Devolving Volvo

: It took more than a decade for Ford to create what it called its Premier Auto Group around a bunch of classy European brands-starting in 1987 with its purchase of Aston Martin, followed by the acquisitions of Jaguar, Volvo and then Land Rover. It all proved a terribly expensive distraction. Now, it has taken Ford three years of tricky negotiations to dismantle the group, selling the European marques at a considerable loss. Aston Martin went to a British-led consortium in 2007, Jaguar Land Rover (JLR) was snapped up by Tata of India in 2008 and, on March 28th, a deal was signed to sell Volvo to Geely, a small but vastly ambitious Chinese carmaker.

The sticker price is $1.8 billion, a fraction of the $6.45 billion that Ford paid for Volvo in 1999. The cost to Ford is worse even than those figures suggest: it has had to support the Swedish carmaker through years of losses and even now it faces further expenses associated with the sale to Geely that will eat up much of the meagre sum it is getting for Volvo.

Unstitching Ford and Volvo will take years

Over the years Volvo�s design and production have been closely integrated with Ford�s, so much so that it will take years to unstitch them. The sale agreement, which both sides hope to finalise in the third quarter of this year, includes a promise from Ford to continue providing Volvo with such things as engine and powertrain technology for the time being, just as it promised Tata that it would continue to support JLR.

When Geely�s interest in Volvo was made public in the middle of last year, there were some doubts about whether Ford would want to take the risk of letting its technology and other intellectual property leak out to a fast-growing Chinese firm that could one day be a serious rival. The announcement of Volvo�s sale says �safeguards� have been agreed to stop this happening. But it also says Volvo will be able to sublicense some of Ford�s technology to others, including Geely.

Although Volvo represents only a small part of Ford�s output, swallowing it will be a big challenge for Geely: last year it sold just 3,30,000 cars-most of them in China-which is about the same as Volvo sold worldwide. Unlike most big Chinese carmakers, Geely is privately owned and, in recent weeks there had been some doubts...