HONG KONG: Geely, China's largest privately owned carmaker, moved one step closer to its long-standing dream of becoming a global player when Ford Motor Company announced in late October that it had picked Geely as the preferred bidder for its Swedish brand, Volvo.

The ambitious mainland automaker has been trying to gear up to enter the European and US markets from as early as 2005, soon after the company listed its Geely Automobile on the Hong Kong stock exchange.

The deal will face a number of looming obstacles. First, Ford and Volvo have been sharing technology for a decade, so Ford faces a tricky challenge in disposing of the unit without losing technical secrets.

Second, Geely may be fettered by some aspects of a Volvo takeover that may limit its administrative and operational latitude. For example, Zhejiang-based Geely tried to reassure Ford that it would preserve Volvo's existing production, research and development operations, labor agreements and dealer networks. It also pledged to maintain "an independent management" at Volvo's current headquarters in Gothenburg, Sweden.

Third, minority shareholders of Geely's Hong Kong-listed unit have opposed the deal, since such an acquisition would greatly increase the company's debt at a time when the automaker is already investing heavily to expand in the Chinese market.

Fourth, Geely Automobile has publicly assured its minority investors this summer in a letter to the Hong Kong stock exchange that it would not try to buy Volvo, but that its parent group will. Market watchers warned that having a non-listed company as a bidder would make the deal less transparent.

Fifth, Ford named India's Tata Motors as preferred bidder for Jaguar and Land Rover, its other top-end European brands, in January 2008 and reached a final accord in March of that year. By comparison, it could be months before Ford and Geely reach a final agreement, analysts say.

Both parties are anxious about the deal. Ford, the only Detroit auto maker to avoid bankruptcy this year, is eager to sell loss-making Volvo and return to profitability by 2011.

Ford paid $6 billion in 1999 to buy Volvo; Reuters said Geely may pay only $2 billion now for the unit, given the currently depressed market for automakers.

Geely is the 11th-largest automaker in a market that includes many global giants. However, it is already the second-largest mainland automaker, after BYD, and has been trying for years to become a global competitor.

Geely Automobile sold 223,343 cars on the mainland in the first nine months of this year and has only modest exports, mainly to developing countries, while Volvo sells about 500,000 cars on average a year around the world.

(HK Edition 11/27/2009 page3)