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Volvo and Geely

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Volvo's acquisition of Geely. A merger and acquisition study case for presentation in M&A Class of Universitas Tarumanegara Post Graduates, Jakarta, Indonesia.

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Volvo and Geely

  1. 1. Volvo and Geely 1
  2. 2. Chinese Automobile Industry 2 • Cental Goverment, Local Goverment, Automaker Three Main Player in the Industry • Production of 13.8 mill units 2009China exceeded Japan as leading car producer in 2009 • Joint Venture Foreign Firm and Chinese FirmsCharacterizing • Less than 5 out of 1000 people own a car Growth potential • Growth peak in 2015Projected sales growth at 1mill vehicles annually • Shanghai, Tianjin, Gaungzhou3 Main car manufacturing cities
  3. 3. Li Shi Fu & Geely Automotive 3 • Born 1963 in zhejiang province • Founder of the Geely Holding Group • His first business was photo services for tourist at tourist site, for which he used camera and bicycle purchase with RMB 100 school graduation gift. • In 1997, he entered the automobile manufacturing industry and has been devoted to the development of China's auto industry over the past two decades. “Nothing is possible, one only needed to dream big.” 1980 1990 2000 2005 2010 1986 Geely founded on Nov. 6 as a refrigerator maker 1998 The Geely Hoaqing SRV rolled off the production line 2001 1st private company authorized to produce in china 2003 Exported its 1st car 2005 Listed in HK Stock Market 2007 Joint venture with Manganese Bronze holding, makers of london taxi. Geely own 52% stake in shanghai LTI automobile Ltd. 2008 Participate the north USA auto show. Aquisition of australian drivetrain system
  4. 4. • Volvo Founded in Gothenburg, Sweden, in 1927 • Over next 70 years volvo cars became known for quality, safety and somewhat quickly swedish style • 1990s volvo had added concern for environment as a core brand value • “It might be because the car is a little square and sluggish just like the swedes themselves “ (the Volvo Way) • “Cars are driven by people. The guiding principle behind everything we make at Volvo, therefore, is – and must remain – safety” (Assar Gabrielsson and Gustaf Larson, founders of Volvo) 4 THE FORD ERA • Ford Purchase Volvo Car from the Volvo Group in 1999 for $ 6.45 Billion. Volvo Truck and Commercial Vehicles were not part of the deal. • Volvo Car was part of formation Premier Auto Group (PAG), a division focuses High End Product • Volvo Suffered losses under Ford in 2006 and 2008-2009 recession Volvo Background
  5. 5. Volvo Performance Performance 2006 2007 2008 2009 2010 Revenue (SEK Million) 122.076 121.620 95.120 95.700 113.100 EBIT (SEK Million) (296) (1.117) (5.185) (5.185) 2.340 Sales (Number of Cars) 427.747 458.323 334.808 334.808 373.525 Employees 25.553 24.384 19.650 19.650 19.494 Fleet avg CO2 g/km 193 190 173 173 157 5 300,000 330,000 360,000 390,000 420,000 450,000 480,000 2006 2007 2008 2009 2010 SALES VOLVO GLOBAL SALES VOLUME
  6. 6. The Deal 2002 (Mr. Li interest in Volvo) 2007 (Rothschild Invesment Bank approached Mr. Li about a acquisition) 2008-2009 (Financial Crisis, Ford entertained Mr. Li’s advances) April 2009 (Four different Automobile Companies toured to Europe) 6 Dong Feng Chang’an Chery Geely Holding
  7. 7. The Deal Dec 2009 The late spring and summer of 2010 August 1, 2010 7 $1,8 billion: $1,6 billion in cash and $200 million note Further Negotiations $1,5 billion: $1,3 billion in cash and $200 million note DOWNWARD Working Capital & Labor and Pension Fund ? 1999, Ford bought Volvo 6,45 Billion = 3 X more than the current bid price made by Geely
  8. 8. The Effect of Acquisition For Geely & Ford 8 Geely stock rose 5.9 percent Monday in Hong Kong Ford shares gained 39 cents, or 3 percent, to close at $13.16 in New York. Geely’s Acquisition of Volvo
  9. 9. Geely Holdings & Geely Auto
  10. 10. Alternatives & Solutions 10 Others 10% North America 15% Far East 10% Europe 65% Volvo Sales 2010 1 • Expand in North America 2 • Expand in China 3 • Expand in the Far East VOLVO • Back to Luxury segment GEELY • Technology transfer, increase quality
