Volvo Car Corp. will repay its present debt after it was able to negotiate a 922 million euro ($1.2 billion) loan from the China Development Bank. The Chinese-owned automaker also seeks more financial assistance for the investment it requires to double auto sales. Volvo made the announcement about the loan last Thursday.
Because of the declining demand in Europe, Volvo had to trim down its output at its primary plants. Volvo spokesman Per-Ake Froberg said that under the loan agreement, the next step will have the company securing credits that will help fund investments that total to $11 billion, about 50% of which will be used to upgrade production in Sweden.
Volvo intends to make an $11 million investment as it seeks to achieve double its total sales to 800,000 vehicles by 2020. He said that the company is in development of a totally new vehicle architecture that will be crucial and that will have to be financed. In 2010, Zhejiang Geely Holding Group bought Volvo from Ford Motor Co.
Volvo believes that the investment will reduce costs and increase the likelihood that it will avoid the impact of the market downturn. Last week, newly appointed CEO Hakan Samuelsson said that he didn’t see any positive signs in the European market but that North America is "coming back."
He also said that China continues to report growth but at a slower rate. The first loan is set to mature in 2020. Separately, Sweden's debt office announced that Volvo Car had paid back a loan from the European Investment Bank in advance after inking the deal with China Development Bank.