rss feedIs ownership still relevant? The reason: Chinese company plans to buy Volvo
The Volvo brand has long been associated with European quality. That might change as potential new owners work to buy the brand. Photo source: Volvo
In commercials and life, Volvos have had a special European cache, a reputation of building safe, boxy vehicles for the elements.
One commercial for the company that started in Sweden features a Volvo 740 Turbo Wagon, butlers and a wealthy owner and proclaims that, “Until Ferrari builds a wagon, this is it.”
It’s easy to picture Ralph Lauren driving a Volvo sport-utility vehicle on a ranch.
Another commercial features the famous, crash test dummies, to illustrate a Volvo’s strength.
It’s turning out, though, that one cliche still wields power in the 21st Century: Cash is king. And one country that has cash right now is China.
Geely, the Chinese company based in Shanghai, is seeking to buy Volvo from Ford for a reported $1.8 billion, according to a report from the China Daily.
To accomplish this goal, though, Geely is seeking $1 billion in loans from three government banks: the Bank of China, China Construction Bank and the Export-Import Bank of China.
The China Daily reported that those banks would give money to the Zhejiang Geely Holding Group for the bid.
Reuters has a blog report about the deal and noted that Goldman Sachs invested $334 million in Geely in September.
The interesting note, which I’m sure analysts have noticed: This deal to buy a high-end automobile company is essentially backed by large Chinese banks supported by the Chinese government.
The world really is changing before our eyes.
I should note that when Ford, based in Michigan, bought Volvo, there might not have been as much raised eyebrows because there’s always been that underlying assumption in the West, that the United States pursues capitalism whenever and wherever possible.
Yes, U.S. automobile manufacturers have received financial assistance from the federal government in the past year or two.
So, government intervention – though not always looked favorably upon by true free marketers – happens.
But China?
And the Chinese government, which still formally calls itself the People’s Republic of China?
Well, the free market is the free market.
These days, automobiles might carry a brand associated with one country. But if you look under the hood, you’ll notice parts from places around the globe.
But what is noteworthy is that Geely is opting for a leapfrog tactic in business of buying a company with a strong brand, technology and history and incorporate it into operations.
That stands in comparison to another strategy to achieve business goals – research and development, which can take a longer time to strike it rich.
U.S. companies also have pursued a leapfrog strategy in the execution of their long-term business plans.
If the deal with Ford goes through, Geely would join a Sichuan-based company, which recently bought Hummer, the heavy-duty, off-road brand associated with the U.S. military.
Years ago, it would have been unheard of to put Geely and Volvo together in the same sentence.
Geely just wasn’t ready. Now, Geely is prepared to make a huge splash in the automotive world.
And if Geely does end up being Volvo’s new owners, successful management will be a crucial key to the company’s future.
What does all of this mean in the context of China and the world in the 21st Century?
There is no doubt that China still has hurdles that need to be addressed.
But in terms of business and money, this possible acquisition marks another example of the fast-rising country that many in the West now realize is no longer a Communist regime in a Cold War context.
Think about it this way: The Chinese government could actually end up being one of the biggest players in the global market economy.
Already, China is the world’s largest automobile market, surpassing the United States.
As early as next year, it could become the world’s second-largest economy. Japan holds the No. 2 rank for now.
(UPDATE: A representative from Volvo public relations explained in the comment section that the deal only includes Volvo cars.)
The question I have is whether the acquisition deal for Volvo includes its heavy trucks and buses.
If Geely actually acquires the bus division, it would fit nicely with China’s need for mass transportation – both in cities and between them.
Volvo already makes hybrid buses, including a double-decker model.
It's unclear whether Geely would gain Volvo buses if the brand is purchased from Ford. But Volvo has developed a hybrid, double-decker bus, which helps move people and use less fuel. Photo source: Volvo
Volvo also competes in the long-distance coach market and China has seen numerous Volvo buses ply its roads. Photo source: Volvo
Volvo also manufactures fire trucks and engines and competes in the global sales market.
Well, as you know, I like history.
So, here’s a quick trip through memory lane from the Volvo commercial archive with two other videos, thanks to YouTube. I even remember this first one.
SECOND UPDATE: The New York Times is reporting that General Motors is selling a stake in its joint venture in China to its partner.
First, Volvo Car Corportation has no ties with trucks, or any of AB Volvo operations.
Second, Ford used Volvo to build safer cars. Many of Ford’s new safety came from Volvo engineers. Whomever buys Volvo will certainly have the same kind of objectives.
Third, considering how GM trashed Saab, there is little doubt that if left to be driven by corporate owners, a car brand can die. Tata with Jaguar is clearly the way to manage a strong brand. The new buyer doesn’t want to kill a brand but to leverage their resources to push it further into better profitability with increased sales.
Finally, when Ford bought Volvo there was public concern that Ford would degrade the brand, that there would be no new Volvo’s built like Volvo’s. This has clearly not been the case. Volvo has remained independent while still sharing important technologies developed by both companies.
Whoever buys Volvo will want to keep it Volvo.