Volvo mulls China-made cars for US

Detroit January 13 (The Wall Street Journal) The new China-based owners of Volvo and the Swedish car maker's management team are considering exporting Volvos assembled in China to the U.S.—a potentially risky move that might harm the brand's Scandinavian identity and could make it among the first to bring China-made vehicles to the U.S.

New Volvo Chief Executive Stefan Jacoby said he sees the idea as a way to help his company reduce foreign-exchange risk.

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Exporting made-in-China Volvos is "one opportunity" Volvo is exploring with China's Zhejiang Geely Holding Group Co., its new owner, as part of a strategic plan it is preparing for release by March, Mr. Jacoby said.

The strategy is focused heavily on an effort to boost demand for Volvos in China by putting in place more capacity to make the cars there and develop more luxurious and large vehicles.

Another option the company is weighing is to build a Volvo assembly plant in the U.S., an individual close to Geely said. But Volvo and Geely essentially have decided to assemble Volvos in China, Mr. Jacoby said in an interview on the sidelines of the Detroit auto show this week. He said Volvo is likely to build new manufacturing capacity in multiple locations.

But the decision hasn't been made on whether to export China-made vehicles to the U.S. and elsewhere. Any production plan for China must be approved by the Chinese government.

Ford Motor Co., which sold Volvo to Geely, has been producing Volvo cars in China for several years and will continue to do so for Geely and Volvo. But none of these vehicles are exported to the U.S.

Volvo is trying to reduce currency-exchange risk around the world, especially the euro-U.S. dollar exchange that has eroded the profitability of shipping to the U.S. Volvos produced in Sweden and Belgium.

"The major challenge here in the U.S. is that we're too dependent on euro-U.S. dollar exchange rates," Mr. Jacoby said.

"China offers an opportunity in that respect. It doesn't get rid of but at least allows us to reduce currency risk exposure." The Volvo CEO cited the relative stability of the Chinese yuan against the dollar.

The move would mean Volvo would tread onto the unbeaten path to sell Chinese-manufactured premium cars in advanced markets such as the U.S., although Honda Motor Co. has been exporting a compact car it produces in China to Europe for several years.

While many Americans readily accept a multitude of products made in China, including high-tech gear such as computers and iPhones, almost no China-made vehicles are sold in the country.

Two individuals close to Volvo and Geely said that while the Hangzhou-based auto maker, which finalized its acquisition of Volvo last year, would welcome the move, its wisdom is likely to become "a point of contention" with Volvo's board.

As part of the consideration to export Volvos from China, Volvo and Geely are mulling whether to build a new Volvo assembly plant in the southwestern China city of Chengdu, next to a nearly completed Geely factory.

Geely Chairman Li Shufu told The Wall Street Journal in September that Geely and Volvo were looking at revamping an existing facility to make Volvos as a way to quickly start producing in China and boost sales.

Mr. Li said at the time that Volvo and Geely plan to build as many as three assembly plants in China to make a total of up to 300,000 of the Swedish brand's vehicles a year, and that they were looking at Chengdu, Shanghai and the northeastern city of Daqing as possible sites.

This week, one of the knowledgeable individuals said the company instead was leaning toward building a new plant in Chengdu, which would allow Volvo to implement and carry out "Volvo production systems" in producing Volvo cars from the ground up.

That, he said, might help ease the possible reluctance of American and other global consumers to buy made-in-China Volvos.