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."
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At the Auto Shanghai motor show, local Chinese car makers are taking the opportunity to show off their latest models which are now competing with the western and Japanese auto giants.
However, it is in the niche sector of electric vehicles where Beijing sees its best chance to dominate the future market.
Auto industry watchers have been out in force at this year's Auto Shanghai show eager to catch a glimpse of the latest Chinese-made cars.
And the future of the Chinese car industry could be this exotic concept vehicle from local Chang'an Motors.
Chinese car makers in recent years have launched ambitious plans to mass produce cars while competing internationally with established western and Japanese brands.
As the trend for luxurious and spacious cars, much like Geely's Engrand, still dominates the Chinese market, a shift towards greener engines has been a highlight of the show.
Beijing sees electric vehicles (EVs) as a field where it can take a global lead, helping to transform China into a creator of technology.
On the Chang'an Motors stand EVs take centre stage.
Here sporty concept cars, complete with a demo electric charging station, show the country's ambitions to dominate the electric vehicle sector.
One mid-sized car expected to be released in July is the Clover.
Yu Chenglong, vice director of marketing for Chang'an Motors says: "The car we are looking at now integrates energy conservation, zero carbon, and so is green. It is an electric car, zero emissions. It also has our "in drive" technology with our intelligent drive system."
Electric cars are the latest industry in which Beijing hopes to use China's fast-growing market as leverage to develop its own technology and global brands.
It 2009 China surpassed the US in the number of vehicles sold annually and foreign producers are looking to China to drive sales, putting them under pressure to cooperate.
Yu Chenglong said: "This time we have 15 finished automobiles, two engines, and three transmissions, showing our technical research and development strength, we are trying to develop our range, called "ultimate, future life", for our Chinese consumers."
Electric cars also are a key part of China's efforts to curb its voracious appetite for imported oil and gas, which Chinese leaders see as a strategic weakness.
Beijing is trying to generate demand by promising subsidies of $9,200 per electric vehicle. Cities are being given grants to buy electric buses and taxis.
Bill Russo, a former Chrysler executive and analyst, said: "What China is trying to do is mass-market EVs, that's very tough, when you have a product that is inherently more expensive than the alternative which is a vehicle powered by an internal combustion engine."
However electric cars offer China a fresh start in a field with no entrenched leaders.
The burgeoning Chinese electric brands of today could be the industry giants in the future.
(Source: AP- HZ from Shanghai)
