Will Volvo add luster to Chinese carmaker?

Shanghai, June 24 (Gasgoo.com) Many Chinese automakers, including Geely Auto, have expressed an interest in buying the Swedish brand Volvo from Ford Motor.

As we know, Chinese carmakers are eager to boost their reputation for high quality or safety. But would buying a brand renowned as one of the world's safest cars add any luster or fame to a Chinese automaker?

Car consumers care only whether "the new Volvo keeps delivering what it promises," says Paul McCarthy, automotive transaction services strategy leader at PricewaterhouseCoopers. "That will be the biggest challenge for the Chinese buyers."

Although China's auto technology has progressed in recent years, its automakers are still far from the international benchmarks. This urges these car companies to retool and upgrade themselves by using the technologies of global carmakers.

"Usually, the lower-quality acquirer would improve the overall quality by adopting new technologies from the acquired company, which is usually one key incentive for such mergers to happen," McCarthy says.

If a Chinese automaker buys the Volvo brand, one decisive factor is to keep Volvo's production team. Cross-hybridization, revenue synergy, and interplay of different cultures will all present challenges. "It's like moving two oceans together trying to make them flow at the same time", McCarthy said.

A lesson can be learned from the marriage between Lenovo and IBM. The new ownership is hard to gain consumer confidence even if the Chinese acquirer has kept most of IBM's original sales and technical supports teams. While Lenovo-IBM PC sales have risen since the takeover, U.S. market share has declined.

The auto industry has been one of the more competitive arenas. Daimler-Benz and Chrysler combined to form DaimlerChrysler in 1998, Nissan and Renault share a top executive, while Porsche and Volkswagen are joining hands.

Recently, bids have been coming in from China and India. Tata Motors, for instance, now owns Ford's Jaguar and Land Rover brands. "One big incentive for emerging markets to acquire overseas brands is to gain credibility," McCarthy said.

However, the uphill task is how to move forward after the acquisition. The Chinese carmaker will have to show the world that a Chinese-owned Volvo can fulfill what is expected of the brand and add luster to its new owner.