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News analysis: Will Volvo brand thrive?

( People's Daily)
Updated: 2010-03-29 14:43
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Editor's note: Geely's acquisition of Volvo is a really ambitious step, but we should be clear-headed on the difficulty to become a world-renowned auto brand.

China's Geely finalized a deal Sunday to buy the world-renowned auto brand, the Swedish Volvo, from the US Ford Corporation.

The Zhejiang Geely Holding Group, based in Hangzhou, agreed to pay $1.8 billion for the car. The sale of one of Europe's most storied brands shows how China has emerged not just as the world's largest auto market, surpassing the United States last year for the first time, but also as a country determined to expand market share around the globe.

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Geely's management expressed its willingness to retain production of Volvo cars in Sweden, and also, has got a plan to build another assembly Volvo plant in China. Ford already builds small numbers of Volvo S-40s for the Chinese market at an assembly plant in southwestern Chongqing City, which sells well among local customers.

Auto analysts say that acquiring a well-known brand name, like Volvo, will prove to be the fastest viable way for a company like Geely to move up from making affordable small cars for Chinese customers to manufacturing respected cars for the increasing middle-class in the country.

Many automakers in China are loaded with big ambition, but Geely Auto stands out even by Chinese standards. While making most of its money on inexpensive compacts and subcompacts, it has turned heads at auto shows with ambitious concept cars that look like world luxury brands.

The company has promised to retain Volvo's existing management, but said it has already hired several executives with international automotive experience to help it oversee the new subsidiary in Sweden.

Zhejiang Geely is dominated by its founder, Li Shufu, the son of farmers from Taizhou, in southeastern China, who turned a small business manufacturing motorcycle parts there into one of China's fastest-growing companies.

"I want to emphasize that Volvo is Volvo and Geely is Geely — Volvo will be run by Volvo management," Li said at a news conference in Goteborg, Sweden. "We are determined to preserve the distinct identity of the Volvo brand."

"The future road for Volvo Cars is now defined," said Maud Olofsson, the Swedish deputy prime minister and minister for enterprise and energy. "Regardless of who owns Volvo Cars, its brand will still be Swedish."

The deal is scheduled to close in the third quarter of this year, but raises issues of technology and brands that will last for a couple of years.

In the 11 years that Ford has owned Volvo Cars, it has closely integrated the two companies' designs, so that their cars now share many parts. Lewis W.K. Booth, Ford's chief financial officer, said that Ford would continue to supply Geely with engines, stamped steel body parts and other components for a period of time that he did not specify.

Yale Zhang, the director of greater China vehicle forecasts for CSM Worldwide, an international consulting firm, said that the acquisition would benefit Geely image at home, because many Chinese were likely to take pride in the acquisition of such a famous brand by a Chinese company.

But Zhejiang Geely may also face a difficult time in becoming a multinational concern, since it has focused mostly on its domestic market up to now. "It will help Geely's brand, that's for sure," Zhang said. "The challenges and the risks are equal to the opportunity."

Chinese market for luxury cars would expand in the coming years from roughly 300,000 last year to 650,000 in 2015, experts say. So, there exists room for a successful Volvo. But, Can Geely do it?