Will Geely buy Volvo? No, says Geely

Despite Rumors, No Deal is Imminent, Says Automotive News China

By Published on .

SHANGHAI (AdAgeChina.com) -- Geely Automobile Group has no intention of acquiring Volvo Car Corp., Geely spokesman Wang Ziliang said.

Mr. Wang was responding to widespread reports that Geely, a small but ambitious private automaker, was in talks to buy Volvo from Ford Motor Co.

An investment banking source here with direct knowledge of Geely says the automaker explored buying Volvo in 2007 and 2008 but lacked sufficient capital to acquire the Swedish automaker.

Many rumors and published reports have circulated in recent months that Chinese automakers are keen to buy foreign brands.
But major acquisitions are unlikely, sources say, because the Chinese automakers are small and lack experienced engineering staffs. They also lack global business experience and are struggling to develop their own brands in the dynamic Chinese market.

In December, Ford said that it will consider selling Volvo as it explores "strategic options" for the company.

Steve Odell, installed as Volvo CEO in October, said at the Geneva auto show last week: "My only request to Ford is that the process happen quickly. Whatever the decision, be it change of owner or to keep, we need to decide quickly because it is disruptive."

Meanwhile, China's influential government is discouraging foreign acquisitions. The policy does not apply directly to private companies such as Geely. But all companies in China pay close attention to government policy.

At a press conference on March 2, 2009 in Beijing, an official with China's powerful National Development and Reform Commission openly warned domestic automakers against acquiring struggling foreign brands.

Chinese automakers' ability to operate large companies outside China is still inadequate, said Chen Bin, head of the commission's industry coordination department, according to official Chinese media.
Yang Jian
Yang Jian
The commission is China's highest economic planning agency. In China, a state-owned company needs the commission's approval before completing an overseas merger or acquisition.

An investment banking source confirmed Geely showed some interest in buying the Volvo brand in 2007 and 2008.

"But they are too small to swallow a big brand like Volvo," he said. In 2008, Geely sold 221,151 vehicles in China, according to JATO Dynamics.

John Zeng, a Shanghai-based analyst with Global Insight, is also skeptical of Geely's ability to finance an acquisition of Volvo.

"Ford bought Volvo for more than $6.4 billion [in 1999]. But Geely is still a small company and it simply doesn't have that kind of money to acquire it from Ford," Mr. Zeng said.

According to its financial report, Geely posted a profit of $33.1 million (226.7 million RMB) in the first half of 2008.

"My estimate is its profit in the second half of last year would be less than the first half," Mr. Zeng added.

Yang Jian is the Beijing-based managing editor of Automotive News China, which is published by the Automotive News Group of Crain Communications Inc. Crain is also the parent company of the Ad Age Group. This article was first published in Auto News China.

Return to the AdAgeChina home page here
Most Popular
In this article: