Geely gets set to rev up production after sealing $1.3bn deal for Volvo

CHINESE group Geely has completed its purchase of Volvo, marking the Asian country's biggest acquisition of a foreign car maker.

Zhejiang Geely, parent of Hong Kong-listed Geely Automobile, said yesterday that it had paid $1.3 billion (820 million) in cash and issued a $200m loan note to Ford for the Swedish marque. While that represents $300m less than the earlier headline figure of $1.8bn, Ford said it would get a further "true-up" payment later in the year.

With the deal now complete, the big challenge for Geely will be to restore Volvo to long-term profitability. Volvo Cars posted revenue of $12.4bn in 2009 by selling 334,000 cars, but racked up a pre-tax loss of $653m.

Geely's plan includes using the Swedish nameplate to produce luxury brands in China, which last year passed the US to become the world's biggest car market, while maintaining its operations in Europe to supply the international market.

Volvo's unions opposed the deal throughout much of the process over concerns that their jobs would be moved to China, but gradually were won over by Geely's promises to keep the brand separate and continue production in Europe.

The deal was finalised at a hand over ceremony in London attended by Li Shufu, chairman and founder of privately-owned Zhejiang Geely and now also chairman of Volvo.

He said: "This famous Swedish premium brand will remain true to its core values of safety, quality, environmental care and modern Scandinavian design."

The companies also named Stefan Jacoby, a former North American executive of German car giant Volkswagen, as Volvo's new chief executive, confirming reports in the German media.

Former Volvo boss Hans-Olov Olsson was also earlier named vice-chairman of the board, having helped to shepherd the deal while working at Rothschild.

Stefan Lofven, head of the Swedish Industrial and Metal Workers' Union, said: "With production, research and

development and the headquarters remaining in Sweden and with China being the largest growth market for the automotive industry, we hope for a positive effect on employment. It is good that the deal is now closed."

Major new investment is a crucial part of Li's plan to turn Volvo around, including a new manufacturing facility in China that would nearly double the Swedish marque's capacity to take advantage of China's vast motor market.

A number of Chinese cities, including Beijing, Shanghai and Chengdu, have been touted as possible sites for the plant. Geely is prepared to pump up to $900m in capital into Volvo, on top of what it paid for the carmaker. Its plans would see its new Volvo China plant nearly double global production, with an aim to sell 150,000 Volvo cars in China annually by 2015.

Wang Jing, an analyst at Phillip Securities, said: "For Geely, the deal could improve its brand image and awareness."