The conservative Swedish carmaker Volvo was bought half a year ago by the Chinese manufacturer Geely. While that helped Volvo out of some hot water, its new Chinese boss has his own vision for the future.
Geely bought Volvo half a year ago and wants to manufacture in China
Half a year after Chinese auto manufacturer Geely bought Sweden's Volvo, complete with its decades of legacy and tradition, the first Volvos "made in China" are slated to go into production.
It's something European Volvo fans have feared for some time. But China is now the largest market for Western auto manufacturers, and it's not yet clear what the new Volvos will be like. The Swedish brand's reputation as a safe, reliable ride might not gel with the up-and-coming Chinese market's flashier demands.
Volvo says the value of its brand was built over time
A first factory with an annual capacity of 100,000 cars is planned to be completed in the Chinese inland city of Chengdu by the beginning of 2013. And Geely - or the Zhejiang Geely Holding Group Inc. - is planning to build Volvos for the export market in the cities of Chongqing and Daqing. The company also wants to relocate vital research and development work to China.
Following the market
For Volvo CEO Stefan Jacoby, an expansion into the Chinese market is an opportunity to grow dramatically. He wants to increase sales to some 800,000 cars annually within a decade.
But Internet forums for German Volvo fans are abuzz with fears about a loss of quality through shoddy manufacturing and increased use of plastic. They want Volvo to continue to be produced in Belgium and Sweden.
It's Geely founder, principal owner and CEO Li Shufu who is bringing the cash to the table, though. Up to 8 billion euros ($11 billion) are planned to flow into Volvo over the coming five years. That's about four times Geely's annual turnover.
Volvo CEO Stefan Jacoby says the quality of Volvo cars will remain
Opportunity vs. luxury
For Volvo boss Jacoby, the concerns of skeptics are exaggerated, because no plans are in place to reduce or eliminate production capacity in Europe. A degree of separation between Volvo and Geely will remain, he said.
The situation is "the opposite" of what people imagine, he told Deutsche Welle. "We will use our capacities more than we're doing today. We won't become a supplier of cheap goods."
But it's no secret that Geely is the epitome of a cheap car. Everything about the Chinese brand is trimmed for efficiency and smacks of a start-up company's early efforts. At the end of the 1990's, as US manufacturer Ford had just bought Volvo, Li Shufu was cobbling together his first car. Eleven years later, he's China's most famous auto manager and wants a piece of Volvo's know-how.
The scenario is one which makes a number of employees at Volvo headquarters in Gothenburg, Sweden, uncomfortable. Just ask the head of the paint booth, Goran Garsbo. He's preparing for the day when his best employees are sent to China, and it's left up to him to find replacements.
"Of course it will have an effect on our daily business," he told Deutsche Welle.
Swedish values, globalized
Geely CEO Li Shufu started the company just 11 years ago
One point of contention between Geely and Volvo is the question of what kind of Volvo cars Geely is planning to produce in China. It's a topic on which the two companies' bosses don't see eye-to-eye. Geely's Li Shufu wants to switch to a luxury carrossery, while Volvo's Jacoby wants to continue to use a conventional one.
Jacoby is sure Li Shufu will see the matter his way, because Volvo has "established a brand value, which he must take care of," he said. He's convinced the value of a brand can be maintained separately, regardless of the actual ownership of a company and where its products are manufactured. The best example of that is Apple's iPhone, he added.
"I don't know of any customers who would say, 'I won't buy from Apple,' simply because its products are assembled in China," he said.
Jacoby's point seems to be that China already manufactures excellent products, including real trend-setters. But whether a Volvo "made in China" will have the same appeal as its smartphone counterpart remains to be seen.
Author: Jun Yan (gps)
Editor: Susan Houlton