(Repeats story first issued on July 22)
* Geely was unlikely suitor for Volvo
* Global financial crisis created opportunity
* China has mixed record in acquiring foreign brands
* Untangling Ford-Volvo web a big challenge
* China approval for deal expected soon
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By Kevin Krolicki, Niklas Pollard and Fang Yan
DETROIT/GOTHENBERG/NINGBO, July 22 It was a
miserable winter day in January 2007, the kind that makes auto
executives in the Motor City wonder why they hold the Detroit
Auto Show at the most inhospitable time of the year.
Li Shufu, a farmer's son from China's Zhejiang province who
last week become the unlikely chairman of Volvo Cars, was
looking for some cheer from Ford Motor Co's (F.N) finance chief
Don Leclair in his office at Ford's glass-sheathed
A year earlier, a new model made by his company Geely,
which means auspicious in Mandarin, had made an unfortunate
debut at the Detroit show. This was despite a sticker price of
less than $10,000 that was meant to make it the "VW Bug" of
Unable to get space in the main hall, Geely Automobile
Holdings (0175.HK) parked its homely sedan in the lobby of Cobo
Hall, where it looked forlorn during the black tie gala. The
chrome lettering on the drably named MR7171A model on display
had been unevenly applied, the tires were dirty and only partly
inflated, and the interior was heavy on plastic.
Li, now 47, had succeeded in China by marketing "the
world's cheapest car" to an emerging middle class in the
country's inland cities. But his Geely model was mercilessly
panned in America. You get what you pay for, people said.
"I just remember engineers from the other car companies
coming to look at the Geely, peer under the hood and then walk
off holding their noses," said John Harmer, a former California
politician who was a consultant to Li's aborted attempt to
crack into the U.S. market on his own.
Li abruptly abandoned plans to take the U.S. market by
storm with his people's car after that fiasco.
Leclair, a lifelong veteran of Ford's finance operations,
took that first meeting with Li in January 2007, freezing rain
pounding against the office windows at One American Road in
Dearborn, a Detroit suburb, as a courtesy call.
His focus for months had been trying to stop the staggering
cash burn at Ford. Weeks after Li's visit, he would announce
Ford had lost $12.6 billion in 2006 and would cut almost 44,000
workers. The Geely visit, people involved in the preparations
say, barely hit the radar for Ford's senior management.
Li, on the other hand, was excited, though the meeting
never got beyond polite generalities. "I was surprised he had
left it at that, but Chinese business culture and American
business culture are very different," Harmer said. "In China,
it's important first to make a connection."
BUYING THE BRAND
By the time the next Detroit auto show rolled around, Li,
who had started Zhejiang Geely Holding Group as a refrigerator
parts-maker with a loan from his father in 1986, was no longer
dreaming about taking America by storm with the cheapest car on
the market. Now his ambition was to have a renowned luxury
brand in the stable of one of China's biggest private
Thus began a roller-coaster journey ending with Li's
purchase of Volvo Cars from Ford, and crowned this month by his
appointment as chairman of the Swedish auto icon.
It is the biggest acquisition of an international auto
marque by a Chinese enterprise and will be scrutinised closely
in the months to come for how it pans out.
China's track record in acquiring international brands has
been mixed at best, particularly in the auto industry.
State-owned SAIC Motor Corp's (600104.SS) takeover of South
Korea's Ssangyong Motor (003620.KS) ended with Ssangyong in
receivership. Chinese officials this year squelched plans by a
little-known machinery maker to buy the Hummer from GM [GM.UL].
China's attempts at piggy-backing on a big brand name have
stumbled badly over issues of management, marketing, use of
technology, dealing with unions, and cultural integration.
Assuming approval by China's regulators, Geely faces an
additional challenge of turning around a company with an
expensive cost base and with a stodgy image as a maker of safe
but boring cars.
"Geely is going to have to ask why Volvo wasn't successful
in the past and what it will take to make it successful now,"
said John Bonnell, senior director of strategic advisory
services for J.D. Power Asia Pacific.
"To buy the company and keep the same structure and not
make any changes -- well, you're going to have to change
something in the equation to get the results you want."
Ford had tried without much success to change some
equations at Volvo. So when Li and Leclair met for a second
time during the 2008 Detroit show, the finance chief was
intrigued when the cherub-cheeked Chinese billionaire made an
offer for Volvo, which was bleeding money for Ford at a time
when the world's fourth-largest automaker was trying to keep
As months of working-level talks dragged on over the deal,
the global financial architecture started to get shaky. The
American auto industry, dependant on a web of consumer
financing mechanisms, was plunging into crisis. But Ford Chief
Executive Alan Mulally said he wanted to finish the work of
restructuring Volvo before moving ahead with any sale.
Li found himself the jilted suitor again.
By December 2008, with credit markets paralysed and Ford's
cross-town rivals GM and Chrysler lurching toward bankruptcy,
Mulally was ready to listen to offers for Volvo again. John
Thornton, a Ford director and former Goldman Sachs executive
working in China, met with Li in Beijing days after the
announcement. The Geely bid had new life and nine months later
it was named the preferred bidder.
In January 2010, almost three years to the day after his
courtesy call with Leclair, Li returned in triumph to the
Detroit auto show, having reached a deal in principle to buy
Volvo for $1.8 billion -- less than a third of what Ford had
paid a decade ago -- plus an additional $900 million in
This time, Li was ushered in to meet both Mulally and Ford
Executive Chairman and founding family scion, Bill Ford, to
hand over the keys to Volvo.