My 3-year-old daughter has never seen the lights on at a house up the street; the building has been empty and on the market longer than she’s been alive. I don’t know the owners or the situation, but I do know the asking price has steadily fallen. The owners probably just want to get that asset off their backs and move on with their lives.
Over the weekend we got news that Ford will move on. In 1999 it acquired Volvo for $6.45 billion. Yesterday it agreed to sell it for $1.8 billion. Ouch. Still, few are saying the deal will be bad for Ford. Volvo continues to lose money, so selling low likely is the best move. It’s another step toward right-sizing the Ford organization.
The media have focused their attention on the buyer, Zhejiang Geely Holding Corp., a company that has a big presence inside China; but in the rest of the world, not so much, hence the glee of Geely’s managers over the recent binding deal. The business world has its eye on China, now considered the world’s largest auto market. In the U.S., everybody has at least one car. In China, of course, that’s not the case.
Will Geely be able to squeeze profits out of Volvo again? Geely got a good price, but is the deal too good to be true? As Michael Schuman of Time magazine put it this morning, “Usually the sellers of these operations want to ditch them for good reason—because they’re in some way troubled or dog-eared, and need some hefty restoration work to make them into viable, sustainable businesses.”
The deal smells a bit like an empty house that’s been sitting on the market for years.
Schuman conceded that the deal will probably benefit Geely in the long run, but it’s only a small step, not a game changer. It’s true that more of the automotive business is moving to the BRIC countries. In 2008 Ford sold Jaguar and Land Rover to India’s Tata Motors, for instance. But China and India may be a long way from building their own globally recognizable brands in the car business.
For metal formers and fabricators stateside, the main hope is that Ford and the other OEMs are getting their houses in order as the battered automotive sector slogs the long road back to normalcy. In this respect, Ford shedding its unprofitable Volvo operations is a good thing.