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Can Geely protect Volvo's image?

2009-10-29 10:00
Geely Automobile's confirmed bid for Volvo is evidence of China's growing economic clout, but the company will face the tough challenge of ensuring the Swedish brand's reputation for safety, analysts say.

US auto giant Ford said Wednesday it had tapped Zhejiang Geely Holding Group as the preferred bidder for its Volvo Cars nameplate
and would step up negotiations with a consortium led by the Chinese automaker.

But analysts warned the takeover was far from being finalised and, even if eventually successful, the independent Chinese automaker would struggle to protect Volvo's image for producing sturdy, reliable cars.

"The biggest concern is whether Geely can manage such a premium global brand," John Zeng, a Shanghai-based analyst at IHS Global
Insight, told AFP.

"If Geely wants to keep Volvo's brand independence and integrity, then it had better not get too involved with its operation - especially not to mix the brand of Geely with Volvo. Geely is targeted at low-end customers."

Good for Geely, bad for Volvo?

Eric Xu, head of Timer-Auto Consulting in Shanghai, said a successful acquisition would enhance Geely's image overseas but could hurt Volvo in the process.

"It will be very challenging for Geely to safeguard the value of the (Volvo) brand," Xu told AFP.

"A successful bid is only the first step in a successful acquisition --it's difficult to digest what you buy. That's the  challenging part for Chinese companies who want to go abroad."

In a statement issued Wednesday, Geely said under its bid, supported by Chinese banks, Volvo's existing production and research and development facilities, union agreements and dealer networks would be maintained.

Geely said Thursday it was "fully prepared" to make good on the bid to buy Volvo and would "make every effort" to ensure its success.

"We made the big decision to take part in the bidding after careful consideration and assessment. We think it is in line with the long-term development strategy of Geely," Geely spokesman Yuan Xiaolin told AFP, without elaborating.

When asked how long the talks could last, Yuan said it was too soon to speculate about a timeframe. Ford emphasised that "no final decisions had been made".

In the red

The Geely spokesman also declined to comment on the financial terms of a possible deal.

Ford announced last December that it wanted to sell the loss-making Volvo unit, which it fully acquired in a 6.4-billion-dollar deal in 1999.

The US automaker did not take government aid to cope with falling sales and avoided bankruptcy this year, unlike rivals General Motors and Chrysler.

It has shed tens of thousands of jobs and closed plants in an effort to cut costs, and sold off the bulk of its luxury European brands, including Jaguar and Aston Martin.

Repairing Volvo's weak balance sheet would be challenging for Geely, Zeng said.

"Volvo has been in the red for years," said Zeng. "Whether Geely can alter its deficit situation remains the key question."

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