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Ford sells Volvo to China's Geely auto group for $1.8 billion

Geely gains a foothold in Europe with its purchase of the Swedish car brand. Ford bought Volvo in 1999 for $6.45 billion, then struggled to make the brand profitable as the U.S. auto industry slumped.

March 29, 2010|By David Pierson
  • Zhejiang Geely Holding Group Chairman Li Shufu, left, Swedish Enterprise and Energy Minister Maud Olofsson and Volvo Chief Executive Stephen Odell in Sweden.
Zhejiang Geely Holding Group Chairman Li Shufu, left, Swedish Enterprise… (Bjorn Larsson Rosvall /…)

Reporting from Beijing — Ford Motor Co. agreed to sell its Volvo Cars unit to a Chinese automaker group Sunday, marking the most significant push by a car company in China to tap overseas markets.

China's Zhejiang Geely Holding Group will pay the U.S. auto giant $1.8 billion for the Swedish car brand, which will give the company cachet in the domestic market and a foothold in Europe.

China surpassed the United States last year as the top auto market, but its domestic car manufacturers faced an uphill battle acquiring brand awareness and technology overseas.

The privately owned Geely was ranked 11th in total sales last year in China and will benefit from Volvo's research center and reputation for high safety standards.

The Chinese company will allow Volvo to operate largely independently. Volvo will keep open its manufacturing plants in Sweden and Belgium while looking to open facilities 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," said Li Yizhong, China's minister of industry and information technology, who attended the signing ceremony at Volvo's headquarters in Gothenburg, Sweden.

Ford bought Volvo in 1999 for $6.45 billion. But the American automaker struggled to guide the brand toward profitability as the U.S. auto industry fell into decline. It began shopping Volvo in 2008. By October 2009, Geely was named the preferred bidder, and the two sides had been negotiating since.

"We think it's a fair price for a good business, and yes, we're happy with the deal we've achieved with Geely," Lewis Booth, Ford's chief financial officer, told the Associated Press. "Volvo can continue to build its business and return to profitability."

Though not the first attempt by a Chinese company to acquire a foreign brand, Geely's deal is by far the most successful.

In December, Beijing Automotive Industry Holding Co. reached a deal with General Motors Co. to buy some of Saab's powertrain technology.

Last month, Sichuan Tengzhong Heavy Industrial Machinery Co. scrapped a plan to buy GM's Hummer brand because the company was denied government approval.

Geely, which largely builds compact cars, will be taking its first stab at mass-producing high-end vehicles.

China is quickly becoming a battleground for luxury cars. Sales of the segment grew 29% in 2009 compared with a year earlier and were expected to rise steadily, according to J.D. Power and Associates.

Volvo will have to compete with Audi, which dominates the luxury market in China, followed by BMW, Lexus and Mercedes-Benz.

david.pierson@latimes.com

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