Li Shufu, right, chairman of Chinese automaker Geely, speaks while a photo of a Volvo car is projected on a screen during a press conference in Beijing March 30, 2010. Zhejiang Geely Holding Group expects to spend hundreds of millions of dollars beyond the US$1.8 billion purchase price for Volvo Cars to make the Swedish car company profitable, Li said.Alexander F. Yuan
There is a new Government Motors in the world and this one is in Sweden, with Chinese ownership. But when I say Government Motors, it's not what you might think.
Let's start at the beginning. Sunday, China's Geely Holding Group signed an agreement to buy Volvo from Ford Motor. Geely will pay Ford $1.78-billion (U.S.) in cash and another $200-million in a note to get full control of Volvo, including its intellectual property. (Note: Ford paid $6.4-billion for Volvo a decade ago.)
Now here's the Government Motors piece: As MIT professor Simon Johnson notes on the Huffington Post, investment bank Goldman Sachs has a significant private equity stake in Geely. Goldman, as Johnson astutely points out, was saved from collapse in the fall of 2008 when the U.S. Government allowed it to transform into a Bank Holding Company.
In doing so, Goldman was given access to cheap loans from the U.S. Federal Reserve. The Fed, of course, is supported by the U.S. taxpayer. The Fed money rescued Goldman from a Lehman Bros.-like meltdown.
So connect the dots: the U.S. taxpayer saved Goldman, making it one of the Too Big to Fail banks. Geely, in turn, has used some of its Goldman investment – remember, Goldman was SAVED FROM COLLAPSE by the U.S. taxpayer – to buy Volvo from Ford. Geely will use more Goldman investment money to refashion Volvo to compete profitably on a global scale.
Without the U.S. taxpayer, Goldman would not exist at all, let alone be an investor in Geely. Without Goldman, it's fair to argue that the Chinese company would not be positioned to buy Volvo. Geely, then, is the new Government Motors. Imagine that. U.S. taxpayers have helped a Chinese company buy a Swedish brand from a U.S. auto maker. The mind boggles.
It is also reasonable to argue that Ford Motor has now received U.S. taxpayer help, indirectly at least. Ford is getting $1.8 billion (U.S.) from Geely, which is significantly owned by Goldman, which was bailed out by U.S. taxpayers.
So Ford owes something of a thank you to U.S. taxpayers for saving Goldman; so that Goldman could remain invested in Geely; so that Geely could buy Volvo, putting a big chunk of needed cash in Ford's coffers. How long until Chinese-made Volvos are being exported to compete against Ford in North America? All thanks to U.S. taxpayers.
This is 21st century capitalism. As Johnson, the author of 13 Bankers: The Wall Street Takeover and the Next Financial Meltdown, notes, the Too Big to Fail Banks "now spearhead lending to risky projects around the world," backed by taxpayer guarantees.
Make no mistake, Volvo is a risky project for Geely. But thanks to its Goldman's investment, U.S. taxpayers will be there to backstop any risk of failure.
Geely: The new Government Motors.