Li: Why does Geely want to buy Volvo?

17:18, December 28, 2009      

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Zhejiang Geely Holding Group and Ford Motor Company settled commercial terms related to the potential sale of Volvo Car Corporation on December 23, a significant move for the takeover that has aroused massive speculation. Geely Chairman Li Shufu responded to various doubts about the takeover for the first time in a year.

"Selling cars made in China to the whole world, instead of letting foreign cars enter the whole of China"

In 1999, Ford bought the world superior brand Volvo for 6.45 billion U.S. dollars, 3 times more than the current bid price made by Geely. When Ford planned to sell Volvo in 2008, Volvo's pre-tax losses were as high as 1.5 billion U.S. dollars and it also owes Ford 3.5 billion U.S. dollars.

Is it a gain or a loss for Geely to make a bid of about 2 billion U.S. dollars to buy Volvo whose present conditions are much worse than it was? "The proposed takeover of Volvo is related to the new-energy cars," Li said. "New-energy cars represent the future of the international automotive industry. All the cars made by Geely will be gas-electric hybrids in the future. However, China's current research and development investment in this field is far less than that of developed countries."

Ford and Volvo have spent 10 years and up to 10 billion U.S. dollars developing new-energy technologies. From this point alone, Li believes, Geely’s bid price is "well worth paying."

Of course, Li does not just covet Volvo's new-energy technologies.

"I started viewing Volvo as a potential acquisition target in 2002," said Li. Li had just secured the “license” to produce cars in 2002, 4 years after the former refrigerator plant manager led his workers to develop China's first car which was made by a private company, and had invested 2 billion yuan to realize his "car-manufacturing dream."

At that time, he took his Mercedes Benz apart and asked his workers to make cars by imitating this model. The car brand he had originally aspired to build up is China’s Mercedes Benz. However, to survive, he had to start with manufacturing low-end cars, but he has never given up his dream of becoming a first-class automotive producer.

"Not only is the takeover of Volvo favorable to China and the Chinese people, but it is also in line with Geely’s dream," said Li. "My dream is to make the safest, most environmentally-friendly and most energy-efficient cars and sell China-made cars to the world instead of letting foreign cars enter the whole of China."

Li has concluded 3 levels of implications for the takeover of Volvo. Firstly, buying Volvo will give China-made cars access to the world. Secondly, it is of great strategic significance to enhance the image of a Chinese independent brand and enable China-made cars to have a share in the global arena. Thirdly, it will benefit Chinese consumers.

Geely is still in an initial stage of output, sales volume, brand awareness and market share, so purchasing Volvo, which has a history of 80 years and is called "the company that builds the safest cars in the world," may help Geely realize its dream ahead of schedule. Of course, whether the acquisition will be successful depends on the negotiations on core intellectual property rights. Such negotiations were also a difficult problem for the U.S. automobile enterprises including General Motors and Ford when they were peeling off European brands. As purchasers, U.S. automobile enterprises will strive for maximum benefits in aspects such as intellectual property rights and proprietary technologies while peeling off brands and injecting funds. Li admitted that the negotiations on intellectual property rights would be more complicated than the negotiations on price bargain.

"Volvo will still be Volvo and Geely will still be Geely"

"If Geely really succeeds in purchasing Volvo, Volvo will still be Volvo and Geely will still be Geely, except that the boss of Volvo will become Li Shufu," said Li. "They will still be 2 brands that operate fully independently."

According to the latest agreement that the 2 sides reached during the negotiations, Volvo's management team will carry out operations in accordance with their independent business plans, and Volvo's current production, research and development facilities, labor union agreements and sales network will still be kept. In other words, Geely is willing to continue Volvo’s bloodline in the aspects such as technologies, brand and enterprise culture, but will not ruin the century-old Volvo company like some people imagined.

"In the future, we will still rely on Volvo's original team. They are much more professional than us.” As for the question of whether Geely can send a competent management team to take over Volvo, Li said, "One year has passed after Geely purchased Australia's DSI and the UK.s Manganese and Bronze Holdings (MBH), but we did not send anybody in. So, why would we send people in this time?"

Li believes that the only thing that should be changed for mergers and acquisitions is the assessment, award and punishment method. After taking over Australia's DSI and the UK's MBH, Li believed that the most important thing he did was establish the new enterprise management system and the new assessment method for departments and individuals. "It is like Hong Kong residents administering Hong Kong," said Li with a smile on his face.

By People's Daily Online
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