Geely nears Volvo deal, plans China production

China's Zhejiang Geely Holdings will produce up to 300,000 Volvo cars a year at a new factory in Beijing as part of its plan to pull the Swedish brand out of the red by 2011, a source said on Tuesday.

Zhejiang Geely, parent of Hong Kong-listed Geely Automobile, aims to complete the purchase of Ford Motor Co.'s Volvo unit for up to $2 billion by May, according to the source and to a document submitted to regulators by Geely and seen by Reuters.

The addition of such capacity would nearly double Geely's current output, which reached 321,900 units in 2009 for the entire group, up 45 percent from a year earlier. Geely has set an ambitious annual sales target of 2 million cars by 2015.

Analysts said the 2011 break-even target could be a stretch for Geely, which has no experience running a foreign company.

"I think it's optimistic to break even next year as it needs to build a plant first and it might take time for Chinese buyers to accept a made-in-China Volvo," said John Zeng, an analyst with IHS Global Insight. "It will break even eventually but that's going to take time."

Geely Automobile Holdings Ltd is China's largest private car maker. Its charismatic founder, Li Shu Fu, sometimes likened to Henry Ford, has shown global ambitions for Geely, which means "lucky" in Chinese.

Ford, the only major U.S. automaker to avoid bankruptcy last year, is selling its luxury Swedish brand to free up cash as it climbs out of the industry's worst ever downturn.

The deal would see Geely acquire Volvo for $1.5 billion to $2 billion, with an expected closing date in May after the signing of the initial agreement next month, according to a copy of the Geely document.

Geely said in December it was near such a deal, and later added it had strong support from the Chinese government for the purchase.

Geely will set up a separate company with registered capital of 8 billion yuan ($1.17 billion) to buy Volvo. Foreign strategic investors and the Hong Kong-listed Geely will hold a 51 percent stake of the company.

Geely shares were down 3.7 percent, amid a broader market sell-off and following a run-up that saw the shares more than double since mid-September on hopes for a Ford deal.

The purchase would be the biggest in a recent spate of similar acquisitions of distressed global assets by Chinese carmakers, which have thrived during the global downturn due to strong incentives for their industry under Beijing's 4 trillion yuan ($586 billion) stimulus plan.

Under the deal, Geely will keep the brand and operations in Sweden, including Volvo's headquarters, production facility and research center, intact after the acquisition.

"(Geely) will keep the core value of Volvo as a luxury brand unchanged, while improving it with the development in emerging markets, and add more fashionable, dynamic and passionate international elements," said the document.

Volvo is expected to post earnings before interest and tax (EBIT) of $703 million in 2015, the document said.

A Geely representative declined to comment.

Among other deals involving Chinese vehicle makers, Sichuan Tengzhong Heavy Industrial Machinery is in the process of buying General Motors Co.'s Hummer brand, though that deal has yet to close and GM said earlier this month it is still awaiting approval by Chinese regulators.

Last month, Beijing Automotive Industry Holding Corp (BAIC) sealed a deal to buy technology from GM's Saab unit for $200 million, saying it would use the technology to launch an aggressive campaign to develop its brand both at home and overseas.

The buying spree comes as China zoomed past the United States to become the world's largest auto market last year.

Vehicle sales in the country jumped 46 percent to a record 13.6 million units for the year, according to the China Association of Automobile Manufacturers, well above the 10.4 million cars and light trucks sold in the battered U.S. market.

Analysts expect China's car sales to continue growing this year under renewed government incentives, though they expect the growth rate to slow to about 10 percent.

Tokyo go, go for storming Lexus supercar

V10-engined LFA will be star of Japanese expo.

It's the news every supercar fan was desperate to hear: the Lexus LFA is going into production! Although Honda has canned plans for a new NSX, the wrap,s will be taken off the LFA at October’s Tokyo Motor Show.

The two-seater flagship will feature a 600bhp V10, giving 0-60mph in less than four seconds and a 200mph-plus top speed. Expect a light carbon fibre body with a pop-up wing, rear-wheel drive and an F1-style paddleshift box.

A replacement for the Celica will also be revealed at Tokyo. This rear-driven coupé is the result of a joint project by Toyota and Subaru, and features an Impreza platform and drivetrain. But the show could be short on launches from other makers. Ford, GM, Chrysler, Mercedes, Renault, Volkswagen and Lamborghini have all pulled out of the expo, blaming the economic downturn. This follows news that the British Motor Show has been cancelled for similar reasons.

Pininfarina eyes year-end debt deal

After months of talks that have forced it to postpone a crucial capital increase, Italy's Pininfarina said today it still expected to reach a deal with its creditors to reschedule its debt by year-end.

Like other suppliers and service providers in the car industry, the small designer and niche manufacturer has been struggling to pay off its debt.

Its business has been suffering since clients such as Ford Motor and Fiat's Alfa Romeo have seen their sales tumble in the worst crisis to hit the industry in decades.

One client, Swedish luxury brand Volvo, has had such a hard time that its owner, Ford, has put it up for sale.

Best known for designing Ferraris, Pininfarina was supposed to have reached an agreement with its creditors to reschedule 600 million euros of debt by Sept. 30.

But the talks stretched beyond the deadline.

Since a deal had been a prerequisite for a capital increase of 100 million euros, Pininfarina was forced to abandon its plans to raise the money in November. It was to use it for a joint venture with French financier Vincent Bollore to develop an electric car, a project pivotal to Pininfarina's revival.

The talks eventually led to Pininfarina proposing the banks convert 180 million euros of debt into shares representing up to 30 percent of the company.

The founding family had been ready to cut its stake to about 30 percent from more than 50 percent with the capital increase to a select group of investors including Bollore. But this latest proposal to the banks, announced on Nov. 12, was seen substituting that idea.

Other select investors had included Ratan Tata. But the Indian business leader has had his own money problems, with his Tata Motors finding it hard raising money to pay the $3 billion bridge loan obtained to buy Jaguar and Land Rover.

In light of plunging sales, Pininfarina has been cutting costs by halting production at its three plants on a rotating basis for one week a month in November and December. It plans to do the same thing for all of 2009.

Its creditors include Italian banks Intesa Sanpaolo and UniCredit.

GM and Ford merger was discussed

A merger of U.S. automakers General Motors and Ford Motor was discussed, but shot down at a recent management meeting at GM, according to an article in the July 7 edition of Business Week.

The idea was floated by a senior GM executive, but set aside as such a deal could be a huge distraction and double many of the numerous problems that both companies are facing, said the report, citing someone familiar with the discussion.

However, such a deal would have some merit, as merging the massive overheads of both companies could save billions and their combined cash hoard of $50 billion could help them weather the downturn in automotive sales, the article said.