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Geely sets Volvo sights on Chinese luxury market

Geely sets Volvo sights on Chinese luxury market

Published: 31 Mar 2010 08:10 GMT+02:00
Updated: 31 Mar 2010 08:10 GMT+02:00

Zhejiang Geely Holding has agreed to pay $1.8 billion dollars for Volvo from Ford Motor Co in the biggest overseas acquisition by a Chinese carmaker, propelling Geely into a market dominated by Audi, Mercedes-Benz and BMW.

"I think if they do things properly and maintain the Volvo image in China and don't mix it with the Geely brand, I think they have got a very big chance to be successful here," said John Zeng, an analyst at IHS Global Insight.

Geely will spend $2.7 billion on the takeover - the original price tag plus $900 million in working capital - to turn around the loss-making Swedish carmaker recognised for sturdy family-friendly vehicles.

Better known for making cheap small cars, Geely has been at pains to reassure drivers around the world that the two brands will remain separate.

Geely plans to keep Volvo manufacturing plants in Sweden and Belgium and is considering opening factories in China, the world's biggest auto market.

"Volvo will retain its own distinctive features and will... continue to develop in the top luxury car sector," Geely chairman Li Shufu said Tuesday after flying back from Sweden, where the deal was signed at the weekend.

"Relations between Geely and Volvo in the future will be like brothers, not father and son. They will respect and support each other and grow together."

The deal, which US auto giant Ford initially agreed to in December, includes agreements on intellectual property rights as well as supply and research and development arrangements between Volvo, Geely and Ford.

Volvo will give Geely the "perfect platform" to improve its own product line and enhance its image in China, where it has struggled to make an impact, said Jerry Huang, a Shanghai-based analyst with research firm CSM Worldwide.

Geely has become one of China's largest private carmakers since launching its auto manufacturing business in 1997. It has an annual production capacity of 300,000 cars, but has sold less than 200,000 units abroad since 1997.

"There is quite a big gap between Geely's product line and brand awareness and those of Volvo's," said Huang.

"Geely gets a platform to learn and gain experience in the industry."

Geely vice-president Zhao Fuquan likened the relationship between Volvo and the Chinese carmaker to that of teacher and student.

"Volvo as a top brand in the world has accumulated enormous technology know-how," Zhao said at Tuesday's press conference in Beijing with Li.

"It is a strong resource for Geely and we will learn actively as a student to improve ourselves."

Geely is expected to use Volvo to tap the lucrative government procurement market for cars, estimated to be worth 100 billion yuan ($14.7 billion) this year, analysts said.

Beijing requires Chinese brands account for no less than 50 percent of government vehicles.

"(Volvo) may even overtake Audi and other foreign luxury brands to become the new-generation official car," independent auto analyst Jia Xinguang said in comments posted on popular Chinese Internet portal sohu.com.

If more bureaucrats are seen driving Volvos instead of Audi sedans, it could enhance the image of the Swedish brand among China's increasingly wealthy middle class, Zeng said.

Audi sold a record 157,188 units in China in 2009, up 33.1 percent from the previous year, according to government data, while Volvo says it sold a mere 22,405.

"You can see the Volvo S80 becoming a strong competitor for the Audi A6 in terms of government procurement," Zeng said.

"The luxury market is growing very fast. China is the largest market for Audi, and Mercedes-Benz and BMW also record very fast growth in China."

AFP/The Local (news@thelocal.se)

Your comments about this article

09:30 March 31, 2010 by Nemesis
If Geely can crack the CHinese luxury car market, which is growing at a very fast rate at present, Volvo will be secured for a long time.

This is a good move on the part of Geely and will help to ensure innovation in volvo. Innovation will help maintain the company and jobs.
11:30 March 31, 2010 by cbeynch
Don't get fooled by the Chinese who have other things in mind. This is a trick to lull the Swedes into submission. Just look at what has happened in the US, where the Chinese have a strangle old on the US economy. The same thing will happen in Sweden where China pretty soon will be walking all over her. Luxury this!
12:16 March 31, 2010 by linuxcity
The only way to keep the brand in the luxury market is to keep the company Swedish, so I believe in this deal. Also because you don't have any other choices.
12:30 March 31, 2010 by pisaier
That's exactly what I said. S80 and S80L is the only thing Volvo can market in China. The Swedes can hardly imagine how many Audi A6 parking and running around there. Now they have the relationship business.

Don't think Volvo can beat Audi, but if Geely market S80 correctly they could have the same share.
15:12 March 31, 2010 by Ghostrider
A great move for Geely and China. A bizarre move by Ford and Sweden. The did get to sell some cell phones.
18:40 March 31, 2010 by spy
What about the poor dogs?
19:39 March 31, 2010 by linuxcity
I think Korean consumes more dogs than China.
19:59 March 31, 2010 by spy
Well that's not much solace for a Chinese dog is it?
21:51 March 31, 2010 by marionettes.show
Great move for Volvo and Geely.

BTW, I see another hypocrite here.
23:55 March 31, 2010 by alingsaskev
Watch Volvo move very swiftly abroad.

One of the reasons that Swedish products are becoming increasingly uncompetitive are Sweden's labour laws and the cost (in tax and contributions) of the Swedish workforce.

Whilst these amazingly robust regulations ensure the Swedish workforce in general are well cared for and allow for extended mommy and daddy leaves, keep the whole Scandinavian Socialist System ticking over nicely and work exceedingly well for Swedish companies, operating in Sweden, with a Swedish ethic, they are of no interest to venture capitalists and the burden will be seen as unnecessary and irksome to the Chinese-who, will pull production to somewhere more accommodating and geographically closer.
16:08 April 1, 2010 by linuxcity
19:59 March 31, 2010 by spy

Well that's not much solace for a Chinese dog is it?

Maybe you can spend some time on preventing the dog consumption in China then? At least I did. Most of Chinese are against eating them but since there is no laws for that makes everything difficult.

And I can't see how those things are related.
22:25 April 4, 2010 by spy
linuxcity

Dog eating is not the only example of savage behaviour, what about the following?

- China's treatment of Tibet

- Lack of freedom speech and media reporting or censorship of the internet

- Supression of religious beliefs

- Torture of prisoners and no judicial independence to ensure fair trials

- Death penalty (and the fact that people can be put to death for nonviolent crimes such as theft)
23:28 April 4, 2010 by kunkun
#SPY

....theft? what kind of media tell you this?

if theft leads to death penalty. can you tell me what kind of crime do not be treat with death penalty? but i wish this is true, so there may be no theft in china, that is a good thing.

you post make me laugh, thanks.
20:45 April 6, 2010 by spy
Amnesty International....
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