Feb. 5 (Bloomberg) -- Ford Motor Co., seeking to raise cash to avoid a federal bailout, is in talks to sell its Volvo Car unit to China’s Geely Automobile Holdings Ltd., according to three people familiar with the discussions.

Ford probably will get less than the $6.4 billion it paid for Sweden-based Volvo in 1999, said one of the people, who declined to be identified because the preliminary talks are confidential. Ford has also approached Chinese automakers Chery Automobile Co. and Chongqing Changan Automobile Co., the people said.

Dearborn, Michigan-based Ford lost a record $14.6 billion last year and is trying to avoid asking for government loans to survive as U.S. auto sales plunge to the lowest level in almost 27 years. Buying Ford’s last European luxury brand would help Geely founder Li Shufu, 45, cut his reliance on selling low-cost compacts in China, even as Volvo’s sales plummet.

“Whether it can consummate into a deal is a big question,” said Alice Chong, an analyst at CIMB-GK Securities. “The acquisition would help Geely break into new markets and get better technology, but Geely may have to suffer short-term losses as sales in Europe and the U.S. are collapsing.”

Ford spokesman Mark Truby and Geely spokesman Zhang Xiaodong declined to comment. Zhou Qin, a Changan Auto spokesman did not answer a call to his mobile phone and Chery spokesman Jin Yibo did not answer a call to his office phone.

Geely’s Approach

Geely, China’s largest privately owned carmaker, first approached Ford about buying Volvo a year ago, before the U.S. automaker had decided to sell its Swedish auto unit, two of the people said. Preliminary talks began in December after Ford said it would consider selling the unit.

Geely has received permission from China’s National Development and Reform Commission to study the acquisition, said the people. The government agency must sign off on any major merger and acquisition talks before discussions can begin.

The automaker has already received commitments from Export- Import Bank of China to provide the necessary financing for the acquisition, the people said.

“Chinese automakers want to tap foreign rivals’ resources in technical development,” said Zhang Xin, an analyst at Guotai Junan Securities Co. in Beijing. “To catch up with foreign automakers by themselves takes a lot of both time and capital. Acquisitions could help them.”

Sales documents will be sent to prospective buyers in the middle of February, a person familiar with the plans said last month.

Volvo’s Struggles

Volvo, based in Gothenburg, Sweden, has struggled as the global auto market declines and other automakers make gains in safety technology, a long-time strength for the automaker. Volvo’s U.S. sales fell 64 percent last year. Ford said Volvo had a pretax loss of $736 million in the fourth quarter.

Volvo, the maker of S80 sedans and C70 coupes, was once central to a failed strategy by Ford to reap a third of its profits from luxury autos. The automaker has been shedding European brands under Chief Executive Officer Alan Mulally, recruited from Boeing Co. in 2006.

Last June, Ford sold Jaguar and Land Rover to India’s Tata Motors Ltd. for $2.4 billion. It sold its Aston Martin luxury line for $931 million in May of 2007 to a group of investors.

Geely’s Goal

Geely Holding Group, based in Hangzhou, Zhejiang Province, eastern China, was founded two decades ago by Li, a former farmer who amassed a net worth of $220 million, according to Forbes magazine.

The automaker has boosted sales overseas and added larger models as rising wages and increasing competition from overseas automakers damp domestic sales. Geely Auto’s sales in China fell 1 percent last year, while the total market increased 7 percent, according to J.D. Power and Associates.

Geely Group, Geely Auto’s parent, boosted overseas sales 80 percent last year, it said in December, without giving a precise sales number. In 2007, it sold almost 30,000 vehicles overseas, according to the company’s Web site. The company expects to boost sales 25 percent this year, it said last month.

Geely Auto rose 1.7 percent to 60 HK cents at the close of trading in Hong Kong.

Ford provides engines to some Volvo cars and the two automakers share mechanical underpinnings on several models. Any buyer would have to be assured that Ford will remain healthy enough to provide those key components to Volvo, the people said.

Geely would likely seek to buy Ford’s entire equity stake in Volvo rather than negotiate with the Swedish unit over purchases of specific assets, the people said.

Ford creditors are likely to receive some, or even all, of the proceeds from any sale of Volvo. Ford pledged Volvo as part of the collateral it put up for $23 billion in loans it secured in 2006.

To contact the reporter on this story: Cathy Chan in Hong Kong at kchan14@bloomberg.net; Keith Naughton in Southfield, Michigan at Knaughton3@bloomberg.net

Last Updated: February 5, 2009 03:34 EST