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Geely could find Volvo a tough nut to crack

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Li Shufu, 3rd from right, Chairman of Chinese Geely, smiles while standing on a stage with other Geely executives during a press conference in Beijing, March 30, 2010. [CFP]

When Li Shufu, chairman of Zhejiang Geely Group Holding Co Ltd, celebrated the company's agreement taking over Swedish luxury brand Volvo on Tuesday, nobody could foresee the challenges and risks ahead for the Chinese automaker.

Yes, the deal gives the Hangzhou-based company access to new technologies, control of the Volvo brand name and, perhaps, a shortcut for Geely into the global automobile industry. But conversely, the huge purchase could also be the privately owned automaker's fast track to financial ruin.

And while Geely proved it could muster enough capital to conclude the transaction, whether it has the financial muscle to take over and develop Volvo over the long haul remains to be seen.

Addressing the money issue, Yin Daqing, Geely's chief finance officer, said in Beijing on Tuesday that Geely has obtained "enough" financing to foot Ford's $1.8 billion bill and still have $0.9 billion left over for future operational costs.

However, according to a Bloomberg report last week citing a Volvo board member, in reality the Chinese automaker will need at least $1.4 billion to revive the troubled Swedish brand, a sum that Geely may be hard pressed to come up with.

Domestic auto analysts agree, forecasting Geely will need between $1.6 billion to $2 billion to keep the Swedish firm operational.

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