Zhejiang Geely Holding Group Co. completed the purchase of Volvo Cars from Ford Motor Co. in the biggest overseas acquisition by a Chinese automaker.
Geely paid $1.3 billion in cash today and issued a $200 million note for the acquisition, Dearborn, Michigan-based Ford said in a statement. Stefan Jacoby, Volkswagen AG’s former U.S. chief, will succeed Stephen Odell as Volvo’s chief executive officer, Geely said in a separate statement.
Booming auto sales in China made the nation the largest auto market last year, generating profit that’s allowing its manufacturers to reach out to Western markets and technologies. Divesting Volvo completes Ford CEO Alan Mulally’s strategy of exiting European luxury lines to focus on its namesake brand.
“Demand for luxury cars in China is still growing rapidly and it’s important for Geely to build market share quickly,” said John Zeng, a Shanghai-based analyst at IHS Global Insight. “The first priority for Geely would be to localize Volvo and make them in China, otherwise it would be difficult to compete with other luxury brands such as BMW, Mercedes and Audi.”
Geely Chairman Li Shufu will lead the board of Volvo Cars, which will also include Hans-Olov Olsson, the Swedish carmaker’s former CEO. Geely said Hans Oskarsson will replace Stuart Rowley as interim chief financial officer of Volvo Cars.
Geely first approached Ford about buying Volvo in mid-2008, two people familiar with the talks have said. Ford named Geely its “preferred bidder” in October 2009. The two companies agreed on the details of the transaction, including a purchase price of about $1.8 billion in March.
The exact amount Geely pays in total will be determined later this year when the final adjustments on Gothenburg, Sweden-based Volvo’s value are made, Ford said today.
Ford will continue to supply powertrains, stampings and some vehicle components to Volvo. It has also agreed to provide engineering and technology support, and access to tooling for common components.
Ford sold Aston Martin to a group of investors led by former U.K. rally champion David Richards for an undisclosed sum in 2007, followed by Jaguar and Land Rover to Tata Motors Ltd. for $2.4 billion a year later.
Jacoby, 52, was VW’s top U.S. executive when he stepped down in June after nearly three years in the post. He cut costs, designed the first models for the U.S. market, added an assembly plant in Tennessee and moved the headquarters to Virginia from Michigan. He began at VW in 1985 and also worked for the company in Asia for four years.
Volvo builds its S40 and S80L models for the Chinese market at a factory co-owned by Ford and Chongqing Changan Automobile Co. Volvo, which has a contract to use the plant for as long as three years still, will build its own Chinese factory “in a couple years,” Olsson said in an interview today.
“The big difference from before is that now we’ll have two home markets: the Swedish and the Chinese,” Olsson said. “We will have more knowledge than before on how to penetrate the Chinese market.”
Volvo sold 191,832 cars in the first half, a 20 percent increase from a year earlier. In China, Volvo’s fourth-biggest market, deliveries surged 88 percent to 15,497 cars in the period, helped by last year’s introduction of the S80L, a longer version of the S80 that’s sold only in that market.
The last time Volvo made an annual profit was in 2005, when it posted a pretax profit of $377 million. It has been profitable the first two quarters of this year, posting a pretax profit of $53 million in the second quarter, compared with a $237 million loss in the same period a year earlier.
Ford ended three years of losses with net income of $2.7 billion in 2009 and was the only major U.S. automaker to avoid bankruptcy. Ford paid $6.5 billion for Volvo in 1999.
“Geely is not necessarily stepping into a clear-sailing situation; the challenges aren’t over for Volvo,” said Rebecca Lindland, an auto analyst for IHS Automotive based in Lexington, Massachusetts. “The Chinese business culture is very different than the Swedish business culture. A lot of this will depend on how they interact.”