Ford reaches agreement to sell Volvo to Geely for $1.8 billion

Ford has reached an agreement to sell its Swedish brand Volvo to Chinese carmaker Geely for about $1.8 billion in a multinational sale expected to close in the third quarter of this year.

The pending agreement was announced on Sunday morning, and Ford will continue to supply powertrains, stamping and other parts to Volvo after the sale. If it closes, the landmark deal delivers the premium Volvo brand--long a benchmark for automotive safety--to a Chinese firm that has ambitious plans for growth. The sides have been working toward a deal since last October and said in December they expected to announce progress in the early part of 2010.

Ford will get most of the money from the sale in cash and can use the money to concentrate on its core Ford division. The company said the cash amount may change at the closing. The deal also includes an agreement over intellectual property. Volvo will maintain its manufacturing base in Sweden and Belgium, as well as its Swedish headquarters. Geely is planning for a factory in Beijing to build 300,000 Volvos for the Chinese market, Reuters reports.

Impact on enthusiasts

Volvo's product line is getting a major upgrade with the launch of the redesigned--and handsome--2011 S60 sedan. The flagship car was revealed at the Geneva auto show, and is expected to bolster Volvo's efforts in the premium four-door segment. It's aiming for sales of about 90,000 around the world. The S60 will take aim at the BMW 3-series and the Infiniti G35, among other luxury sedans.

Doug Speck, Volvo's North American CEO, told AutoWeek last fall the company is planning diesel and electric powertains for the U.S. market, and that the company developed the S60 with enthusiasts in mind. He also left open the possibility of an R performance badge returning. Volvo currently uses R-Design as an appearance package.

“We need people to say, ‘I actually enjoy driving a Volvo,' ” Speck said.

Volvo also showed an electric C30 in January at the Detroit auto show. Volvo says it plans to make a test fleet of 50 battery-powered C30s for a two-year trial starting in 2011.

“Volvo is a great brand with an excellent product lineup," Alan Mulally, Ford CEO, said in a statement. “This agreement provides a solid foundation for Volvo to continue to build its business under Geely's ownership. At the same time, the sale of Volvo will allow us to further sharpen our focus on building the Ford brand around the world.”

The agreement positions Geely, known formally as Zhejiang Geely Holding Group Company Limited, to accelerate its growth. The burgeoning Chinese market passed the slumping U.S. market in sales last year. Geely was founded in 1986 and has its headquarters in Hangzhou, China.

“China, the largest car market in the world, will become Volvo's second home market,” Geely chairman Li Shufu said in a statement. “Volvo will be uniquely positioned as a world-leading premium brand, tapping into the opportunities in the fast-growing China market.”

By Greg Migliore