Geely Preferred Bidder For Volvo: What Could This Mean For China’s Auto Ambitions?

Geely Becomes Clear Frontrunner In Bidding For Ford’s Beleaguered Volvo Unit, Prepared To Pay Nearly $2 Billion

The possible acquisition of Volvo by Chinese carmaker Geely could have great implications for the Chinese auto market's global ambitions...if it doesn't get hung up on IP negotiations

The possible acquisition of Volvo by Chinese carmaker Geely could have great implications for the Chinese auto market's global ambitions...if it doesn't get hung up on IP negotiations

One of today’s big news stories is the announcement by Ford that Chinese automaker Geely has emerged as the “preferred bidder” for Volvo, following months of speculation. If Geely — who is known in China more for its entry-level vehicles than for luxury (though they’re trying to change that) — indeed does buy Volvo, this sale could have major implications for the Chinese car industry’s global ambitions. As we’ve seen over the past few months, the vast and growing Chinese consumer auto market may be a reliable source of income for companies like Geely, but the problem is that there are, quite simply, too many domestic car companies in China, and by attaining the pedigree of an established foreign brand like Volvo, Geely can ostensibly leapfrog the competition and break away as a marquee brand in the Chinese auto market while working to allay fears abroad of the quality of its vehicles. This has major implications, and shouldn’t just be seen as a move by a Chinese newcomer to capitalize on Volvo’s bad fortunes and snap the company up at bargain-basement prices.

Chinese car brands don’t want to count on the Chinese consumer — as we’ve seen from companies like BYD that see the Chinese market as perhaps the backbone of their sales but not their greater ambition. They want to be the next Honda or Toyota, but don’t want to spend 20 years cultivating their brand image overseas. In the fast-paced world of Chinese business, where intense domestic and foreign competition dictates this form of brand strategy, a company like Geely needs to acquire a brand like Volvo while they can. That’s why the potential acquisition of Volvo by Geely shouldn’t be seen as some kind of dalliance by an untested brand in the same way Sichuan Tongzhong’s acquisition of Hummer was.

From Bloomberg:

“Geely has the potential to be a responsible future owner of Volvo and to take the business forward while preserving its core values and the independence of the Swedish brand,” Ford Chief Financial Officer Lewis Booth said. Ford has no plan to retain a stake in Volvo and has “no specific timeline to conclude the discussions.”

While this deal seems to be moving ahead, it’s still far from certain. Ford will have to deal with a great deal of IP issues before it can sell the unit, possibly far more issues than those negotiated by Hummer before their sale to Tongzhong. If the sale does go through, it’s anyone’s guess what Geely would do with Volvo, whether they would merge the two companies for export, much in the same way Lenovo maintained the “Thinkpad” name after acquiring the laptop unit from IBM, or simply maintain the Volvo mark overseas.

Clearly, however, the acquisition of such an established and well-respected brand as Volvo could be a watershed moment for Geely’s global strategy. The question, over the next decade or so, however, will still remain: will Western buyers buy a Chinese car? Or will preconceptions (or misconceptions, depending on who you talk to) about quality control lead to a tough road ahead for Chinese car brands?

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