Purchase of Volvo by China's Geely Premature

For a few days now, reports have come out of China that automaker Geely has struck a deal to acquire Swedish automaker Volvo from Ford Motor Co.

While it is true that Geely has been at the table negotiating with Ford’s committee in charge of selling Volvo, a Ford official says a deal has not been struck, and that the U.S. automaker is still reviewing bids from other suitors.

China Daily reported that a deal was done, and its report was echoed by other news agencies.

The Local, a Swedish newspaper in Stockholm, reported that Geely intended to build the XC90 SUV in China and position the company for a move toward a global market.

A Volvo spokeswoman Maria Bohlin told the Swedish news agency Tidningarnas Telegrambyra that, “Ford is in charge of the sale. We don’t know anything here.”

Ford spokesman Mark Truby said no deal to sell Volvo has been reached, and none is imminent.

Ford has been selling off its non-core brands to raise cash and focus the company on the Ford brand worldwide. The company also sells Lincoln and Mercury brands in the U.S. It has already sold Aston Martin to a British investor group, and the Jaguar and Land Rover brands to Indian automaker Tata.

Ford has been shopping Volvo since last year. The Swedish brand has come under tremendous sales pressure, and has been losing hundreds of millions of dollars a year for Ford.

Swedish managers made a huge mistake a few years ago in fighting Ford executives who wanted to build some Volvos in the U.S. as a hedge against currency swings that have made Volvos pricier than rivals.

Too, Volvo’s vaunted reputation for safety has been cut into by other manufacturers. Safety standards imposed on automakers have made automobiles in general much safer, so Volvo’s safety engineering advantages are worth less in the marketplace.

The company has also let models like the XC90 SUV get old. And newer models like the redesigned S80 do not pack enough style to appeal to 21st century car buyers.

But the Volvo dealer network in Europe and the North America would be very valuable to an emerging manufacturer like Geely, which has designs on the U.S. market. The presence of an established, credible brand like Volvo on the same showroom floor at Geely’s models would give the unfamiliar Chinese brand a big leg up in the toughest consumer market in the world.

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