Can Geely sell a made in China Volvo?
Reuters had this interesting article on their website over the weekend:
HONG KONG (Reuters) – Now that Geely Automotive has won the bidding for Sweden’s Volvo car unit, China’s No. 1 private auto maker is making plans to set up a local production base, according to sources familiar with the company.
An even bigger challenge might be convincing status-conscious Chinese consumers to buy a made-in-China Volvo.
China’s car market is certainly an alluring prize. The country’s auto sales surpassed those in the United States in 2009, and Beijing has said it would continue to encourage domestic consumers to buy new cars with subsidies.
Those sales are growing fast. This week Geely rivals General Motors and Volkswagen — the leaders in China’s car market — reported their 2009 China sales leapt 67 and 37 percent, respectively.
Geely’s first order of business is to work out where to produce its new vehicles. Sources familiar with Geely’s future strategy for Volvo told Reuters that the company plans to cooperate with local city or provincial governments in China to build plants for Volvo cars tailored for Chinese consumers.
In China, Ford currently runs a car venture with Chongqing Changan Automobile Co, a domestic rival of Geely, to make Volvo S40 and S80 cars.
The S40s produced at the Changan plant in western Chinese city of Chongqing sell for around 250,000 yuan ($36,620), or about 50 percent cheaper than the imported made-in-Sweden model.
Geely is in talks with the Chongqing government to continue to make Volvo cars in the city, said the sources, who declined to be identified as they were not authorized to speak to the media.
The company’s initial plan is to take over Changan’s Volvo production lines and also partner with other Chinese enterprises, which would invest in a new Volvo plant in Chongqing jointly with Geely.
The Chongqing government, whose top boss Bo Xilai is former commerce minister, is keen to keep the Volvo plant in the city, said the sources. But no final deal has been reached yet.
MADE IN CHINA
But do consumers want to buy a made-in-China Volvo?
After all, Volvo cars are known for high safety standards and careful manufacturing. Despite improvements in recent years, Chinese car makers have a different reputation.
According to the 2009 J.D. Powers Initial Quality Study (IQS) — a measure that tracks new-vehicle quality during the first 90 days of ownership — China’s domestic producers averaged 258 problems per hundred vehicles. That’s nearly twice the 142 problems for locally produced international brands. U.S.-made cars had just 108 problems per hundred.
Geely, known in China as the maker of such bargain brands as the Free Cruiser and the Geely King Kong, seems to know what Western customers will want.
For loyal European consumers, a made-in-Sweden Volvo will remain available, the sources told Reuters. Geely executives have already said they will keep Volvo’s management and operation in Sweden intact.
For Chinese consumers the emphasis will be on selling the locally produced vehicles. To date, Ford’s Volvo sales in China have been lackluster.
In 2009, the company made and sold barely 15,000 units of the Volvo S40 and S80, according to sales data provided by Ford.
In part, said John Bonnell, a senior director with automotive consultant J.D. Powers, that may reflect Ford’s recent focus on other challenges, such as surviving a deep slump in U.S. car sales.
Volvo also occupies an awkward corner of the Chinese market. As a European brand, Volvo is positioned as a luxury brand. Indeed, the imported S80 sells at a price comparable to some Mercedes and BMW models. But Chinese consumers put Volvo in a different category.
“Volvo definitely doesn’t have the prestige of BMW or Mercedes,” said Bonnell. “And safety doesn’t sell that well in China. If buyers are looking at European cars, they’re looking for … something they can show off to their friends.”
Geely does have an opportunity, according to Bonnell: to reposition Volvo as a near-premium car to compete with respected Japanese brands such as Toyota and Honda.
To get there, Geely will have some convincing to do, however.
Victor Sun, a lawyer in China, recently upgraded his Volkswagen Passat to a Volvo for just under 400,000 yuan.
“I wanted my car to be classy, understated and of good value,” he said. “Once it becomes a more locally sourced vehicle, it might take some exclusiveness away. I’d also need to re-assess its quality.”
Reuters has finally shed some light onto Geely’s plans for Volvo China, which seems to be basically taking over the existing Chang’an-Volvo JV, which was either doomed to be extinguished, or would somehow carry on under Geely management. Obviously Geely are keen to learn more about Volvo, so it looks like they are planning to take over the production lines in Chongqing, or they could set up new ones in China.
Currently the Volvo S80L is being assembled in China from a kit sent over from Europe, the cost of the full car is 400,000rmb to 670,000rmb depending on specification, if Geely want to build this car and aim it the Honda Accord and Toyota Camry its going to have to fall far down into the 200,000rmb to 300,000rmb price bracket. But then, wouldn’t it loose its charm? Similarly, the Volvo S40 which rides on a Ford Focus platform sells for around 250,000rmb, whilst the Focus itself is only 120,000rmb to 150,000rmb depending on specification.
It seems that Geely is going to have to do a lot of brand management in the next few months as they slide their new purchase into a more reasonable price sector, but can Geely actually manage their own brands?
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n e v e r ! !
Bring back the old sweeden built 240 series, the best car ever built by anyone. China=ha wont run, ford with a double curse.
“An even bigger challenge might be convincing status-conscious Chinese consumers to buy a made-in-China Volvo.”
