China's Geely Seeks to Acquire Ford Motor Company's Volvo Division

China’s largest private automaker, Geely Automobile Holdings Ltd., announced on Monday that it expects its sales to increase by one third in 2010. Geely’s parent company, Zhejiang Geely Holdings, is currently in negotiations with Ford Motor Company for the purchase of Ford’s Volvo division and says that it will seek out other acquisition opportunities as well. The announcement sent Geely’s stock to a record high closing price on Monday.

Following a shareholder meeting on Monday, Geely Auto’s executive director, Lawrence Ang, told reporters, "The battered U.S. and European auto markets continue to provide us with buying opportunities."

In addition to their current bid for Volvo, Geely had been involved in talks with General Motors Company for the acquisition of its Saab unit, but those talks were abandoned some time back according to Ang. He said, "I had looked into Saab, but GM did not come back to us. Maybe they find our terms were not good enough."

Ang was nonchalant when questioned about the possibility of reviving its talks with GM, saying, “If they could not find a buyer, they may come back to us, who knows?"

Geely is especially interested in acquisitions that would buttress its engine and parts production capabilities. The company also has its eye on competing for China’s high-end automotive sector which has shown signs of recovery in recent months.

The acquisition of Volvo could go a long way toward making Geely’s premium car aspirations attainable. The company currently focuses on producing mass market vehicles like the Geely Kingkong which sells for about 40,000 yuan or the equivalent of $5,859 U.S.

In China, Volvo’s top-tier XC 90 comes with a hefty sticker price of up to $205,000.

Sinopac Securities analyst Vivien Chan said the uptick in Geely’s stock price was not surprising considering the rapid growth in the overall Chinese automotive market.

Geely’s share price has risen over 500% this year.

Chan said, "China’s November car sales growth was good and that helped boost market sentiment on the auto market." She added, "If Zhejiang Geely wins the bid, it will take at least one to two years for the listed company to implement a co-operation plan in China for the two brands."

Ang said that Geely’s revised sales forecast is reflective of the explosive gains made in 2009. He said, "There is a chance that China’s car sales next year will be better than this year."

Most analysts, however, expect the growth rate to slow in 2010 from its record high increase of 45% in 2009. Most forecasts place the rate in the 10% to 15% range.

Ang said that Geely Automotive issued warrants and convertible bonds earlier this year that helped the automaker raise $334 million. A portion of those proceeds, he said, will be used to fund the automaker’s acquisition plans.

During the first half of the year, Geely paid an estimated $40 million for the acquisition of Drivetrain Systems International – an Australian supplier or automatic transmissions.

The company also plans to increased capital spending by up to 43% in 2010 to around 1 billion yuan. Those funds, he said, will be used to increase production capacity and develop a new model platform.

Posted in In the News

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