Ford (F): Shopping Volvo To China

The US car market does not need more companies competing for a shrinking pie. Ideally, it should have less. Ford (F) may inadvertently be letting China into the American race for market share. But, Ford needs the money.

By most estimates, the No.2 US car corporation is burning through more than $1 billion a month. As total American vehicle sales drop as low as ten million this year, Ford’s financial situation will get worse, even if it gets concessions from the UAW and suppliers.

To help raise capital, Ford has been shopping Volvo. There has been some hope that Sweden, where Volvo was founded, might buy the brand. So far, there is no indication that will happen.

In the meantime, Ford may be getting interest from several Chinese car companies. For them to afford Volvo would probably require government assistance, but industries in the world’s most populous country are used to being helped in what is not an entirely free market economy. Why should the automotive sector be any different?

According to The Wall Street Journal, as it has become clear that Volvo will be sold soon, "Companies expected to express interest include Chinese auto makers Geely Holding Group, SAIC Motor Corp. and Chongqing Changan Automobile Co."

Chinese car companies have been showing up an international auto shows for years, hoping to prove that they should be able to market their products outside their home market. Most experts who have seen their products do not believe that their quality is good enough to compete in the US and EU markets. Buying Volvo would take that barrier away.

So, China’s desire to move into the world’s largest auto market may not have to be put off by years while it develops models that would be attractive to US consumers. A government-supported initiative to sell vehicles in America would allow one or more of the car firms on the mainland to play on the same field that helped Toyota (TM) and Honda (HMC) build themselves into two of the largest companies in the world.

The Big Three do not need any more competition, but Ford may let another player into the game.

Douglas A. McIntyre