On May 7th the Wall Street Journal reported that Geely, the Chinese automaker, plans to acquire GM's Saab and Ford's Volvo operations in Sweden. Geely is the second largest domestic auto producer in China, with its headquarters located in Zhejiang province and several subsidies set up throughout the country. In fact, Geely’s holding company has not confirmed that talks are taking place with GM and Volvo, but analysts suspect something is going on.

Why would Geely be interested in acquiring these brands? One possible reason is that they wish to build their own brand equity, and by acquiring these upscale brands it will improve their positioning. This will help their brand be more competitive in the domestic Chinese market. Geely is probably also looking to enrich its product portfolio through the deal with Saab and Volvo, not to mention that this may be a one-time chance for them to buy into these companies at a relatively low price. It could open doors for Geely in the future to sell cars in foreign markets as well.

Whether or not Geely could actually win the bid for Saab and Volvo is another story, but from a brand strategy perspective these deals could be effective. In the Chinese auto market, consumers tend to be highly brand sensitive. They often prefer products which are not made in China, or at least which are related to foreign brands, although these products may still be domestically produced. In summary, Geely could benefit from buying these foreign auto brands. Let’s wait and see if they make a move.