Geely Buys Volvo: Read The Tea Leaves
Zhejiang Geely Holding Group, Ford Motor's (NYSE: F
) Volvo, Volvo, Ford, Ford Motors, Geely, China Stock Digest, Chinese equities, Jim Trippon, China's equity markets
(HOUSTON) March 29 – Chinese conglomerate Zhejiang Geely Holding Group announced on Sunday that it will purchase Ford Motor's (NYSE: F
) Volvo unit for $1.8 billion, a move that qualifies as China's clearest sign to date that the world's largest country is not content to merely be the world's largest auto market by number of cars on the road.
“While the recent performance of Ford, both in the showroom and the stock market is impressive, it would be foolish to consider Geely's purchase of Volvo another run-of-the-mill acquisition,” Jim Trippon, publisher of China Stock Digest and one of the foremost U.S. experts on Chinese equities, said. “Just a few years ago, Geely couldn't afford to promote its products at the Detroit Auto Show. Now the company is selling 300,000 cars a year and that total should rise to 700,000 by 2015.
“The Volvo purchase is the deal of the century for the Chinese car company,” Trippon explained. Geely is one of China’s most aggressive automakers and has long sought access to the giant American and European markets. Safety and pollution standards have been a barrier to Geely in the past, but the Geely acquisition of Volvo marks a major move to overcoming those hurdles.
“Intellectual property is the crown jewel of the automotive industry and China’s carmakers have spent more than 20 years trying to acquire the technology behind the best cars produced in Western factories,” said Trippon. “$1.8 billion is a bargain price for the quality, technology and high reputation attached to the Volvo brand. Geely will become the first Chinese automaker to become a credible presence in North American and European markets. That makes this an historic milestone in China’s longstanding desire for access to the U.S.,” Trippon explained.
“This is a clear signal that China intends to be more than just a bit player on the global automotive stage. The country wants the lead role and very well could have that billing within the next 15 years at the expense of the U.S.”
Ford acquired Sweden-based Volvo in 1999, so the company is taking a substantial loss on the investment while Geely gains one of the most venerable European automotive brands.
"The average car sold in China last year cost just $17,000, so Geely's move to acquire Volvo is proof positive that the Chinese recognize the quickest way to moving up the automotive food chain is through acquisitions,” Trippon added. “This acquisition proves China isn't content to only make cheap cars. The country wants and will gain a foothold in the luxury car market.”
Geely is China's 12th largest auto maker, but the second-largest that is not state-run.
Jim Trippon operates one of the top equity research firms covering all four of China's equity markets. In 2009, the China Stock Digest portfolio was up 58%.
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