Volvo: The Most Special Chinese Car Company of Them All
Bear with me for one second while I explain how foreign carmakers get to build vehicles in China: they have to be partnered with a local manufacturer. So it has always been -- until now. And guess who might bring about the change? Not General Motors (GM), nor Volkswagen, nor any other leviathan of the global auto industry. Rather, it's Volvo.
First, the backstory
You may recall that after the financial crisis, Ford (F) sold Volvo to a major Chinese automakers, Geely, for what I then considered the paltry sum of $1.8 billion. Ford didn't do this because it was desperate (for that, you have to look at GM's sale of Saab and attempted sale of Hummer).
No, Ford had been dismantling its Premier Automotive Group, which also included Jaguar and Land Rover (sold in 2008 to Indian automaker Tata), and Volvo was all that stood between the Blue Oval and CEO Alan Mulally's focus on a "One Ford" agenda for the company's future. Still, Ford lost about $5 billion on the deal.
Who owns Volvo? Who runs Volvo?
Anyway, Geely has ambitious plans for Volvo, which is now its premium brand. From the WSJ:
The plan [to build factories in China] is an important part of Volvo's strategy, announced earlier this year, to more than double Volvo's global sales to 800,000 vehicles by 2020. Volvo and Geely expect half of that desired totalâ€"slightly more than 400,000 carsâ€"would come from sales in China, where it sold just 30,500 cars in China last year. Manufacturing cars in China is essential to make that happen...
If the government opts against them, Volvo could set up a joint venture with Geely, but some Geely executives believe mixing the Volvo and Geely brands could harm Volvo's premium positioning in China and elsewhere in the world.Volvo remains incorporated in Sweden, but Geely absolutely owns the company. Which has put it in the rather surreal position of not being able to set up a JV... with itself!
The cultural logic of JVs
Chinese JVs made perfect sense for the Chinese auto industry. Western automakers get to tap into rapid Chinese growth, which far outpaces what they enjoy in the U.S. or Europe. But the still-maturing Chinese industry benefits from technology and management sharing with the real pros of the auto world.
However, if Chinese firms have enough money -- and gumption -- to purchase Western brands outright, they're demonstrating that they can take on considerably greater risk. Geely is working without a net on Volvo.
It's too early to say whether the acquisition has been a success. There have been some early growing pains, mainly around Geely's desire to China-fy Volvo, with Volvo's leadership pushing back. You can see how that's kind of at the root of this latest issue.
Exceptional dangers
Both Volvo and Geely want China to be Volvo's manufacturing center. And really, what Volvo contributes to this endeavor is the deep understand of Volvo's Volvo-ness. Geely is responsibly for the rest -- including keeping the carmaker in business. Times are not so great right now for the great Swedish auto brands. Just look at the saga of Saab, which has been fighting for its life of late.
So I think China will suspend the JV rules for this one. GM and VW, among others, will cry foul. But this truly is a special case -- and one that might serve as a roadmap to other Chinese carmakers who want to advance their fortunes by snapping up foreign brands.
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