Apr 27, 2011
Zhejiang Geely Group is betting its newly acquired, Sweden-based Volvo Car unit can remain foreign enough to win over well-heeled mainland consumers but become Chinese enough to cultivate government support and be attuned to rapidly shifting trends in the booming mainland car market.
"We are a different company now," Volvo Car China chairman Freeman Shen said. "We are still a premium European car brand, but we want to become a company that knows China very well and to make it our second home market."
Perhaps best known for producing safe and straightforward sedans, Volvo hinted at a racier line-up last week with the debut of Universe concept car at the Shanghai car show.
The Universe is larger and more luxurious than anything in the current line-up.
"There are a lot of new elements to that car," says Shen. "So far, the feedback has been very positive."
Volvo, which the privately held Zhejiang Geely bought from Ford for US$1.5 billion last August, this year unveiled plans to sell 200,000 cars on the mainland annually by 2015, up from about 30,000 cars last year.
The company plans to break ground for its first wholly owned mainland car plant in Chengdu in the third quarter and start production in 2013, Shen said in an interview last week on the sidelines of the Shanghai car show.
"We have a very ambitious plan," Shen said. "We have a strong management team ... and we have a lot of support from the government, we have to admit that. And a lot of Chinese consumers are very supportive because, simply, this is one of the first Chinese-owned premium brands in any industry."
In addition to the planned Chengdu facility, which will have an initial output capacity of 100,000 cars per year, Volvo is also mulling a second mainland plant in the northeastern city of Daqing, best known for its oilfields. The Goteborg, Sweden-based firm also plans a research and development centre in Shanghai's Jiading district, where it recently set up its new mainland headquarters.
State firms owned by the governments of Daqing and Jiading helped bankroll Zhejiang Geely's purchase of Volvo, contributing a combined four billion yuan (HK$4.7 billion) in financing or roughly a third of the purchase price, according to Ford's filings to the US Securities and Exchange Commission.
Shen said that being owned by Zhejiang Geely, parent of Hong Kong-listed Geely Automobile, gives Volvo a leg-up over other foreign car brands in the mainland, which, according to Beijing's policies, must manufacture locally through joint ventures with (mainly state-backed) local firms, where their ownership level is capped at 50 per cent.
"Of course, they always say the joint ventures' interests are the priority, but the foreign and the Chinese partners' interests in most cases are not aligned, and that creates a lot of inefficiencies," Shen said.
Analysts said Volvo had a rare opening to the mainland market.
"Having your parent be a Chinese company but your brand still regarded as European is the magic of this relationship, because all of the foreign carmakers that come to the market have to follow a lot of guidelines and policies and if you are the home team, they are going to cut you a bit more of a break," said Bill Russo, president of Beijing-based consultancy Synergistics and a former top Asia executive at Chrysler.
But Russo said Volvo may have to follow the lead of brands like Audi, which tailored its mainland line-up to offer stretched versions of its cars with more luxurious rear seating for the wealthy customers who tend to be chauffeured.
"Volvo will have to be more Chinese if they are going to be successful in China."