Ford will recoup less than a third of 1999 value in sale to Zhejiang Geely after quality issues and 22% drop in US sales

Swedish carmaker Volvo – renowned across Europe for its chunky, ultra-safe vehicles – is likely to fall into Chinese hands after the brand's owner, Ford, chose a consortium led by industrial group Zhejiang Geely as preferred bidder for the loss-making business.

Sources say Geely – which is China's largest independent motor manufacturer – is willing to pay about $2bn (£1.2bn) for Volvo, and is keen to build on the presence of the so-called "Swedish tanks" in the increasingly affluent Chinese car market. Premium European names such as Audi and BMW are already becoming popular on the Asian nation's roads.

A sale would be a relief to Ford, which has been trying to offload Volvo since the end of last year. The Detroit-based US company is likely to get a price well below the $6.45bn (£3.95bn) it paid for Volvo in 1999.

"Ford believes Geely has the potential to be a responsible future owner of Volvo, and to take the business forward while preserving its core values and the independence of the Swedish brand," said Ford's chief financial officer, Lewis Booth.

Established in Gothenburg in 1927, Volvo took its name from the Latin verb "volvere", meaning "to roll". The manufacturer employs about 20,000 staff, three quarters of whom work in Sweden. However, Volvo lost $231m (£140m) in the second quarter of 2009 and sales of its vehicles have fallen 22% in the US this year.

Craig Fitzgerald, an analyst at business advisory firm Plante & Moran in Michigan, said that Ford overpaid when it bought Volvo and then failed to build the name effectively on both sides of the Atlantic. It also struggled, until recently, with quality challenges. But he said Volvo remained a strong name: "It has a relatively clear identity for somewhat stylish, different, very safe, durable vehicles. This is a brand that can be built upon."

Geely has seen off other potential buyers for Volvo, including a US consortium called Crown – which is led by several former Ford executives. Negotiations have been prolonged by intellectual property issues – Ford is concerned about sensitive technology shared between Ford cars and Volvo vehicles in powertrain, engines and vehicle architecture. After talks in London, brokered by the investment bank Rothschild, Geely has offered to keep Volvo as a relatively autonomous unit.

Sweden's government has provided emergency aid to Volvo and rival carmaker Saab to keep them afloat as sales wane, although the country has been reluctant to take public ownership of carmakers.

The head of Volvo's engineering union, Magnus Sundemo, expressed reservations yesterday about the prospect of a Geely buyout: "My main concern is whether they have what is needed to understand Volvo culture – the way we work here and the values at Volvo."

Chinese carmakers are an increasingly influential presence in the international motor industry. General Motors recently sold its Hummer brand to China's Sichuan Tengzhong and another Chinese firm, Beijing Automotive, is taking a minority stake in Saab.

News of the potential deal emerged amid further signs of financial stress in Detroit, where General Motors' former financial arm, GMAC, is negotiating with the Treasury about a third helping of government aid. GMAC is a crucial player in financing car dealerships across the US. It has already received $12.5bn (£7.6bn) of taxpayers' money, but is struggling to raise capital needed to get its balance sheet on a stable footing.