Ford and Geely Agree to Major Terms on Volvo Sale

By Chris Haak

12.23.2009

Volvo logoFord issued a press release this morning (find the full text of the release after the jump) announcing that “substantive commercial terms relating to the potential sale of Volvo Car Corporation have been settled between Ford and Zhejiang Geely Holding Group Company Limited.”  The companies did not disclose just what those substantial commercial terms were, but Ford said that the transaction was expected to close by second quarter of 2010, with a definitive sale agreement coming in the first quarter of 2010.

Work still to be done on the deal includes final documentation, financing arrangements, and government approvals (particularly a sticky situation in China, where the central government has to approve all major acquisitions.  Just ask Hummer.)

According to sources quoted in the Wall Street Journal, Geely plans to finance the acquisition – which should cost about $2 billion – with a combination of cash, bank loans, and funds from small investors.  

The sale, which has proceeded at a glacier-like pace, is a huge step forward for Geely, China’s largest privately-owned auto company. It gives the company an upscale auto brand with a well-regarded product lineup, and an excellent dealer, parts and service network in North America and Europe. In effect, it makes Geely an important player on the global stage of the automotive industry. 

Without putting too fine a point on it, it also gives Geely the jumping-off point for selling its other vehicles in the European and North American markets.

Just over a week ago, a group of former Volvo directors sent a letter to Ford Chairman Bill Ford, Jr. asking him to reconsider the sale of Volvo to Geely, citing concerns about Geely’s ability to adequately fund continuing product development at Volvo, and further expressed concern that Geely doesn’t have the technical competence to manage a modern automobile company to the point that it’s successful in an extremely competitive world.  Ford clearly heard the message; while the outcome is not what those letter-writers were hoping for, the company addressed the concerns somewhat in the press release by saying that the sale would “ensure that Volvo has the resources, including the capital investment, necessary to further strengthen the business and build its global franchise.”

After the sale, Ford may continue to cooperate with Volvo, but will no longer have any ownership interest in the Swedish automaker.  Volvo’s sale to a Chinese automaker may not be everyone’s preferred outcome, but I’m guessing that the Saab employees in Trollhattan would gladly switch places with their counterparts in Gothenburg today.

Assuming that the transaction is finalized, it will mean the near-complete dismantling of Ford’s international acquisitions, mostly purchased in the 1990s.  At one point, Ford’s now-defunct Premier Automotive Group included Aston Martin, Jaguar, Land Rover, and Volvo.  All four are now out of the corporate fold.  Ford continues to hold a small stake in Mazda after having sold its controlling interest in the Japanese automaker just over a year ago.  All of the divestitures are part of CEO Alan Mulally’s “one Ford” strategy that focuses the company’s efforts on the core Ford brand worldwide, rather than using (some might say wasting) those efforts on diversions and money pits like Jaguar and Volvo had been.

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PRESS RELEASE:

DEARBORN, Mich., Dec. 23, 2009 – Ford Motor Company [NYSE: F] confirmed today that all substantive commercial terms relating to the potential sale of Volvo Car Corporation have been settled between Ford and Zhejiang Geely Holding Group Company Limited.

While some work still remains to be completed before signing – including final documentation, financing and government approvals – Ford and Geely anticipate that a definitive sale agreement will be signed in the first quarter of 2010, with closing of the sale likely to occur in the second quarter 2010, subject to appropriate regulatory approvals.

The prospective sale would ensure Volvo has the resources, including the capital investment, necessary to further strengthen the business and build its global franchise, while enabling Ford to continue to focus on and implement its core ONE Ford strategy.

While Ford would continue to cooperate with Volvo Cars in several areas after a possible sale, the company does not intend to retain a shareholding in the business post-sale.

More details will be made available once the expected definitive sale agreement is signed in the first quarter of 2010.

Author: Chris Haak

Chris is Autosavant's Managing Editor. He has a lifelong love of everything automotive, having grown up as the son of a car dealer. A married father of two sons, Chris is also in the process of indoctrinating them into the world of cars and trucks.

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5 Comments

  1. Big move for Geely, and a big event in terms of the auto sector and what it looks like in the future. This is the beachhead by which the Chinese enter the major auto markets.

    There were minor incursions previously, but this will be the beginning of the big push.

    First the Japanese, then the Koreans, and now, as expected, the Chinese onslaught.

  2. Here in China the people are very proud of Geely and their purchase. Almost everyone knows of Volvo, so it’s considered an important business deal.

    When businessmen find out I’m an American, they usually ask me about Ford selling Volvo to Geely, and how Americans feel about the Chinese owning Volvo.

  3. Chinese and Swedish – Egg Fondue Yung?

  4. Geely has just leapfrogged every other Chinese car company in a single stroke. They got a great car and a great dealer network all in one decisive move.

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