Ford agrees terms for Volvo sale to Geely

Ford Motor has reached a tentative agreement to sell its Volvo cars unit to Geely, the Chinese carmaker. A deal is expected to be finalised early next year, the groups said on Wednesday.

Ford said that “all substantive commercial terms” had been settled, though financing and government approvals had yet to be finalised.

Neither company would comment on the price, but sources close to the deal said it was in the region of $1.8bn to $2bn.

A definitive sale agreement would probably be signed in the first quarter, with completion of the transaction in the second quarter, Ford said.

In October, the US company named Geely, one of China’s largest privately owned carmakers, as the preferred bidder for Volvo.

Geely will take over Volvo’s international manufacturing and sales network, but will also manufacture Volvos in China to meet fast-growing demand for luxury cars on the mainland.

The deal could fall through if Geely’s financial backers, which include Chinese banks, were to withdraw funding or if the Chinese or Swedish governments were to withhold approval, however.

The green light from Beijing appears to have been secured. The Ministry of Commerce recently said it would help Geely finalise the acquisition.

Ford said it would continue to co-operate with Volvo after the sale, but would not retain an equity stake. The deal “would ensure Volvo has the resources, including the capital investment, necessary to further strengthen the business and build its global franchise”, Ford said.

Some Volvo and Ford models are built on the same platforms. Ford said it was “comfortable” with the transfer of intellectual property to Geely.

Michael Dunne, an Asia-based motor consultant, said the deal would be a “milestone”, but “in China, the deal is never completely sealed until the signatures are on the papers”.

Motor analysts said acquiring Volvo technology made sense for Geely.

Klaus Paur, of TNS automotive consultancy, said: “This is a short cut for Geely to get access to world-class technology and mature auto markets.”

There are concerns about whether Geely has sufficient management skills to make a success of a business that others have failed to make profitable.

But Freeman Shen, Geely’s head of international operations, drew parallels with the growth of Japanese car companies in the 1980s.

“They had a unique way to do business, and no one thought they could do it,” he said. “We too do things differently from western groups.”

He said that this would enable Geely to succeed where western carmakers had failed with the marque.