Geely in driver seat after Volvo deal

15:12, March 30, 2010      

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China's Zhejiang Geely Holding Group's purchase Ford Motor Company's Volvo car unit on March 28 marked a historic event for China's auto industry.

Under the definitive stock purchase deal, Geely will own 100 percent of Volvo Cars and its related assets, including intellectual property rights.

Geely's takeover of Volvo has sparked a hot discussion, raising the questions: What changes will Geely bring for Volvo? How will Geely make most of Volvo's technology? Will Geely enter luxury vehicle market after the deal?

Country boy and movie star

Geely is China's first independent and largest private automobile manufacturer. It started in 1986 as a manufacturer of refrigerators, and then moved to manufacturing decoration materials in 1989. In 1992, it moved on to motorcycle parts and two years later, motorcycles. Automobile production started in 1998. Geely began exporting its first cars in 2003. Geely had its IPO on the Hong Kong Stock Exchange in 2004.

Compared with Volvo Cars, which was founded in 1927 and owns advanced safety technology, Geely is a country boy. The deal is just like a country boy courting a movie star, Geely's Chariman Li Shufu said.

"Such a deal would be unbelievable if it were three years ago," said Fu Yuwu, General Secretary of Society of Automotive Engineers in China.

Geely's plan for expanding Volvo's market in China showed the Swedish company could start making profits in a short time, said Jia Xinguang, an industry analyst. "Geely's adequate preparation for this deal promised Volvo Cars a bright future."

Despite the impact of the global financial crisis, China's luxury auto market in 2009 grew at the rapid rate of over 40 percent, and Volvo's sales in China increased over 80 percent. For Volvo, it is obviously wise to choose Geely, a buyer based in China.

Geely's goal

Volvo has been recording losses for four consecutive years between 2006 and 2009. Last year, its global sales were only 335,000 units, 10.6 percent lower than the previous year.

After the deal, Volvo would start generating profits in two years, said Geely's Li Shufu.

Li noted that falling sales and high purchasing cost led to Volvo's losses.

According to Geely's plan, it will set up a new Volvo factory in China with annual capacity of around 300,000 units, while high-end engines will still be produced in Sweden. It also aims to make Volvo profitable again in 2011.

Experts pointed out that only a brand is not enough to exploit Chinese market's huge potential. Geely should try to understand Volvo's brand connotation, maintain Volvo's high quality and introduce some Chinese characteristics into it in order to win consumers' approval of domestic-produced Volvo cars.

Start of a new campaign

"This deal is a milestone in the history of China's auto industry and brings opportunities for Geely," said Li Shufu. The purchase of a high-end brand may spur Geely's transformation from a cheap car producer to a manufacturer of products with high added value.

"Before this deal, there has been no case of Chinese carmakers succeeding on the world market," said Zhang Xiaoyu, Director of Society of Automotive Engineers in China, adding that the purchase of Volvo brand is only a start, the operation of the brand is the key problem.

The purchase of Volvo Cars was one small step for Geely. It will be a giant leap for both Geely and China's whole auto industry if Geely can operate the Volvo brand effectively.

By People's Daily Online
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