Volvo Cars set to win loan from KBC to build new S60

Volvo Cars reached a preliminary agreement to borrow 198 million euros ($295 million) from KBC Bank NV, money that the Ford Motor Co. unit plans to use to make future models including the new S60 at its Belgian plant.

Volvo and KBC are negotiating final details of the loan, Mark De Mey, a Volvo spokesman, said in a telephone interview from Ghent, Belgium. The Swedish automaker had planned to get the credit from the European Investment Bank, then started negotiating with commercial lenders in Belgium, and has now narrowed talks to Brussels-based KBC.

Volvo plans to use the funds to make its new S60 model, scheduled to start production next summer, and later a range of smaller cars at its factory in Ghent, in Belgium's northern Flanders region, De Mey said. The plant, Volvo's biggest, employs almost 4,000 workers. The Flemish government in July agreed to guarantee 90 percent of the credit for the carmaker.

"Without the cheap loan, the company will have to think of other ways to try to keep its costs down and that might involve a capacity reduction," said Pete Kelly, a senior director at J.D. Power & Associates in Oxford, England. "They have to provide a lot of capital up front to invest in the design, marketing and launch of vehicles, and in the plant itself."

Sales of the new S60 may reach 55,000 units annually during its peak years in 2011 and 2012, accounting for 15 percent to 20 percent of Volvo's total output, after which sales of the model may gradually decline, Kelly said.

Principal Agreement

The Swedish carmaker, which Dearborn, Michigan-based Ford is in talks to sell to China's Zhejiang Geely Holding Group Co., last week released the first official pictures of the new S60. The model will replace an older S60 that has been in production since 2000. The company plans to present the new car at the Geneva Motor Show in March next year.

"Volvo and KBC have reached a principal agreement," De Mey said. "When you have a credit guarantee it's a lot easier to go and talk to the banks and negotiate the loan."

Steven Leunens, a press officer at KBC, confirmed the agreement. "We are negotiating the terms and conditions, which have not been finalized yet," he said.

Getting the loan "is crucial at a time when the whole economy and industry is facing difficult times," De Mey said, adding that the preparation for the new S60 is "in full swing," with most of the investments already made.

The car will fit into the "premium upper medium segment," Kelly said. Rivals in that segment include the BMW 3-series, the Audi A4 and the Mercedes C-class, he said.

Volvo has said the S60 can be equipped with a "pedestrian detection" system that lets the car break automatically if the driver doesn't react in time in front of a pedestrian. That feature "plays to the strength that Volvo has in safety," Kelly said.