Private Equity Wants Sweden’s Volvo Money

Michael Corkery at the Wall Street Journal’s Deal Journal has exactly the same question I have regarding reports that a private equity firm, Crown, is interested in competing with Chinese carmaker Geely to buy Volvo from Ford (F): Didn’t private equity, in the form of Cerberus Capital Management, learn from its experience with Chrysler that the auto industry isn’t the best place for the Dark Lords of Capitalism to be?

Well, maybe. Unless there’s a way to get money out of the deal without actually putting that much on the table. Crown wants to offer less than $2 billion (Ford, by the way, paid close to $7 billion for Volvo a decade ago). Geely would probably try to do something with the brand, somewhat like what India’s Tata Motors plans for its premium acquisitions from Ford last year, Jaguar and Land Rover. Crown, on the other hand, could be angling for several billion in Swedish government loans, money that could be used to dress Volvo up for a price closer to what Ford paid, and above what Crown put in. Private equity firms' raison d’etre is to seek a high rate of return, after all. And if Sweden wants to subsidize the risk, so much the better.