The iconic Swedish car marque is now as Chinese as smorgasbord
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Drive in the traffic-clogged streets of Shanghai, where red lights and stop signs are often ignored, and it’s obvious why China is Volvo’s biggest market.
With a history of producing the safest cars on the road, the Swedish company’s vehicles are much in demand in China from drivers who want to protect themselves and their passengers. Last year Chinese motorists bought 81,221 Volvos — 17.4 per cent of the worldwide total of 466,000. The company’s home market of Sweden accounted for 13.2 per cent.
It’s not only that China is the world’s largest car market — it will buy 28 per cent of the 89 million vehicles sold this year — that makes the country so vital to Volvo.
While most might see Volvo as being as Swedish as smorgasbord, the business is owned by Chinese billionaire Li Shufu’s Zejiang Geely Holding Group. It bought the marque from Ford when the industry was reeling from the financial crisis.
“People ask, ‘Why do you think you are the rightful owner of Volvo?”’ said Mr Li at the recent, giant Shanghai motor show. “I say ‘I love you’. Volvo has a unique appeal that I believe in.”
As well as seeing the opportunity to acquire a business with products likely to be in strong demand from China’s growing middle classes, Mr Li saw the chance to use Volvo technology to help develop the mass-market cars the Geely brand produces for its home market.
The two companies are co-operating on a shared platform — the basic structure on which a car is built — and Geely is using Volvo’s safety and air quality systems, something particularly important in China’s smoggy cities.
The relationship isn’t without its troubles. Mr Li characterises the two marques as “brothers in one family. From time to time they have differences of opinion”.
Volvo president Hakan Samuelsson says that rather than putting the brakes on the company, Chinese ownership has been a “healthy process” that’s allowed “Volvo to be more Volvo”.
“Geely has offered stability with no more rumours about who will buy us,” he said. “It’s given us freedom but also responsibility, because no one’s interested in financing losses.”
The relationship is strong enough that it has allowed Volvo to develop its line-up and invest in production — under Geely ownership US$11 billion ($14.4 billion) has been invested, and since the purchase was completed in 2010 Volvo’s annual sales have risen from 374,000 to 466,000 last year.
An example of investment is Volvo’s new plant in Chengdu. It took only two years from the 2010 decision to build the factory in the south-west Chinese city best known for its nearby pandas to the first vehicle rolling off the line.
The plant produces Volvo’s S60 saloon and XC60 SUV, and aims to make 75,000 vehicles this year.
In what Volvo says is a first for a premium marque, it is about to start exporting the Chengdu-manufactured S60 Inscription — a long-wheelbase version of the standard car developed in response to China’s demand for more room in the back seats — to US buyers.
The company is confident that despite a history of scandals over the quality of some Chinese exports — ranging from food and drugs to tyres and toothpaste — Volvo will have no issues with foreign buyers doubting the standards of vehicles produced in the country.
“No customer has asked where a car is built. It is built by Volvo and is of Volvo quality, and cars from Chengdu will be the same,” said Mr Samuelsson.
However, the company brought in teams from its European plants to set up Chengdu, and conducts more tests on vehicles produced there than in plants closer to home. Inspectors tear apart one car off the line each month to check standards, three times more frequently than in Europe.
With Mr Li’s close connections to the Chinese leadership, Volvo seems to have better access to the Chinese market than many larger car companies. While others have had to form partnerships and joint ventures, Volvo appears to have had a freer hand than other Western manufacturers.
Last week, Mercedes was fined £37.6 million ($76.2 million) for price-fixing. Audi and GM have been investigated on similar charges and Jaguar Land Rover had to recall 36,000 vehicles after state TV broadcast complaints about gearboxes.