China's Geely says scale key to drive Volvo to profits
Zhejiang Geely Holding Group, China's biggest private carmaker, said on Tuesday scale is the key to returning Volvo to profitability, but has no current plans to build the Swedish brand in China.
Geely, parent of Hong Kong-listed Geely Automobile <0175.HK>, is prepared to pump up to $900 million in capital into Volvo, which it is buying from Ford
Geely's previous plans to return Volvo to the black have involved a major new production facility in Beijing, though Chairman Li Shufu said no discussions are happening now on that front.
Profit will only emerge if we expand the business scale, thus making costs per vehicle lower, Li told reporters in Beijing, after returning from Sweden where his company signed the deal to buy Volvo.
Shifu, who has a penchant for poetry, added the two brands would remain separate, with Volvo and Geely each continuing to produce their own cars.
Volvo comes from Northern Europe and is rooted in Sweden. Volvo will not be Volvo any more if taken out of the soil, Li said. Relations between Geely and Volvo in the future will be like brothers, not father and son.
BIGGEST MARKET
Owning a global brand like Volvo will give Geely a chance to build up its profile in China, where it is known more for small, inexpensive cars, and to catch up with bigger state-owned rivals that have partnered with the likes of GM
China overtook the United States to become the world's largest auto market last year, with sales zooming 46 percent to a record 13.6 million units, driven by economic incentives from Beijing aimed at boosting consumption during the global downturn.
That contrasted sharply with other major markets, which saw sales drop during the downturn, and led to a major industry restructuring that has seen many major carmakers like Ford try to sell their smaller units to focus on their core brands.
Another such deal saw GM try to sell its Hummer brand to Tengzhong, a little-known maker of heavy industrial equipment in southwest China's Sichuan province. That deal ultimately fell apart earlier this year, however, after it failed to win regulatory approval from Beijing.
In the latest deal talk involving a China company, Chinese media reported that local carmaker BYD <1211.HK>, which U.S. billionaire Warren Buffett has a stake in, might be interested in buying Daimler AG's
MAJOR FORCE
Geely's takeover, along with the Tengzhong deal and others, underscores China's arrival as a major force in the global auto industry. The deal ends nearly two years of talks between Ford and Geely over Volvo -- the last sale from Ford's former premier group that also held Aston Martin, Jaguar and Land Rover.
Such a deal would have been nearly unimaginable a few years ago for Geely, which on 2009 forecasts has a turnover of only 16 percent of Volvo's and has just over half the workforce.
Li, an entrepreneur dubbed China's Henry Ford by Economist magazine, said it was important for Volvo to keep its European operations running over the longer term, and for Volvo to maintain its identify in general.
At the same time, he added, a key part of returning Volvo to health will be drawing on the China market, both for production and for its fast-growing consumer base.
In the future, Volvo cars will have stronger ability to guard against market volatilities because it will have two different home markets both in the East and the West, he said at the Tuesday briefing. Moreover, China's cost advantages in purchasing and R&D will surely strengthen Volvo cars' global competitiveness in the future.
Volvo's labor unions, which had been critical of the proposed deal and complained about a lack of information about the future of the company, said they now backed the takeover.
Both sides are aiming to close the deal in the third quarter.
The $1.8 billion Geely is paying for Volvo is less than a third of the $6.5 billion that Ford paid for it in 1999.
(Editing by Lincoln Feast)
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