Ford sells Volvo to Geely

Ford has entered into an agreement to sell Volvo and related assets to Zhejiang Geely Holding Group in a $1.8 billion deal (Rs 8,100 crore), it has been announced.

Following the agreement, the sale is expected to close in the third quarter of 2010. The deal will take so long to close because of the number of approvals required from governments and organisations around the world to clear the deal.

Geely will own Volvo outright, with Ford retaining no shareholding in the company. Ford had bought Volvo in 1999 and Volvo has not made a profit for the company since 2005. Geely, founded in 1986, is China's tenth largest car maker.

However, Ford will continue to supply Volvo with powertrains, stampings and other vehicle components for unspecified periods. As part of the sale, Ford also has committed to provide engineering support, information technology, access to tooling for common components, and other selected services for an unspecified transition period.

Ford and Geely have also established protocol agreements to govern the use of intellectual property; these agreements will also allow Volvo to grant sublicenses to certain portions of Ford’s intellectual property used by Volvo to third parties, including Geely.
 
“Volvo is a great brand with an excellent product line-up. This agreement provides a solid foundation for Volvo to continue to build its business under Geely’s ownership,” said Alan Mulally, Ford’s president and CEO in a statement.

“At the same time, the sale of Volvo will allow us to further sharpen our focus on building the Ford brand around the world.”

Geely Chairman Li Shufu travelled to Sweden to finalise the deal, which reports suggest will be funded by financing from banks in China, USA and Europe, including low-interest loans guaranteed by the governments of Sweden and Belgium.

Shufu said: "We are pleased to have reached this agreement with Ford, enabling us to safeguard and strengthen Volvo's renowned brand heritage. This transaction will ensure Volvo's continued leadership in the premium segment, where it enjoys a global reputation for safety and environmental-friendly technologies.

“As part of the proposed transaction, Zhejiang Geely Holdings will maintain the strong collaborative relationships that Volvo has built with employees, unions, suppliers, dealers and above all, customers. On completion, Volvo Cars will be a separate company with its own management team based in Gothenburg, Sweden, and a new board of directors."

Shufu also said that manufacturing will continue in Sweden and Belgium in the long-term, dismissing talk it would transfer to China. "We want to be close to our supplier chain and markets," he said, speaking of the "unliberated" potential of the company that drew him to the purchase. "It is our intention to remain in Gothenburg in the long-term."

Shufu said: "China, the largest car market in the world, will become Volvo's second home market. Volvo will be uniquely positioned as a world-leading premium brand, tapping into the opportunities in the fast-growing China market."