The author of this article has missed the whole point. It is not a matter of whether the cars are made-in-China – consumers here don’t seem to have a problem paying rediculously marked-up prices for made-in-China BMW, Audi, and Benz. Rather, it is a problem with the prestige of the brand itself, like Bonnell stated. I also agree with Bonnell that Volvo should focus on being an upscale competitor to Toyota and Honda. When the transition is complete, they should be able to lower prices and still make a profit with the significantly increased volume. Make the S40 T-5 competitive with the Honda Spirior (Euro Accord/Acura TSX), and pit the S80 against the Toyota Crown. Forget about going after the 3/5-series and A4/A6.
People here buy the Crown because they can’t afford an A6. Volvo/Geely should target these folks with a locally-made S80.
It’s a tricky business, where a thing is made, and what consumers will think. And it’s not entirely to do with quality.
They’ll happily buy an iPhone that’s made (to a high standard) in China, but a Volvo?
Volvos are Swedish, right? Their Swedishness is highly important. Well, actually a lot of them are made in Belgium, but designed in Sweden and made in Belgium is obviously acceptable. But made in China? That would almost certainly be a step too far for European buyers, and it seems, for Chinese buyers too.
Geely have some interesting decisions ahead of them. They need to take a close look at what makes Jaguar a successful ‘British’ brand. They need to counter the impression that Volvo’s brand has been undermined by it falling into Chinese ownership. That alone will be enough for some European buyers to cross it straight off their shopping list through sheer prejudice. Who wants their neighbours to say of their expensive new Volvo, ‘Aren’t they Chinese now?’ It’s an image thing.
Again, made in China is not the issue – the S40 and S80 are already made in China, along with many models from the other luxury brands. At issue is to what degree the Geely ownership will diminish the “foreigness” of Volvo in the eyes of the Chinese consumer.
Plus its not an entirely new brand like MG, or Roewe, it should fair well under Geely stewardship, but they do need to come down in price, but will that take away the prestige to owning an S40, instead of a Focus?
I think the S40 can be kept at a rung above the Focus, even after a price reduction. Just don’t let it go below 200k RMB, basically having it priced at a small premium to the bigger Mondeo should be enough to maintain it’s “premium” status.
Also, while the two use the same platform, the S40 is more luxurious and has a much different ride (both good and bad). The S40 is also available with more powerful engines. As long as this doesn’t change, it should do well. I know I would consider a cheaper S40, at least in the next year or two (before Geely has had a chance to ruin it).
Safety will become a greater issue in China and Geely will be wat ahead of the game with the Volvo deal. The deal will put Geely in a top position and when the Chinese government encourages auto companies in China to merge, geely will remain one of the survivors. Geely is a lucky company to get Volvo. There name after all means luck. To drive a Geely Volvo will be a lucky thing for those that survive the enormous amount of crashes that will happen in China. Safety and luck will be their motto.
Where are the wagons? Someone make me a WAGON.
How about we all think about giving Geely a bit of a break here? How many of you have been here long enough (I’m talking about any other foreigners living here in China) to remember the OLD Geely – say about 6-7 years ago? I’ve been here almost 7 years now, and I DO remember those old cars. They were ugly, underpowered, poorly built things….and all of 2 choices – the haoqing and the merrie. 7 years isn’t all that much time, and look where they are now – 3 complete brand lines and a MUCH improved product. Look at the Panda as one example – a big seller in China right now, great safety ratings for it’s size and it’s a well built, attractive little car (and NO MORE Aygo comparisons please – that’s a load of crap and we know it). I’ve also ridden in the new TX4 (the London taxi – a friend of mine is doing PR for it right now in Nanning) and it’s VERY COOL. Great power (would you believe a 2.5l TURBO diesel engine??), tons of room in the back (puts a Santana to shame) and it’s real wheel drive (anyone for drifting?
) – a solid car that does not look or feel cheap AT ALL. My point of all this? Geely has IMPROVED – and improved A LOT in just 7 years. It’s obvious they are making more right decisions than wrong ones judging by the quality of their latest products, and I for one will be a little more patient and wait and see what happens with the Volvo purchase. Could Geely royally screw it up? Of course – but it’s also possible that it could be a huge success for them and make them a legitimate world player. I am not predicting success by any means……..but neither am I predicting failure.
I remember these cars too, the current Geely models are SUCH a step up. Geely seems to have a great plan set up that benefits both Chinese and Western buyers.
it was bad enough when Ford bought the line,but to think this car with all its cachet is going to be owned by a Chinese company,when already I see Bosch and other parts manufactures closing plants,cutting back…Volvo hasnt been the same since they phased out the 200 and 700 series anyway,this is just too much to bear…its a sad day for me personally…sort of like now I know absolutely nothing is sacred.
Yea.. Really disapointing. Having bought 3 volvos in my life because of its reknown safety, its quite sad. But at least theres still the swedish factory that geely intends to keEp
I WANT TO CONTINUE TO OWN SWEDISH CARS, NOT SWEDISH CARS MADE IN CHINA. THERE WAS ALWAYS SOMETHING TRADITIONAL & SPECIAL ABOUT THIS BRAND, EVEN WHEN IT WAS RE-NAMED A FJORD!!
it great news,china will be the lead of car maker in the world,it is not first time china will make agood car, china made bmw and mercedes and aude,and all is same as the orginal maker,
At least Volvo get to live and not end up like Hummer, Saturn, and Pontiac. This would give Volvo a bigger presence in China. The Chinese auto market is growing and it is already bigger that the US.