EXTRA PLANT CAPACITY COULD DOUBLE GEELY OUTPUT

+ Click to Enlarge OFFICIAL STAMP OF APPROVAL: Geely has Chinese government support for its acquisition of Volvo and plans to assemble 300 000 a year in China.. Image: AFP

January 26, 2010
By Huang Yuntao and Jacqueline Wong

China's Zhejiang Geely Holdings could produce as many as 300 000 Volvo cars a year at a new factory in Beijing as part of its plan to pull the Swedish brand out of the red by 2011.

Zhejiang Geely, parent of Hong Kong-listed Geely Automobile, aims to complete the purchase of Ford's Volvo unit for perhaps $2-billion by May, 2010, according to the source and to a document submitted to regulators by Geely and seen by Reuters.

The addition of such capacity would nearly double Geely's current output – 321 900 units in 2009 for the entire group and 45 percent more than in 2008. Geely has an annual sales target of two-million cars by 2015.

Analysts said the 2011 break-even target could be a stretch for Geely, which has no experience running a foreign company.

John Zeng, an analyst with IHS Global Insight, said: "I think break even next year is optimistic as it needs first to build a plant and it might take time for Chinese buyers to accept a made-in-China Volvo."

Geely Automobile Holdings is China's largest private car maker. Its charismatic founder, Li Shu Fu is sometimes compared to Henry Ford and has global ambitions for Geely – it means "lucky" in China.

Geely will set up a separate company with registered capital of $1.17-billion to buy Volvo. Foreign strategic investors and the Hong Kong-listed Geely will hold 51 percent.

The purchase would be the biggest in a recent spate of similar acquisitions of distressed global assets by Chinese automakers who thrived during the global downturn under strong incentives from the Chinese government. Under the deal, Geely will keep the brand and operations in Sweden, including Volvo's HQ, plant and research centre, intact after the acquisition.

China overtook the US in 2009 to become the world's largest auto market. Vehicle sales there rose by 46 percent to a record 13.6-million, according to the China Association of Automobile Manufacturers, well above the 10.4-million cars and light trucks sold in the battered US market.

Analysts expect China's car sales to continue growing this year under renewed government incentives, though they expect the growth rate to slow to about 10 percent. - Reuters