Rory Cellan-Jones: "The purchase of Volvo gives Ford a complete market range"

Ford, the world's second largest car maker, will pay 50bn Swedish Kronas ($6.45bn). Ford's competitors in the bidding war for Volvo were Germany's Volkswagen AG and Fiat from Italy.

It is the latest deal to emerge in a rapidly consolidating car industry, as the largest companies seek to expand their empires.

Ford plans to create a new luxury car division, putting Volvo alongside its existing makes such as Jaguar.

Volvo will keep its commercial truck, marine and other industrial operations. When announcing the deal, the company said it would now concentrate fully on producing commercial vehicles.

Volvo is world-famous for its safety features and some of that could rub off to Ford cars

Analysts believe that Volvo will now seek to buy rival truck maker Scania, another Swedish company, in which the group recently took a large stake.

Volvo's Chairman, Håkan Frisinger said: "This is a solution which strongly enhances both the prospects for Volvo Cars, its employees and for the Volvo Group as a whole."

Prof. Garel Rhys on the implications of the sale

He said Volvo cars would benefit from economies of scale by being part of a larger player on the world's car market.

Ford's new Chairman, William Clay Ford Jr, hailed the deal as a big step to achieve the company's "21st century vision" of becoming "the world's leading consumer company that provides automotive products and services".

Volvo's autopilot is now set for Detroit

Mr Ford, descendant of the company's founder, took over as chairman at the start of this year.

The car industry worldwide is in the process of consolidation. Too many manufacturers are producing too many cars, and smaller players have trouble defending their market share.

As a result big companies are snapping up smaller ones, while even some of the big names see fit to combine forces.

The BBC's Rory Cellan-Jones talks to Motor Industry Analyst Jay Nagley about the move

Last year Germany's Daimler-Benz and Chrysler merged to form the world's third largest car company. Volkswagen bought the factory building Bentley and Rolls-Royce luxury cars, and the new DaimlerChrysler is currently negotiating to buy a substantial stake in Japan's Nissan.

Sharing names

John Spelich: Ford knows how to handle Volvo

Ford and Volvo will jointly own the brand name, and the company will continue to be managed from Volvo's headquarter in Gothenburgh.

Ford will have no problems paying for the Swedish car company. The US manufacturer sits on a $24bn cash pile, while Fiat, for example, would have had to raise most of the money on the financial markets.

Swedish television reported that Fiat had bid more than Ford, but wanted to include Volvo's heavy truck division in the deal.

Joe Phillippi, analyst with Lehmann Brothers, said: "It makes a lot of sense for Ford, as long as they don't overpay for it."

Volvo and Ford could be a perfect match. Volvo's near-luxury cars fit in between Ford's range of cheaper automobiles and the luxury cars produced by Jaguar, which Ford bought in 1989.

Ford currently has a 10% share of the European car market.