Geely Buys Volvo for $1.8 billion

Chinese automaker Zhejiang Geely Holding Corp. has purchase Volvo from Ford for $1.8 billion. Geely, one of China’s biggest automakers, has plans to invest $900 million more into Volvo to make the brand profitable. Reuters has more:

Geely, parent of Hong Kong-listed Geely Automobile (0175.HK), is prepared to pump up to $900 million in capital into Volvo, which it is buying from Ford (F.N). Geely’s previous plans to return Volvo to the black have involved a major new production facility in Beijing, though Chairman Li Shufu said no discussions are happening now on that front.

“Profit will only emerge if we expand the business scale, thus making costs per vehicle lower,” Li told reporters in Beijing…Shifu…added the two brands would remain separate, with Volvo and Geely each continuing to produce their own cars.

“Volvo comes from Northern Europe and is rooted in Sweden. Volvo will not be Volvo any more if taken out of the soil,” Li said. “Relations between Geely and Volvo in the future will be like brothers, not father and son.”

Geely paid a fraction of the price that Ford had originally paid for the brand, according to China Car News. The deal puts Geely at a major advantage over other Chinese carmakers (from China Car News, edited for readability):

One of the major overlooked aspects of the deal is that Geely can now tap into the Volvo-Ford supply chain to search for suitable vendors for its own in-house Geely projects. This alone will improve Geely’s products. Take this and coincide it with Geely’s access to Volvo’s R&D team, and you will realise that Geely has in one single purchase jumped around 10 years ahead of its Chinese competitors in terms of technology (platforms, safety engines, R&D) and branding. This makes the 1.8 billion USD spent on Volvo look like chump change compared to what they will get back over the next decade of car producing.

Geely first tried to introduce its cars to the US market in 2008, but, ironically in light of the Volvo purchase, failed crash tests. The company’s Volvo purchase will likely increase both Geely’s international status and international market penetration.

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