Ford Motor Corp yesterday agreed on all major commercial terms with Zhejiang Geely Holding Group Co associated with the Chinese firm's proposed record-breaking acquisition of Volvo Car Corp.

Both car makers expected to sign the purchase agreement for Ford's money-losing Swedish car unit in the first quarter of next year, paving the way for completion of the deal in the second quarter, Geely said yesterday.

Further discussions would focus on finalization of documentation and financing, the private car maker said, adding that the deal was still subject to government approval.

The agreement on commercial terms follows Geely's intensified talks with Ford since the firm was named preferred bidder for Volvo in October.

Geely Chairman Li Shufu earlier said he was confident of completing the deal and the bidding for Volvo reflected its intention to enter the global auto market and lift overall competitiveness.

"It's a strategic move for Geely," said independent auto analyst Li Anding.

"It will further strengthen Geely's position in both China and global auto markets."

Ford said in a statement that "the sale will ensure Volvo has the resources, including the capital investment, necessary to further strengthen the business and build its global franchise, while enabling Ford to continue to focus on and implement its core One Ford strategy."

Geely said Volvo's existing plants, engineering centers and dealership network would remain unchanged if it acquired Gothenburg-based Volvo.

It also emphasized that the Swedish car maker would retain some intellectual property rights, a move that was widely believed to be a deal-breaker.

Some analysts, including Zhang Xin from Guotai Jun'an Securities, said there were still challenges for Geely to make good use of technology before turning any profits.

Ford and Geely have not disclosed the price for Volvo, but reports said the deal may cost Geely about US$2 billion, less than a third of the US$6.45 billion Ford paid for Volvo in 1999.

Geely is reportedly seeking US$1 billion in loans from Chinese banks to finance the deal.

If the deal goes through, it will be the biggest overseas acquisition in China's automotive industry.

Geely is considering construction of a plant in China to domestically produce Volvo vehicles.

Geely's bid has received tentative government support.

Ministry of Commerce spokesman Yao Jian said earlier, referring to Geely, that overseas acquisition was a good way to obtain advanced technology and management expertise.