Geely Zhejiang Holdings plans to almost double Volvo Cars’ annual global production with a new factory in Beijing as part of its plan to put the Swedish automaker back in profit by 2011, a media report on Tuesday said.
An industry source who had seen the plan told Reuters Zhejiang Geely, parent of Hong Kong-listed Geely Automobile, wanted to close the purchase of Volvo from Ford for up to US$2bn by May and planned to build 300,000 Volvo branded cars at a new factory in Beijing. That would almost double Geely’s own 2009 output.
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Volvo sold 334,808 cars last year, 10.6% down on the 374,297 2008 tally, and made 311,413. It assembles the S40 sedan line in China at a Ford-Mazda-Volvo JV in Chongqing and churned out 5,811 there in 2008, the latest year for which data was available. The company built 46,512 S40s worldwide that year. Chinese sales in 2009 were about 15,000 units.
Analysts told Reuters the 2011 break-even target could be a stretch for Geely, which under its charismatic founder, Li Shufu, has outlined ambitious global goals but has no experience running a foreign company.
“I think it’s optimistic to break even next year as it needs to build a plant first and it might take time for Chinese buyers to accept a made-in-China Volvo,” said John Zeng, an analyst with IHS Global Insight. “It will break even eventually but that’s going to take time.”
But he added that strong government support could work to the company’s favour, especially if the government put Volvo on its list of approved brands for official purchasing. Such status has helped Audi become one of China’s best selling luxury brands.
The deal would see Geely acquire Volvo for $1.5bn to $2bn, with an expected closing date in May after the signing of the initial agreement next month, according to a copy of the Geely document.
Reuters noted that Geely, “lucky” in Chinese, said in December it was near such a deal, and later added it had strong support from the Chinese government for the purchase.
Geely declined to comment.
According to the report, Geely would set up a separate company with registered capital of CNY8bn ($1.17bn) to buy Volvo while foreign strategic investors and the Hong Kong-listed Geely would hold 51%.
Geely would keep the brand and operations in Sweden, including Volvo’s headquarters, production facility and research centre, intact after the acquisition.
“(Geely) will keep the core value of Volvo as a luxury brand unchanged, while improving it with the development in emerging markets, and add more fashionable, dynamic and passionate international elements,” said the document.
