Geely Buys Volvo

I can still remember that morning in 1999, waking up to NPR's Morning Edition announcing that Ford had bought Swedish car company Volvo. Like the vast majority of Ford employees that day, I had no idea about the deal, and it was great. Volvo was a terrific brand and the company was flush with money, so why not? Even the $6.5 billion price tag didn't seem too outlandish at the time.

Fast forward a decade later, and once again Volvo has switched owners. This time, a Chinese car company that virtually no American has heard of, Geely, has purchased Volvo for $1.8 billion. Here are my thoughts on what this means for the three companies.

First, for Geely, it's a bold move. Geely is ambitious and wants to sell more motor cars. To enter important markets in the U.S. and Europe, it could create a brand identity, establish dealer and supplier networks, and gradually build consumer confidence. Others have done it -- think Lexus, Infinity, Acura, even Hyundai -- all built their brands and operations from the ground up. It takes money, time, and a lot of patience. And you only get one chance to get it right -- think Yugo. Or, Geely could just buy an existing company. By buying Volvo, Geely has catapulted itself as a major worldwide automotive company. There's no doubt a lot of celebrating going on in China right now.

For China Inc., it's another prize to crow about. I always joke about working for the Chinese one day -- that day just came for a lot of Swedish workers. It'll come to America too - just ask anyone who works at IBM's former Thinkpad division about what it was like to go for working for IBM to working for China's biggest computer company, Lenovo.

For Volvo, I think it's a good move. Volvo suffered a bit of a brain drain after the Ford acquisition, as many Swedish employees chafed under American management. As long as Geely keeps its hands-off promise, Volvo may be able to grow as an independent Swedish company again. There's some risk for Volvo because it benefited handsomely from Ford's global product portfolio, and many existing and new Volvo products were co-developed with Ford and Mazda to spread out engineering and tooling costs. Once those programs phase out, Volvo will be on its own to develop product again, which is very expensive. If Geely is successful at raising Volvo's volumes, however, product development should continue at a healthy pace at Volvo.

For Ford, I think it was a bad decision. Getting rid of Jaguar, Land Rover and Aston Martin made sense for many reasons, but Volvo was different. In spite of struggling to help Volvo turn a profit, Ford benefited from Volvo's product safety engineering and manufacturing expertise. The sale price was paltry and will hardly make a dent in Ford's $20 billion+ debt load. I think the benefits of hanging on to Volvo outweighed the costs of keeping it, and for that reason I would not have sold it.