A joint statement by Ford and Geely said that they have reached tentative agreement on the sale of Volvo of Sweden by the US automaker to its Chinese counterpart. The amount of the transaction wasn't disclosed, but industry sources estimated that it would be around $2 billion.
That's a lot of money for a perennial loss maker. Although Volvo has long enjoyed a reputation for making safe and solid cars, it has not generated enough sales in recent years to stay in the black.
This has raised the question whether Zhejiang-based Geely, one of the few private sector automakers in China, has committed to buying a dud.
The proposed acquisition must be ratified by the relevant Chinese authorities. The two companies said in the statement that, if approved, they expect to sign the formal agreement in the first quarter of 2010.
"Volvo will retain its leadership in safety and environmental technologies, and will be uniquely positioned as a world-leading premium brand to exploit opportunities in the fast-growing China market," Geely said in the statement. The company also said that it intended to maintain Volvo much as it is, including "an independent management" at its Swedish headquarters.
If that's the case, it is difficult to see what real benefits the Chinese company could expect from the proposed acquisition, other than a trophy to stroke the corporate ego.
Once a leader in auto safety technology, Volvo cars are no longer demonstrably safer than the many other brands from manufacturers in Germany, Japan, the US and other countries. Increasingly stringent government regulations have set the safety standards that all car manufacturers must comply with. There are, of course, minor variations. But on the whole, all cars on the roads are relatively safe, and most of the technology to make them so is not really proprietary.
In the past, Volvo cars were distinguished by their boxy designs which projected a sense of solidness that appealed particularly to intellectuals and environmentalists. In recent years, the company has overhauled its design approach in favor of more streamlined and rounded models to compete with the other brands in the premium league. Despite the company's efforts, Volvo cars are seldom known for their design excellence, and sales suffered as a consequence.
Nobody doubts that Volvo produces competent cars that are actually pretty good. But they are too expensive to compete effectively in the overcrowded mid-priced market, and lack the allure and heritage to gain a foothold in the premium market, dominated by the likes of Mercedes, BMW and Lexus. In that stratospheric segment, to which Volvo aspires, even such marques as Jaguar and Range Rover, that are steeped in tradition and heraldry, are having a tough time staying afloat under the stewardship of their new owner, Indian Tata group, who earlier bought them from Ford.
With its knowledge of and distribution network in the domestic market, Geely presumably can help boost the sales of Volvo cars in China. But it will face the same competition, only tougher, in China as in the US or Europe. What's more, the brand's niche appeal will likely be robbed by Chinese motorists' relatively low concern for safety and the environment.
Even in Shanghai, the nation's most advanced city, few motorists and their passengers ever bother to wear safety belts on the road. If a car buyer in China is concerned about gas prices, he probably can't afford a Volvo anyway.
While foreign car makers, GM's Buick division in particular, are setting up design centers in China to create cars for the global marketplace, their Chinese counterparts are paying big money for failed foreign firms to teach them how to make cars.
Obviously, there is no shortage of design talents in China. It's just a matter of management.
(China Daily 01/04/2010 page9)