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NINETY EIGHT REGENCY

Geely wants Volvo to compete with top-end BMWs

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Geely wants Volvo to compete with top-end BMWs

Automotive News Europe -- August 3, 2010 06:01 CET

LONDON (Reuters) -- Geely, the new Chinese owner of Volvo Cars, wants the Swedish carmaker, best known for its safety, to build cars that compete with the most expensive BMW and Mercedes sedans, its founder and chairman said.

In an interview hours after Geely's $1.5 billion purchase from Ford Motor Co. closed on Monday, Li Shufu said he sought to boost Volvo's profile in China and step up research and development, while a modest sales increase would be enough to tip the company back into profit.

The closing of the takeover by Zhejiang Geely, parent of the Hong Kong-listed Geely Automobile, marks China's biggest acquisition of a foreign carmaker.

"We want to make more high-level cars that compete with the S class of Mercedes Benz and the 7 series of BMW. We need products to compete in that segment," Li said, speaking through a translator.

The cheapest model in BMW's flagship 7 series, the 740i sedan, costs at least $70,150 in the United States, according to BMW's Web site. Daimler AG's Mercedes S400 hybrid sedan starts at $87,950 -- more than double Volvo's top S80 sedan, which starts at $39,200.

"If Volvo can sell 380,000 units every year, the business will be profitable, but in order to get an upper hand in the competition we need a dramatic increase in volume (above that)," he said.

Volvo sold nearly 335,000 cars last year, and lost $653 million.

Li signalled that Monday's $1.3 billion in cash, plus a $200 million loan note, was close to the full price Ford would receive.

The original headline deal, subject to adjustments, had been struck at $1.8 billion and Ford said a further "true-up" payment could boost the overall payout.

"I believe what we paid is ... very close to the final number," he said in a London interview, wearing a striped Geely tie and flanked by Volvo Cars Vice-Chairman Hans-Olov Olsson.

New China plant

Li, the son of a farmer from China's Eastern Zhejiang province, sold refrigerator parts and motorcycles before moving into carmaking in the late 1990s. He is now one of China's richest men.

Li said no decision had yet been taken on where to locate a new Volvo plant in China, and that would require market studies and board and government approval.

Geely plans to boost Chinese awareness of Volvo's heritage of developing features such as air bags or catalytic converters, but the high specificity and cost of Volvo parts means few will be used in Geely-branded cars, and Geely will not seek to sell those cars in Europe or the United States.

Li said financial distress would eventually spark consolidation in China's vast but fragmented car market.

"I hope everybody will lead a good life, but there's a market economy, competition -- it's very natural for some companies to go bankrupt," he said.

And while Geely had seized an "historic opportunity" to buy Volvo, he does not foresee many similar deals. "It's very difficult to find a good brand like Volvo you can buy," Li said, adding jocularly: "If Mercedes Benz wants to sell itself, I think Chinese companies would be interested."

Read more: http://www.autonews.com/article/20100803/COPY/308049991/1131#ixzz0vdnxb29e

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