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Geely Volvo? Too soon to predict

Chinese automakers have been on a shopping spree of overseas acquisitions since the world was hit by a financial meltdown late last year.

Three weeks after GM signed an agreement with a little-known Sichuan Tengzhong to sell its Hummer brand, Ford Motor named China’s Geely Holding Group as the only preferred bidder for its Swedish subsidiary Volvo. If successful, this would be the biggest overseas acquisition by a Chinese auto company in history.

Geely, a private carmaker, started operating 10 years ago by making economy cars and currently sells 220,000 cars a year. In an effort to elevate its brand image, Geely has shifted to a multiple brand strategy since earlier this year to introduce the Emgrand for luxury and the Englon for prestigious brands.

Volvo, a century-old luxury brand, fits in nicely with Geely’s new upmarket strategy and may help the private carmaker elevate its brand image and reach its goal of selling two-thirds of its cars overseas in the future.

Geely’s chairman Li Shufu welcomed Ford’s decision and expressed his “confidence” in a successful bid for the Volvo marque. But analysts believe that it is still much too soon to predict that a deal between Geely and Ford would happen.

The purpose for Geely to make a huge investment for the Swedish brand is to enhance the company’s brand image and help it leapfrog in R&D and manufacturing technologies. Already there have been doubts and skepticisms as to how Geely, a much smaller and inexperience carmaker, can manage and safeguard the value of a much older and more prestigious Volvo brand.

Geely’s lack of proven experience in running an overseas assembly business is another big challenge. Even SAIC, the largest carmaker in China with experience working with recognized multinational players, ended up in failure after its acquisition of Ssangyong. Geely still needs to demonstrate its management capability as a potential owner of Volvo, which lost $1.5 billion under Ford management last year.

Even though Geely was named as preferred bidder, it will take a long process for the deal to go through. Ford and Volvo share a complicated platform in component supply, engineering, R&D and design. Ford will have to ensure that its technology, patents and IPR would not be compromised in a major deal with a potential rival in China.

Word came that GM board decided on November 3 not to sell its Opel brand to Magna International and its partner Russian lender Sberbank. Industry analysts believe that it may be due to a similar concern that the sale of Opel may lead to a technology leak to a Russian automaker, which competes with GM’s Chevrolet.

It would be interesting to find out why Ford Motor made the decision to list Geely as a preferred bidder.

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