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October 30, 2009

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Home » Business » Auto

Geely faces risks, hurdles in Volvo bid

THE bid by Geely Holdings Group to buy Swedish luxury car brand Volvo from Ford Motor Corp is seen as a risky move for the Chinese car maker and several hurdles lie ahead, according to analysts.

"I don't think Volvo is worth buying for Geely," said Zhang Xin, an auto analyst from Guotai Jun'an Securities Co Ltd. "There must be some deep-seated problems that caused Volvo to lose money and that could not be easily solved by Geely investing in it," he said.

Privately owned Geely was selected as the preferred bidder for Ford's Volvo Car late Wednesday. The United States and Chinese car makers agreed to conduct more detailed discussions about the possible sale.

Geely said in a statement that Chinese banks have agreed to fund the purchase, and Volvo's major assets including its headquarters, overseas plants, engineering centers, labor contracts and dealer networks would remain unchanged if it acquired the Swedish car maker.

Li Shufu, chairman of Geely, has said the acquisition is a strategic move for Geely to strengthen its position in China and also to help in the continued development of Volvo.

But several analysts questioned Geely's ability to manage Volvo as the small Chinese car maker has little experience in international management.

"It is also very questionable that Geely would get real valuable technologies and talents if major assets of Volvo remain outside China," said Zhang. "It will also be very costly for Geely as a huge investment is needed. Turning around Volvo is also difficult as the ailing auto brand targets a very niche market."

The financial details of the deal were not disclosed but it is reported that Geely is likely to pay US$2 billion for Volvo.

It could become the second major overseas acquisition by a Chinese car maker in the current economic recession after Sichuan Tengzhong Heavy Industrial Machinery Co Ltd's announcement to buy the Hummer brand from General Motors Corp.


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