Ford announced yesterday that it is buying Volvo’s passenger car division for $6.45 billion in cash – a move that will allow the small Swedish manufacturer to invest more in its truck and equipment divisions.

Despite a “strong product program” and “above industry-average profitability,” Volvo admitted it’s a small niche player in a worldwide market that needs big player economies of scale. The deal, which must be approved by Ford and Volvo shareholders, includes three assembly plants and three powertrain plants in Europe, a product development center in Goteborg, Sweden, and use of the Volvo name for passenger cars, minivans, sport utility vehicles and light trucks. Ford says Volvo Car will continue to be managed from Sweden, but with access to Ford engineering, purchasing, distribution and marketing.
The deal is the most significant in the automotive industry since Germany’s Daimler-Benz merged with Chrysler last year, creating DaimlerChrysler.
The additional cash reserves generated by the Ford deal will give Volvo the ability to expand in other areas. Lief Johansson, Volvo’s chief executive, “has made no secret of his desire to expand Volvo’s truck, bus and construction equipment divisions, all higher-margin businesses,” according to the London-based Financial Times.
Less than two weeks ago, Volvo bought a 12.85% share in rival truck maker Scania, and reportedly wanted to discuss a merger. Such a combination would create Europe’s largest and the world’s second largest manufacturer of heavy trucks and buses – right behind Daimler-Chrysler. But Scania’s not interested.