Wednesday, November 11, 2009

As the World Turns: Geely and Volvo

Plenty of ink has been spilled and pixels lighted covering the potential purchase of Volvo from Ford by Geely. A quick Google search will turn up more than enough material about this merger that simply refuses to be consummated, so I won't even attempt to link them.

Today, however, there was finally a fresh piece of news on this story in the Wall Street Journal's "China Real Time Report". WSJ's China auto journalist, Norihiko Shirouzu reports that a "knowledgeable person" close to Geely is expressing doubts that the merger will ever happen -- at least not in the way it has been presented over the past several months. Apparently there has been a last-minute request from the government to let one of the state-owned auto companies in on the deal.
“Whether the deal can be made or not now depends to some extent on the attitude of the government. Geely fears there may be troubles ahead, especially when it goes through the approval process for the Volvo deal,” says the knowledgeable person.

“The government thinks that the future belongs to state-owned companies,” the person said. “China’s quick recovery from the financial crisis gives them more confidence and justification to favor state-owned companies.”
This is a charge we have begun to see more of in recent months.

As the Economist recently reported, there is a move in Shanxi Province to nationalize many of the hundreds of privately-owned coal mines. The ostensible reason is to curb the massive number of deaths that occur in these mines, but as John Garnaut of the Sydney Morning Herald reports, there also appears to be an undercurrent of a desire to bring these mines permanently under the control of the state -- to the extent that the private owners are being personally bankrupted in the process. (Though I must admit that I shed few tears for the private owners given their deplorable safety records. Let us hope the government will be more concerned with the lives of the miners.)

Is this the beginning of a trend away from private ownership back toward state control? China would not be alone. Such discussions are doubtless being held within governments all over the world as people seek to find a scapegoat for the global financial crisis.

Government takeovers of private industry aside, I see even more reasons to doubt the eventual takeover of Volvo by Geely.

I visited a Ford dealership in Beijing this week where I was told that the new Fiesta and the Focus are flying off the lot. These are Ford's hottest sellers in China. They are both (in my opinion) sporty and attractive cars that have a good reputation for quality.

One thing I noticed immediately upon seeing these cars is the striking similarity of their hood lines with those of recent Volvos. And while I'm not an engineer, I wonder if this demonstrates the difficulty Ford would have separating the Ford and Volvo entities. The reports that Ford has IP (intellectual property) concerns with a potential sale do not appear to be unfounded.

Furthermore, GM has also recently backed away from its previous decision to sell Opel to its "preferred bidder" Magna. And Ford, being in far better financial shape than GM, may also find it easier to just keep Volvo and turn it around than to take a multi-billion dollar loss on the sale.

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Compare the hood lines on these pics of the Volvo S80, the Ford Focus and the new Ford Fiesta: