Volvo factory to compete with China rivals

South China Morning Post - Three years after buying Volvo Cars, mainland tycoon Li Shufu may get to compete with BMW and Volkswagen's Audi on a more level playing field in his own country.

Volvo Cars, a unit of Li's Zhejiang Geely, will begin production this month at its first factory in China, allowing it to avoid the mainland's 25 per cent import tariff. The company has so far brought in its cars from overseas or produced them in limited quantities at a Ford Motor plant in Chongqing.

The three years it took to open the factory shows how Li miscalculated the edge he would have in his home country as the mainland government subjected the Swedish brand to the same regulatory approval procedures as all foreign carmakers.

Still, the plant paves the way for Volvo to double sales to 800,000 by the end of the decade as mainland China heads towards becoming the world's largest market for premium vehicles.

"If they fail in China, I don't really see where they can gain volume significantly," said Lin Huaibin, a Shanghai-based analyst at IHS Automotive. "If they can do China right, they will gain strong momentum."

Volvo posted a loss last year as global sales fell 6.1 per cent to 421,951 units, with the biggest decline in Sweden. In China, sales dropped 11 per cent, while deliveries at Audi and BMW climbed 40 per cent and 30 per cent, respectively.

Volvo's share of China's luxury vehicle market fell to 3.4 per cent last year from 5.3 per cent in 2009, the year before the Geely takeover, according to estimates at IHS Automotive.

One reason for Volvo's underperformance is price. For example, its XC60 sport utility vehicle starts from 389,900 yuan (HK$493,000), 8.8 per cent higher than a mainland-produced Audi Q5, according to price comparison website Autohome.com.cn.

Denny Shen, a Shanghai-based entrepreneur, said the brand has no distinguishing features that help it stand out in the mainland's competitive car market.

"What is Volvo's brand identity?" said Shen, who has cars including a BMW M3 and Jaguar XF. "There's nothing special about it, and the look of the cars is very average."

Late last year, Li reshuffled Volvo's management, hiring former MAN chief executive Hakan Samuelsson to replace Stefan Jacoby as chief executive. Samuelsson has pledged to add a further 100 Volvo dealers on the mainland over the next two to three years to its existing 150 outlets and focus on smaller cities.

Volvo's reputation for safety, Scandinavian design and environmental care and performance will help it attract the growing number of Chinese consumers seeking to embrace a "more understated luxury", a spokesman said.

Volvo's low-key image may be an advantage these days in China, where the government is trying to get officials to rein in lavish spending, said John Zeng, Shanghai-based managing director at LMC Automotive.