Zhejiang Geely Holding Group, China's biggest private carmaker, said on Tuesday that it is prepared to pump up to $900 million into the Volvo unit it is buying from Ford
Geely had secured $2.7 billion in financing for the landmark deal, which includes a previously announced $1.8 billion purchase price plus the additional $900 billion in working capital, Chief Financial Officer Yin Daqing told a media briefing in Beijing.
He added that half of the money would come from Chinese sources, while the rest would come from overseas sources.
From a broader perspective, Geely's plan to turn around Volvo would involve giving the company the scale it needed to become profitable, with a focus on tapping the fast-growing China market, said Geely Chairman Li Shufu.
Profit will only emerge if we expand the business scale, thus making costs per vehicle lower, Li told reporters in Beijing, after returning from Sweden where his company signed the deal to buy Volvo.
He added that the two brands would remain separate, with Volvo and Geely each continuing to produce their own cars.
Volvo comes from Northern Europe and is rooted in Sweden. Volvo will not be Volvo any more if taken out of the soil, Li said. Relations between Geely and Volvo in the future will be like brothers, not father and son.
Geely, which means auspicious or lucky in Chinese, is counting heavily on its home China market to revive the money-losing Volvo brand, with plans to double the Swedish company's production by building a major new plant in China.
Owning a global brand like Volvo will also give Geely a chance to build up its profile in China, where it is known more for small, inexpensive cars, and to catch up with bigger state-owned rivals that have partnered with the likes of GM
China overtook the United States to become the world's largest auto market last year, with sales zooming 46 percent to a record 13.6 million units, driven by economic incentives from Beijing aimed at boosting consumption during the global downturn.
That contrasted sharply with other major markets, which saw sales drop during the downturn, and led to a major industry restructuring that has seen many major carmakers like Ford try to sell their smaller units to focus on their core brands.
Another such deal saw GM try to sell its Hummer brand to Tengzhong, a little-known maker of heavy industrial equipment in southwest China's Sichuan province. That deal ultimately fell apart earlier this year, however, after it failed to win regulatory approval from Beijing.
In the latest deal involving a China company, Chinese media reported that local carmaker BYD <1211.HK>, invested by U.S. billionaire Warren Buffett, might be interested in buying Daimler AG's
Geely's takeover, along with the Tengzhong deal and others, underscores China's arrival as a major force in the global auto industry. The deal ends nearly two years of talks between Ford and Geely over Volvo -- the last sale from Ford's former premier group that also held Aston Martin, Jaguar and Land Rover.
Such a deal would have been nearly unimaginable a few years ago for Geely, which on 2009 forecasts has a turnover of only 16 percent of Volvo's and has just over half the workforce.
Li, an entrepreneur dubbed China's Henry Ford by Economist magazine, said at the deal's signing that it was important for Volvo to keep its European operations running over the longer term.
Volvo's labor unions, which had been critical of the proposed deal and complained about a lack of information about the future of the company, said they now backed the takeover.
Both sides are aiming to close the deal in the third quarter.
The $1.8 billion Geely is paying for Volvo is less than a third of the $6.5 billion that Ford paid for it in 1999.