Volvo’s Comeback:China’s Geely Holding Group Has Big Plans For Reviving Volvo
Does a worried expression, revealing feelings of uncertainty and unease, appear on your face when China and Volvo are mentioned in the same sentence? This is because some of you believe that the iconic Volvo Brand would be cheapened by Chinese ownership.
Everyone is entitled to their own opinion, but keep in mind what happened to another famous, iconic Swedish brand, SAAB.
SAAB is dead. SAAB will soon be liquidated after filing for bankruptcy with a debt of $2 billion.
The Chinese had expressed an interest in buying SAAB from it’s former parent, General Motors (GM). However, GM refused to share patents – Saab uses engine and drive-train technology licensed from General Motors — and that was the beginning of the end for 64 year old SAAB.
Read all about how the Chinese are planning to do a complete overhaul of Volvo. Check-out this article on the Wall Street Journal.
The article details how Volvo’s current European chief executive, Stefan Jacoby, and the Chairman, Li Shufu of Geely Holding Group initially clashed with regards to the future vision of Volvo Cars — recently acquired from Ford Motor Company.
Ford got hitched to Volvo Cars Dision in 1999 for $6.5 billion, and after the rocky marriage failed, Ford Motor Co. got rid of Volvo Cars in 2010, for the kingly sum of $1.8 billion to the new suitor, Geely Holdings Group.
The reason behind the divorce was two-fold; poor sales and and a bad economy.
According to this article by businessweek magazine, Volvo lost $2.6 billion between 2008 and 2009. As of 2010, Sales have been off by about 27% since they last peaked in 2004.
Volvo sales have been on the decline.
The last year Volvo worldwide sales broke a record was back in 2004 when Volvo Cars sold 456,244 units. In 2008 Volvo worldwide sales dwindled down to 374,297 from 458,323 the previous year. However, 2010 has seen Volvo fortunes rise with the introduction of new models, such as Volvo XC60 — Volvo’s best selling car.
China is now the largest automobile market in the world after overtaking the U.S.
In china alone, Volvo sales increased by 36.2 percent in 2010 – 2010 saw 50,000 Volvo’s sold in China.
Geely has promised to invest $11 billion over the next 5 years on new models, engine design and engineering in Sweden with a goal of doubling Worldwide sales to 800.000 vehicles by 2020, half of those vehicles will be manufactured in China.
To put this data into context, according to the bmwblog – ”in the first five months of 2011, BMW sold 555,429 units (19.2 percent increase over last year), ahead of Audi’s 17.5 percent rise to 535,400 cars — Audi is now the official car for the Chinese Government. Mercedes’ sales grew 10.5 percent to 490,021 through five months of 2011. ”
China is now one of the world’s fastest growing luxury markets.
Mr. Li Shufu’s vision — the Chairman of Geely Holding Group – is to have Volvo upgrade it’s product line and to compete head-on with the likes of BMW, Mercedes-Benz, Audi and Lexus in the luxury market.
The newly rich Chinese are snapping up luxury vehicles like Halloween candy.
The ambitious 48 year Entrepreneur, Mr. Li , believes that the Volvo brand has no future in China unless it caters to flashier, elite tastes.
In contrast, the 53-year-old Mr. Jacoby, a reserved German, former head of Volkswagen AG Unit in the U.S., and now Volvo’s European chief executive, begged to differ. His vision was to focus on safety and fuel-efficiency with smaller cars.
Now, while some of you may be of the opinion that “if it ain’t broke, don’t fix it”, to quote a famous phrase by Thomas Bertram. I am of the opinion that Volvo needs fixin – it’s been broke people, years of falling global sales can attest to that. However, Geely will face a long struggle in reviving Volvo to it’s former glory.
The problem at the dealership level is that when new car sales went down, the dealership leaned on Service to do all the heavy lifting. In order to keep up with the competition, Volvo offers generous warranty plans –free 5 year or 50,000 mile services. So fewer cars sold translates to fewer cars being serviced, and with Warranty Work paying less money, everybody down the food chain gets less of the pie.
Geely Holding Group is expected to spend up to $900 million, just to return Volvo to profitability.
The two big Chief’s of Volvo reached a compromise – which is a scalable platform architecture. And Volvo in Europe will remain autonomous, as an independently operated premier brand, ensuring no dilution of the Volvo brand. Geely will get an accepted brand associated with safety and reliability that can be scaled up to compete in the chinese luxury market.
I am of the opinion that SAAB was an unfortunate casualty of a patent fight, don’t let Volvo share the same fate. An African proverb that distills my thoughts precisely is…. “when Elephants fight, it’s the grass that suffers“.
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