Experience of Tata and Geely 'will be real test'

Gothenburg: Zhejiang Geely Holding will help Volvo tap China's growing market, Geely Chairman Li Shufu said at a joint press conference with Ford, after a $1.8 billion (Dh6.60 billion) record deal was announced.

Volvo's headquarters will stay in Gothenburg. The price includes a $200 million note and the remainder to be paid in cash, Ford Chief Financial Officer Lewis Booth said on Sunday in Gothenburg. The companies aim to complete the deal in the third quarter, Li said.

Booming auto sales in China made the nation the largest car market last year. After the 2007 sale of Aston Martin, and of Jaguar and Land Rover to Tata Motors for $2.4 billion the following year, divesting Volvo completes Ford Chief Executive Officer Alan Mulally's strategy of exiting European luxury lines to focus on its namesake brand.

"If I were a competitor to Geely in China and all of a sudden I would lose ground to my competitor because they acquired Volvo, I would look to do the same," Mike Tyndall, an automotive specialist with Nomura Securities in London, said in a telephone interview. "The experience of both Tata and Geely will be the real test."

Tata, India's biggest truckmaker, reported its first profit in the quarter ended in December after paying off the remaining debt from the Jaguar and Land Rover acquisition in October by raising $750 million. Tata plans to have seven Jaguar and Land Rover dealerships in India this fiscal year, including ones currently operating in Mumbai and New Delhi.

As part of its efforts to increase the Indian company's sales abroad, Tata last month hired Carl-Peter Forster, a former General Motors Co and Bayerische Motoren Werke AG executive, as chief executive, based in the company's Mumbai headquarters. Forster will be responsible for reviving the slumping luxury brands that Tata bought from Ford while increasing sales of the $2,500 Nano, the cheapest car in the world. Tata's stock has risen 13.8 per cent since the Jaguar and Land Rover deal was announced in March 2008.

‘Tiger'

"I see Volvo as a tiger: it belongs to the forest and shouldn't be contained in the zoo," Li said in Mandarin. "The heart of the tiger is in Sweden and Belgium," he said, referring to the two countries where Volvo has its main plants. "Its paws should extend all across the world."

Volvo plans to produce 390,000 cars this year, compared with 330,000 in 2009, CEO Stephen Odell said. Geely will restore profitability to Volvo, according to Ford's Booth.

Ford will continue to supply Volvo powertrains, stampings and some vehicle components.

"We have continued to invest in Volvo, just as we did at Jaguar Land Rover, to make sure that our employees and now our ex-employees at Jaguar Land Rover are going to be working in a place that has good potential for the future," Booth said in a March 24 interview.

Jaguar Land Rover reported its first quarterly profit since being bought by India's Tata Motors Ltd in 2008 in February after shedding staff and boosting sales of luxury cars.

Li, Geely's founder, has said he is seeking to have half the company's sales from overseas markets by 2015. He aims to sell 200,000 Volvos a year in China, up from 22,405 last year, and has been seeking locations for a new plant there.

‘I Roll'

Volvo was founded 1926 as a subsidiary SKF AB, today the world's largest bearings maker. Volvo, which means "I roll" in Latin, was the name of one of SKF's ball bearings series.

Saab Automobile, the Swedish auto brand that was under General Motors's control for the past two decades, was sold last month to Dutch luxury-automaker Spyker Cars NV for about $400 million.

GM last month failed to complete a sale of its Hummer line of sport-utility vehicles to Sichuan Tengzhong Heavy Industrial Machinery Co after failing to win Chinese government approval, the Detroit-based automaker said. GM has said it will consider other bidders for Hummer, and may retire the brand.

Shanghai-based SAIC Motor Corp, China's biggest automaker, paid $116 million for the design rights of MG Rover Group's Rover 25 and 75 cars in 2005. In December, Beijing Automotive Industry Holding Co acquired some technology from Saab for $200 million to develop its own vehicles.

Ford ended three years of losses with net income of $2.7 billion in 2009 and was the only major US automaker to avoid bankruptcy. Ford paid $6.5 billion for Volvo in 1999.

"Compared to the business environment when we bought it, it's a very different world," Booth said March 24. "We only have so much management resource, we only have so much capital to invest and we needed to make sure we were focusing on the Ford business."