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Thursday, December 24, 2009

Ford agrees Volvo sale to Geely


Volvo S60 on display in Los Angeles
Volvo has been for sale for a year

Ford has agreed the terms of the sale of its Swedish business, Volvo Cars, to China's Geely.

Ford said "some work still remains to be completed" but the deal will be finalised early next year ahead of completion soon after Easter.

Ford put Volvo up for sale a year ago to help pay off its debt and make its business more focused.

Geely was named preferred bidder in November. If completed, it will be the largest purchase by a Chinese car firm.

Emily Young, Business reporter, BBC News

Agreement has been reached at last. Volvo will almost certainly be sold to Geely.

The question for Volvo is whether its new Chinese owner will do more for the marque than Ford did.

On one level, the decade-long US-Swedish partnership can be seen as a successful. They benefited from each other's technology and expertise.

But although many new models have been introduced in recent years, Volvo sales have not increased much.

That may change under Geely, which will market Volvo in the fast-growing Chinese market.

Ford said that while the "substantive commercial terms" had been settled, financing still needed to be completed and government approval was also necessary.

The update on the sale is necessary for Geely to apply for government approval of the deal and with it, it is thought, the firm's financial backing.

No details were given of how much the deal is worth, but it is widely rumoured that Geely will pay Ford $2bn (£1.2bn; 1.4bn euros), less than a third of the $6.45bn Ford paid for Volvo in 1999.

Ford said it expects to continue co-operating with Volvo Cars, but did not intend to retain a shareholding in the business after the sale.

Benefits for all

Industry observers say the sale is good news for Volvo.

Volvo dealer in China
First Volvo made in 1927
Bought by Ford in 1999
Employs 20,000 worldwide
In 2008 sales fell 18.3% to 374,297

"In theory, the Chinese market could be an opportunity for Volvo," Nomura's auto specialist Michael Tyndall said.

"It's a well-known brand, has a good heritage and a range of products that should appeal to the Chinese consumer."

Equally, the deal should help Geely get into the Western market.

It is thought that the main sticking point in the talks between Ford and Geely had been disagreement about how to deal with intellectual property rights - setting the parameters of Geely's use of Volvo's technology, such as its famous safety equipment, and the extent and cost of using any technology needed from Ford's research.

Moving to China

Professor David Bailey from the Coventry Business School said that he expects much of the Volvo production to be moved to China, which recently overtook the US to become the world's largest market for cars.

Founded in 1986
Started as refrigerator parts supplier
Employs 12,000
Production capacity of 300,000 cars a year

"I would expect development and research to remain in Sweden, and maybe some production, but the big scale production will probably come from China," he said.

"In the long run the question is whether they can continue to develop Volvo's safety profile and advanced engineering technology" he added.

Geely said that Volvo would continue to lead the trend of world auto technology in safety and environmental protection.

"It will quickly increase its unique competitive status in the Chinese market," the firm added.