If China-based Geely Automobile Holdings Ltd. were to purchase Volvo Car Corp. fromMotor Co., Chinaâ€™s government likely would have to provide funding for the acquisition, says Tim Dunne, director, Asia-Pacific Market Intelligence, J.D. Power and Associates.
Geely is a â€śsmall private company with limited public offering listings,â€ť Dunne tells Wardâ€™s. â€śIt would be extremely ambitious.â€ť
Calls toand Geely seeking comment were not immediately returned. However, Geely issued a statement denying it was in talks with the U.S. auto maker.
Says Volvo spokesman Olle Axelson: â€śWe have no idea of any Chinese companies being interested in Volvo Car Corp.â€ť
The prospect of a sale originally was reported by Bloomberg.
According to Dunne, Geelyâ€™s market capitalization is about $500 million â€“ hardly the type of company that would be able to swing the $3 billion Ford reportedly asking for the Swedish auto maker.
But Geely founder Li Shufu, 45, never has been one to back down from a challenge. He also is known as someone whose decisions fly in the face of convention, Dunne says. Shufu is â€śthe kind of guy that does the unexpected; heâ€™s fearless. While other people contemplate what to do, he goes and does things.â€ť
As such, itâ€™s possible Li could appeal to the Chinese government for assistance in purchasing Volvo. And itâ€™s likely the government would agree to finance such a deal, Dunne says.
â€śChinese banks are sitting on $1.8 trillion in foreign reserves,â€ť he says. â€śIn November, the government announced a $480 billion stimulus package for the economy and had a couple hundred billion earmarked to support local companies for the acquisitions of foreign companies.â€ť
Ford, whose global operations posted a record $14.6 billion loss in 2008, ordered a strategic review of Volvo in December as it attempts to pad its cash reserves to bolster its liquidity.
Ford bought Volvo for $6.4 billion in 1999, and since then the Swedish auto maker has struggled to turn a profit. In fourth-quarter 2008, Volvo continued to track downward, with a pre-tax loss of $737 million, compared with its breakeven position year-ago.
While Volvoâ€™s sales are on the decline, so are Geelyâ€™s. According to J.D. Power and Associates, Geelyâ€™s core brand sold 183,063 vehicles last year, a drop of 1% vs. like-2007. Including its Maple and Eagle brands, the auto makerâ€™s 2008 sales totaled 221,762.
The majority of Geely sales were to the domestic market, with a handful of units exported to developing countries, Dunne says.
Establishing itself as a true global player, with access to Volvoâ€™s technology and distribution network, may be the reason behind Geelyâ€™s reported interest in the Swedish auto maker, says Center for Automotive Research Chairman Dave Cole.
â€ś(Volvo) would be a very valuable addition to them,â€ť he tells Wardâ€™s. â€śIt would bring (Geely) a huge dose of technology and sales and marketing outlets all over the world. And (the possible) sale could make some sense, if â€¦Ford could get a fair price.â€ť
Cole agrees the Chinese government most likely would have to assist in an acquisition, as Volvo could fetch anywhere between $2 billion-$3 billion.
While Dunne agrees Geely likely is eager to gain access to Volvoâ€™s technology and distribution network, while also instantly positioning itself as global player, he wonders whether such a deal would be a money-losing proposition.
â€śOutside of China, (Geely) isnâ€™t well known at all,â€ť Dunne says. â€śBut while acquiring a global brand and the technology sounds attractive, Geely has to ask itself if it would make money, or at least have the potential to make money.â€ť
Dunne also points to the number of failed automotive acquisitions in the past as an example of why Geely would do best to proceed with caution.
â€śLook at Ford (with former subsidiaries) Jaguar, Land Rover and Aston Martin. (Ford) couldnâ€™t make it work,â€ť he says, also noting-Benz AGâ€™s experience with the former Corp. and AGâ€™s failure to revive Rover. â€śThe list goes on and on.â€ť