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September 10, 2009

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Despite challenges, Geely says it's in the running for Volvo

CHINA'S Geely Automobile Holdings has confirmed that its parent company is bidding for Ford Motors' Volvo Cars Corp, joining a growing number of Chinese manufacturers that have been bargain hunting for overseas brands amid the global auto slump.

Industry analysts, however, said financial and technological challenges may ultimately doom the small private car maker's attempt to acquire the premier Swedish brand. Geely also said it would need help to complete the deal.

"Based on Geely's current market value, it would be difficult for us to manage the acquisition alone," Gui Shengyue, chief executive of Hong Kong-listed Geely, told reporters late Tuesday.

"The parent may team up with domestic investment partners to facilitate the deal."

The offer price by the parent firm, Geely Holdings Group Corp, was not revealed.

Earlier media reports said Geely was the only car maker with a firm offer for Volvo as it eager to become globally competitive and improve its technologies after years of making low-priced cars.

The deal would be Geely's second recent acquisition of an overseas automotive firm. In March, it bought the bankrupt Australian automatic transmission supplier Drivetrain Systems International.

Cao He, an analyst at Mingzu Securities Co Ltd, said buying Volvo would be a major milestone for Geely, which has failed to succeed in the high-end market after a big investment. But the deal entails huge risks as well.

"Such a purchase would create high pressure for follow-up investment, challenging Geely's financial capability and management skills over the long term," Cao said. "And overseas car makers have taken a conservative attitude toward selling brands to China over concerns of technology transfer and the country's rapidly growing auto industry."

Earlier media reports said Geely planned to spend US$2 billion to buy Volvo, far below Ford's US$6.49 billion original acquisition price.

Geely is one of several Chinese car makers that have shown an interest in overseas brands as the slumping global auto market has prompted foreign manufacturers to sell unprofitable units.

Among them, Sichuan Tengzhong Heavy Industrial Machinery, a heavy machinery maker, has reached a tentative deal with General Motors Corp to buy its sport utility vehicle unit Hummer. The purchase still needs government approval, however.

China's Chery Automobile and Hunan Changfeng Motors Corp also initiated overseas acquisitions but failed to reach agreements.

State-owned Beijing Automotive Industry Corp and Chang'an Auto Group, the Chinese partner of Volvo, also reportedly planned to bid for Volvo but had dropped out.


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