The purchase gives Geely a European luxury car brand with a reputation for safety and quality at a time when China, which last year surpassed the U.S. as the world's largest car market, is eager to improve its competitiveness by acquiring foreign automotive brands that might help it improve its technology and expand into overseas markets.

The price, which includes a $200 million note with the remainder to be paid out in cash, is far less than the $6.45 billion Ford paid for the Swedish automaker in 1999. The U.S. automaker has been trying to sell Volvo since late 2008 to focus its resources on managing its core Ford, Lincoln and Mercury brands.

"We think it's a fair price for a good business, and yes, we're happy with the deal we've achieved with Geely," said Ford Chief Financial Officer Lewis Booth on Sunday at a news conference at Volvo Cars headquarters in Goteborg, on Sweden's west coast. Booth added that his company believes that, under Geely, "Volvo can continue to build its business and return to profitability."

The agreement was signed by Booth and Geely's chairman, Li Shufu, and witnessed by Li Yizhong, the Chinese minister of industry and information technology, as well as Swedish Minister for Enterprise and Energy Maud Olofsson.

In a statement, Geely said it has secured all the financing necessary to complete the deal, as well as "significant working capital facilities to fund Volvo Cars' ongoing business." The sale is expected to be completed in the third quarter, subject to regulatory approvals.