Geely aims to protect Volvo's luxury image

Geely, the private Chinese automaker that is closing in on a $2bn deal to buy Volvo from Ford, says it plans to run the Swedish group as a separate entity to protect its brand image both in China and overseas.

Freeman Shen, Geely's vice-president for international operations, told the Financial Times the company had no plans to move Volvo's main production base or research and development operations to China in the near future.

Geely bid for Volvo favoured by Ford - Oct-28Geely faces US-led rivals in Volvo battle - Oct-04Lex: Volvo / Geely - Oct-21"We want to be careful not to damage the Volvo brand," says Mr Shen, a US-educated former China head of Fiat Powertrain Technologies, Fiat's engine development and manufacturing unit.

"We don't want the image of a luxury car made in a third world country [where labour is cheap]. We want the image of a European luxury car, albeit owned by a Chinese owner." The deal is expected to be signed before China's lunar new year holiday begins on February 14.  

Mr Shen made clear that Geely's goal was to run Volvo profitably as a global luxury brand – not to cannibalise it for either talent or technology to strengthen the company's existing business in China, which focuses on mostly low-end and some mid-market models. The two companies – Volvo and Geely Auto – will be kept operationally separate.

Auto industry analysts are sceptical that Geely, which has never made a big acquisition of an overseas auto brand or run a car business overseas, can turn Volvo round.

Car industry history is littered with failed brand acquisitions, including one close to home: the acquisition of South Korea's Ssangyong Motors by SAIC, the Chinese state-owned auto giant, which ended with Ssangyong being put into receivership. "I don't assume for a moment that they can successfully run Volvo overseas," says a senior auto industry insider in Shanghai, noting that cultural integration will be difficult for Geely, which he calls "the most Chinese of Chinese auto companies".

Mr Shen says Geely is aware of the pitfalls, and is studying the lessons of deals such as SAIC-Ssangyong. He expects Volvo to perform better under Geely's control because "Geely is not fettered by 100 years of automotive history and Mr Li Shufu [Geely's head] is more flexible, willing to try new ideas and learn from other countries and companies, and will provide better motivation to Volvo's management".

A study of the global auto industry by consultancy Arthur D Little forecast that Geely would be one of five Chinese automakers to make it into the "exclusive club of global OEM [original equipment manufacturers] champions" by 2020.

The strength of the Chinese market will be key to boosting Volvo's near-term profitability, Mr Shen said, noting that Geely is considering building new production facilities for Volvo in China, where current production is very small.

At least 10 provincial and municipal Chinese governments are wooing Geely with incentives to build a plant in their area, but no decision has yet been made. The deal does not depend on shifting Volvo production to a lower-cost base in China. Volvo produced 310,000 cars globally last year, according to Ford, and Geely's goal for Chinese production of Volvos is 200,000 within five years. Luxury car sales rose 29 per cent last year in China, according to JD Power, the auto consultancy.

Cultural integration will be a big challenge, but Mr Shen says that in some ways Swedes are more similar to Chinese than to Americans, since both are "less outspoken".