Chery wants to acquire Volvo

Volvo, most probably, would see a change of hands if things work out for Chery. This is just a rumor, as of now.

Caijing Magazine said that China’s Chery Automobile Corp. is weighing options on acquiring Volvo from Ford Motor.

The deal, if materalises, could be worth upwards of US$4.4 billion. However, it remains to be seen if Chery has enough resources to make it work.

The initial reaction to the deal in industry has been negative. For one, there are the accusations against Chery of copying of other manufacturer’s designs. Then, Chinese companies are notexactly well-known for high-quality products, and Volvo with its emphasis on safety and reliability might lose that brand equity under Chery.

Meanwhile, Ford Motor (China) has declined a comment soon after industry news circles began circulating speculations about the possible buy out. Chery too hasn’t yet made a public statement on this rumoured move. Ford had bought Volvo Group’s car unit for $6.45 billion way back in 1998.

The China car major is said to have kicked off a feasibility study on acquiring Volvo. Though nothing has been decided as yet, it is being rumoured that the management might go ahead and submit a proposal to the authorities concerned in this regard. If the move steps on to a concrete step, Chery would have to rely on funding from local banks and private equity firms if it is to bid for a $4.4 billion deal.

Making matters tough for the ambitious car maker is the official hurdle on its route to tap the equity markets for funds. Chery initially planned to float shares in Shanghai and Hong Kong simultaneously in the second half of this year. However, its capital structure failed to meet the requirements of the Hong Kong Stock Exchange, and the 50 per cent drop of the Shanghai market over the past eight months forced Chery to postpone an A-shares listing until next year.

It is being said that Chery’s total assets would add up to only a tad less than $4.4 billion. This being the case, industry analysts are skeptical about the take over bid.

The general reaction in the automobile press to the rumoured buyout of Volvo is skepticism.