Geely-Volvo: Good First Year, But Fork in the Road Ahead

More than a year after Geely (HKEx: 165) made its landmark purchase of Volvo from Ford (NYSE: F), Volvo has released its first performance numbers that come closest to reflecting its new ownership, pointing to a rosy honeymoon but potential difficulties ahead. In the first half of the year, Volvo’s global sales rose a healthy 20 percent, helping to lift it to an operating profit of $190 million, company officials said at a recent event in Beijing. (English article) What’s more, Volvo’s China sales roses 36 percent, a big number on the surface but still only representing 21,000 vehicles. What these numbers tell me is that Geely is taking a largely hands-off approach to Volvo, continuing to let the Swedes run the show, which is a good thing as they clearly know how to make quality cars that the market wants. While all that looks fine for now, the future problems will come with Geely’s plan to build two massive new factories to produce Volvos in China and significantly boost the brand’s sales in Geely’s home market. This big new investment is clearly coming from Geely, whose Chairman Li Shufu wants to promote Volvo as his company’s luxury brand in China. Once these new plants come on stream and start to produce in earnest, I can see the potential for major clashes between Volvo’s management in Sweden and Geely’s top brass in China, as each will have different views about how these two massive new plants should be run, as well as how Volvos produced at the plants should be marketed. Such turmoil is still probably at least 2-3 years down the road as construction is just beginning on these plants. So for now at least, Geely and Volvo should enjoy their honeymoon as much as they can, and brace themselves for a sobering new reality when they are forced to work together to forge a common vision for the Swedish nameplate.

Bottom line: Volvo has posted a solid first year under its Geely ownership, but conflict lies ahead as the Swedish carmaker presses ahead with ambitious new plans for China.

Related postings 相关文章:

◙ China’s Car Rebound: Price War Looming? 中国车市反弹：价格战越来越近？

◙ Geely’s Volvo Roadmap: Laden With Potholes?

◙ Autos: Good Times Screech to a Halt 中国汽车业：当繁荣已成往事