The Volvo deal unwrapped
Published March 30, 2010
Geely may have bought Volvo for a bargain 1.8 billion USD, a fraction of the price that Ford originally paid for it several years ago, but exactly have they bought? Well, CCT can reveal that Geely have come into quite a bit for the money that they have spent, theyve gained a fantastic well respected Western brand which could be profitable with the right management. If you compare Geelys purchase to other overseas purchases by Chinese auto companies it is in fact an absolute steal for the price, SAIC spent a great deal of money to obtain the rights to the Rover 75 and 25, whilst Nanjing spent a little less to obtain the MG brand and the Longbridge factory, SAIC then bought out Nanjing for a great deal more. Beijing Auto received several Saab platforms and engines for a pittance late last year, but they still have to bring these models into the 21st century if they wish to sell them abroad under their own brand in the future.
After the signing ceremony it was revealed that Geely had purchased the rights to produce nine different Volvo models, these are: S40, S60, S80, C70, C30, XC90, XC60, V50, V70. They also received three platforms, P1, P2, P24. P1 is used primarily for small cars, but is used as a base for the S40, V50, C7o, and C30. The P2 platform is used on larger models such as the S60 and XC90 series, the last platform, the P24 is used for the XC60, V70, S80.
As well as the platforms, Geely gained the Volvo dealership which is an impressive 2000 dealerships worldwide, this will give them massive scope to develop the both internationally and domestically in China, especially with the addition of a massive new China factory to give the Chinese car market more Volvos than the existing Changan-Volvo JV can provide.
Now that the agreement has been signed, Geely has agreed to abide to the following basic outline:
- Geely will receive funds from Chinese banks to support Geely
- Geely will keep Volvo as an independent unit, free from Geely interference.
- Allow Volvo to buy made in China parts.
- Allow Volvo to continue using the existing international and domestic sales network
- Keep Volvos existing production facilties and R&D capabilities
- Keep Volvos existing union contract
One of the major aspects that has so far been over looked is that Geely can now tap into the Volvo-Ford supply chain to search for suitable vendors for its own in house Geely projects, this alone will lift up quality within the Geely household and really push their products along, take this and coincide it with Geelys access to Volvos R&D team, and you will realise that Geely has in one single purchase jumped around 10 years ahead of its Chinese competitors in terms of technology (platforms, safety engines, R&D) and branding, which makes the 1.8 billion USD spent on Volvo look like chump change to what they will get back over the next decade of car producing.
Geely bought Volvo through various means, these can be broken down as follows:
- 1 billion in loans from banks
- 500 million in government financial institutions
- 300 million from investment firms
- and the rest came from Geely
Operating costs for Volvo are being funded in the following ways:
- European government will give 500 million USD in support
- The Swedish government will give 500 million USD in support
- Chinese and American investors will also offer 500 million USD in support.