  11. 11. The New Strategy – China Expansion Global sales to 800.000 by 2020 Create Volvo Cars China Set up DCC* Build a plant in Chengdu Build a plant in Daqing *DCC: Dialogue and Cooperation Commitee 11 • The expansion in China will not affect operations and employment in Europe. • Shanghai will serve as Volvo Car China headquarters and centre for product development, design and sourcing. To support Volvo Corporation R&D in Sweden regarding the development of electric vehicles and hybrids. • Focus on increasing sales in China and expanding dealer shops. • Volvo Car Corporation will optimize its sourcing network in China for the global market. • Volvo Car China will start to employ new staff to work with product development for the Chinese market and support local production and purchasing. “Geely is Geely and Volvo is Volvo.” -Li Shu Fu
  12. 12. What happens next? 12 Volvo XC90 (2015) for US Market Volvo global sales 2014: 466.000, rose 9% because of a significant increase in China Operating profit in 2014 rose 17.5% In Feb. ‘15 announce they will invest $ 500 miollion in its first US assembly plant 'Hi, we're Volvo. Remember us?‘ With the revamped XC90 getting ready to hit U.S. dealerships this summer, the Swedish automaker is using guerrilla tactics to reintroduce itself to the U.S. http://fortune.com/2015/02/20/volvo-xc90-2/ http://www.forbes.com/sites/russellflannery/2014/10/27/geely-in-swedish/2/
  13. 13. Lessons Learned 1. Never underestimate the power of Chinese Company. 2. Image in luxury brand is everything. 3. China is a very big market with a fast growing luxury segment. 4. In organizing two distinct organizational culture, the cautious way is the best. (Volvo-Geely, Renault-Nissan). 5. Acquisition is one of the best way to capture technology prowess. 13
  14. 14. Thank You Once this tiger returns to the mountains and carves out its own territory, it will enjoy the market share that it is due.” -Li Shu Fu http://www.quotetimes.com/people/110091/li-shufu?feedid=726354 “ 14
  15. 15. Geely Automobile In Figures Year Started 1998 Total Workforce 15.248 (10% R&D Staff) Customer Base Diversified & Fragmented Manufacturing Facilities 8 Car plants, 2 Engines plans and 2 Gearbox plants Product 7 major sedan models under 4 platforms Number of Dealers 800 Brand Free Cruiser, Geely Kingkong, Vision, Geely Panda Sales volume 2010 415.000 Vehicles Five Key Brand Group Geely, Gleagle, Emgrand, Englon Distributor Network 300 dealers in 45 countries 15
  16. 16. Product Geely 16
  17. 17. Changing Chinese Purchasing Priorities Reason to Buy (% response) 2000 2010 Change Low Purhcase Price 28% 12% -16% Good Vehicle Quality 5% 9% 4% Good Vehicle Styling 3% 19% 16% Roominess/Interior Space 2% 10% 8% Average Transaction Price (RMB) Premium Midsize 341.534 209.802 -39% Midsize 175.793 120.234 -32% Entry Midsize 134.964 90.737 -33% Compact 63.980 42.988 -33% Average Exchange Rate (RMB/USD) 8,28 6,77 Average Transaction Price (USD) Premium Midsize $ 41.248 $ 30.990 -25% Midsize $ 21.231 $ 17.760 -16% Entry Midsize $ 16.300 $ 13.403 -18% Compact $ 7.727 $ 6.350 -18% 17
  18. 18. Volvo Innovations • Liminated glass (1944) • The 3-Point Safety belt (1959) • The rear-facing child seat (1964) • The side impact Protection system (SIPS, 1991) • Side Safety Airbags (1995) • Head Protecting airbags(1998) • BLIS (2004) 18
  19. 19. Model range - Production Volvo S40 2010: 28.666 Assembly: Ghent Volvo S60 2010: 27.579 Assembly: Ghent Volvo S80 2010: 28.949 Assembly: Gothenburg Volvo V50 2010: 54.302 Assembly: Ghent Volvo V70 2010: 48.585 Assembly: Gothenburg Volvo C70 2010: 9.532 Assembly: Uddevalla Volvo C30 2010: 35.248 Assembly: Ghent Volvo XC90 2010: 36.711 Assembly: Gothenburg Volvo XC70 2010: 21.156 Assembly: Gothenburg Volvo XC60 2010: 83.670 Assembly: Ghent Incl. assembly in China (S40/S80L), Thailand (S80, XC90) and Maleisia (S40, S80,V50,XC60,XC90). Total VCC-production 2010: 387.802 cars Volvo V60 2010: 13.404 Assembly: Gothenburg
  20. 20. Competitive Strategy
  21. 21. Volvo Acquisition • Biggest overseas acquisition by a Chinese automaker • 100% ownership of Volvo and related assets, including agreements on intellectual property rights, supply and R&D arrangements • Planned production 300 000 Volvo’s annually • Double original Volvo production capacity • Mainstream European brand vs domestic economy car brand • Building a successful partnership between Volvo and Geely will require a solid plan for post-acquisition integration
  22. 22. Geely Competitors & Suppliers 22 Main: •China Motor Corporation • Dragon Hill Wuling Automobile Holdings Limited • Brilliance China Automotive Holdings Limited • Zhejiang Geely Automobile Parts & Components Company Limited • Shanghai Maple Engine Company Limited • IAC Group (Interiors) • Autoliv Inc (Airbags) Competitors Suppliers
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  24. 24. Chinese Initial Quality Survey 24
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