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Geely Officially Signs Agreement to Buy Volvo, Eyes Two Year Turnaround

Following months of anticipation and negotiations, Geely Automobile signed a final agreement yesterday to purchase Volvo Cars from the Ford Motor Company. The automakers closed the deal in Volvo's hometown of Gothenburg, Sweden, where Geely's CEO, Li Shufu, outlined a few of his plans for the Swedish automaker.

Presently, Volvo's sales volumes are primarily based on the European and North American markets, and Shufu sees this as the brand's biggest problem. He states that he's aiming to stabilize Volvo in its current markets, but wants to expand its presence in China. Although the automaker builds a limited number of long-wheelbase S80 sedans in the country, Shufu envisions building another Volvo factory in China that is capable of producing 300,000 vehicles annually -- roughly equal to the combined output of Volvo's factories in Sweden and Belgium.

"A tiger belongs to the forest. It belongs to the wild and not confided in a zoo. We need to liberate this tiger," said Shufu at a signing press conference. "I see China as one of the markets where Volvo could show us it has the opportunity to liberate itself and show the potential that it has. That is the rational for the deal."

While Shufu aims to intensify the brand's focus on China, he noted that any production facility opened in China would only support Volvo's existing plants -- not replace them. Building the new facilities is a way for Volvo to gain a foothold in the world's largest car market and bolster sales. Using China as a springboard, Shufu plans to launch Volvo into other emerging markets in an effort to turn the loss-making Swedish company around in two years.

Geely executives are overwhelmed with the agreement made with Ford and brimming with confidence. "Chairman Li did not just scratch his head and come up with the idea to buy Volvo," an anonymous senior Geely executive told Automotive News. "He predicted the downturn of Detroit automakers years ago and has since been on the alert for opportunities. We wouldn't make a move if we did not see a big chance of success."

On the other side of the world, Ford is also happy with the agreement. Geely agreed to pay $1.8 billion for Volvo, less than a third of the $6.4 billion Ford paid for the Swedish brand in 1999. Despite the significant difference in price, Ford believes it's a good deal.

"We think it is a fair price for good business," said Lewis Booth, Ford's chief financial officer.

Ford and Geely aim to complete the transaction by the end of the third quarter.

Source: Automotive News (Subscription Required), Reuters