05 Feb 2009
Feb. 5 (Bloomberg) -- Ford Motor Co., seeking to raise cash to avoid a federal bailout, is in preliminary talks to sell its Volvo Car unit to Geely Automobile Holdings Ltd., according to three people familiar with the discussions.Ford will likely get less than the $6.4 billion it paid for Volvo in 1999, said one of the people, who declined to be identified because the talks are ongoing. Ford has also approached Chery Automobile Co. and Chongqing Changan Automobile Co., the people said.
Dearborn, Michigan-based Ford lost a record $14.6 billion last year and is trying to avoid asking for government loans to survive as U.S. auto sales plunge to the lowest level in almost 27 years. A purchase of Ford's last European luxury brand would help Geely founder Li Shufu meet his ambition of overseas expansion, even as the Swedish unit's sales plummet.
"Li has an entrepreneurial spirit and no fear," said Asian automotive analyst Tim Dunne of J.D. Power and Associates in Westlake Village, California. "He just goes and gets stuff done."
Ford spokesman Mark Truby and Geely spokesman Zhang Xiaodong declined to comment. Zhou Qin, a Changan Auto spokesman did not answer a call to his mobile phone and Chery spokesman Jin Yibo did not answer a call to his office phone.
Geely's Approach
Geely, a maker of $6,000 compacts, first approached Ford about buying Volvo a year ago, before the U.S. automaker had decided to sell its Swedish auto unit, two of the people said. Preliminary talks began in December after Ford said it would consider selling the unit.
Geely has received permission from China's National Development and Reform Commission to study the acquisition, said the people. The government agency must sign off on any major merger and acquisition talks before a company can enter into them.
Geely has already received commitments from Export-Import Bank of China to provide the necessary financing for the acquisition, the people said.
"Chinese automakers want to tap foreign rivals' resources in technical development," said Zhang Xin, an analyst at Guotai Junan Securities Co. in Beijing. "To catch up with foreign automakers by themselves takes a lot of both time and capital. Acquisitions could help them."
Sales documents will be sent to prospective buyers in the middle of February, a person familiar with the plans said last month.
Volvo's Struggles
Volvo, based in Gothenburg, Sweden, has struggled as the global auto market declines and other automakers make gains in safety technology, a long-time strength for the automaker. Volvo's U.S. sales fell 64 percent last year. Ford said Volvo had a pretax loss of $736 million in the fourth quarter.
Volvo, the maker of S80 sedans and C70 coupes, was once central to a failed strategy by Ford to reap a third of its profits from luxury autos. The automaker has been shedding European brands under Chief Executive Officer Alan Mulally, recruited from Boeing Co. in 2006.
Last June, Ford sold Jaguar and Land Rover to India's Tata Motors Ltd. for $2.4 billion. It sold its Aston Martin luxury line for $931 million in May of 2007 to a group of investors.
Geely's Goal
Geely was founded two decades ago by Li, a former farmer who amassed a net worth of $220 million, according to Forbes magazine. Last year, Geely's sales in China fell 1 percent while the total market increased 7 percent, according to J.D. Power and Associates. At the economic forum in Davos last month, Li said Geely's sales will rise 25 percent this year.
Ford provides engines to some Volvo cars and the two automakers share mechanical underpinnings on several models. Any buyer would have to be assured that Ford will remain healthy enough to provide those key components to Volvo, the people said.
Geely would likely seek to buy Ford's entire equity stake in Volvo rather than negotiate with the Swedish unit over purchases of specific assets, the people said.
Ford creditors are likely to receive some, or even all, of the proceeds from any sale of Volvo. Ford pledged Volvo as part of the collateral it put up for $23 billion in loans it secured in 2006.
