden's Ministry of Enterprise, said the government will continue talking with GM, but the only solution for Saab is for another company to buy it.

"We have been very clear from day one that the government will not be the owner," he told reporters in Stockholm.

GM, which earlier this year conceded it has never made money with Saab, is unlikely to keep the brand, and industry analysts said any potential investors likely stepped away when Koenigsegg emerged as the buyer.

Matts Carlson, automotive analyst at Gothenburg Management Institute in Sweden, said Chinese automakers or Italy's Fiat Group SpA may still be interested, but he acknowledged there is a substantial risk that Saab could be closed for good.

The chairman of the Koenigsegg consortium told The Associated Press Tuesday that financing had been worked out, but as negotiations with GM and investors grew lengthy, it appeared less likely that Koenigsegg would be able to make money on the deal.

Analyst Carlson said the financial condition of Saab, which went into a court-protected restructuring Feb. 20, worsened since Koenigsegg announced plans to buy it in June.

"Saab's situation, they are losing market share all the time, could have given Koenigsegg cold feet," he said.

Koenigsegg, a tiny company that makes only a dozen high-performance luxury cars a year, was formed in 1994. Its headquarters and factory -- which produces cars that cost more than a $1 million each -- are at a former air force base in southern Sweden.

Earlier this month, GM's board decided to keep its European Opel unit rather than sell it to a group led by Canadian auto parts maker Magna International Inc.

In September, auto dealership chain owner Roger Penske scrapped plans to buy Saturn after an agreement to get cars from France's Renault fell through. The GM board decided to phase out Saturn, a possible fate for Saab.

But GM will keep and restructure Opel, which unlike Saab, is considered critical to GM's international operations. GM was worried that Opel technology would wind up in rivals' hands.

All three GM deals fell through because few people realize how difficult it is to unravel years of complex integration by global automakers, said Michael Robinet, a vice president at CSM Worldwide, an auto industry consulting firm near Detroit.

Disputes arose over use of technology, use of common parts and factories, and who would make cars after initial agreements expire.

Financing also had been a problem for the Koenigsegg group, which in August said it lacked about 3 billion kronor ($417 million) for the Saab deal. But in September, the consortium struck a deal with Beijing Automotive Industry Holdings for a minority stake to raise more money.

It will be difficult for Saab, founded as a Swedish aerospace company, to recover from Koenigsegg's decision. GM has been selling off existing inventory and preparing to end its role with the company, which would be hard to reverse.

Through October, GM sold only 7,441 Saabs in the U.S., a 62 percent drop from the same period in 2008. Two models, the 97-X SUV and the 9-3 sports sedan, make up most of the company's U.S. sales.

Analysts say GM, which bought half of Saab in 1990 for $600 million and the rest for $125 million in 2000, was unable to differentiate the brand from its other products or find a sales niche.

GM has one more chance to sell a brand. A deal for Chinese manufacturer Sichuan Tengzhong Heavy Industrial Machinery Corp. to buy Hummer still must be approved by the U.S. and Chinese governments.

The Koenigsegg decision comes as the fate of another Swedish automaker, Volvo Cars, remains up in the air. Last month, Ford Motor Co. announced that it had picked a consortium led by China's Geely Group as the preferred bidder, but the deal hasn't been completed.