Zhejiang Geely Holding Group's acquisition of Volvo from Ford for US$1.8bn means a Chinese carmaker has finally succeeded in reaching agreement to buy a Western marque. Ford originally put the Swedish brand up for sale nearly three years ago, as GM looked for a buyer for its notoriously gas-hungry Hummer.
Sichuan Tengzhong Heavy Industrial Machinery, advised by Credit Suisse, agreed to buy Hummer last June but that deal was later shelved. Similarly Beijing Automotive Industry Holding Co pulled out of a possible purchase of GM's Swedish asset Saab. That deal had been fronted by smaller Swedish luxury carmaker Koenigsegg.
At the time, advisers murmured that these deals had been killed by the Chinese authorities baulking at allowing smaller vehicle makers in the unconsolidated Chinese market buying tired Western consumer brands. These would have needed significant investment to be restructured.
Geely, which is backed by a Goldman Sachs private equity fund, is in a different league. Its move, principally funded by US$1.6bn cash, looks credible and Volvo is in better shape and might need less effort to turnaround, fuelled by rampant Chinese demand, than other autos on the block. One estimate says China's will post 12% annualised GDP growth this quarter.
That said, the Chinese state itself, although backing private company Geely's deal, still seems more focused on easier asset deals. On the same day state oil company Sinopec has splashed out US$2.5bn on African assets, this time offshore from Angola. Ironically these were owned by Petrochina.