Geely Auto reported to buy Volvo unit from Ford

UPDATE: Volvo has issued an official response to the report, calling it "speculative" and "inaccurate."

Geely Automobile Holdings has reached a preliminary agreement with Ford Motor Co to purchase its Volvo unit and Geely plans to produce a new Volvo model in Guangdong Province, according to media reports on Wednesday.

The Geely acquisition, following that of another firm's earlier bid to purchase a foreign brand, is yet another opportunity for domestic car makers to expand into the global market.

China's Sichuan Tengzhong Heavy Industrial Machinery Co announced recently it was to acquire General Motors Corp's Hummer brand.

Zhejiang Province-based Geely aims to purchase Volvo and build a production line for the Volvo XC90 in Guangzhou Province's Dongguan City, the National Business Daily reported yesterday.

"It's the right time for Chinese firms to make overseas acquisition during the slowdown in the economy," said Jia Xinguang, chief analyst with the Chinese National Automotive Industry Consulting and Development Corp.

The value of the deal is not known but Volvo, which was bought by Ford for US$6.49 billion, won't be sold for less than US$3 billion, according to Jia. Geely couldn't be contacted for comment yesterday.

Representatives of Geely, one of China's biggest private auto makers, have already visited Volvo's headquarters, industry sources told Shanghai Daily.

The purchase will help Geely expand into the medium and high-level markets, Jia said.

Compared to American brands, European brands are better known by Chinese consumers, he said.

Geely sold 101,171 units between January and May, a jump of 57.8 percent year on year, because it had tapped into the second and third-tier cities after the government handed out subsidies to encourage people in rural areas to buy cars.

The China Passenger Car Association predicted this week that vehicle sales in the country would grow 17 percent this year from 2008, outpacing the 6.7 percent rise last year.