China’s meteoric rise to become the center of the world’s automotive industry was well documented last week in our article and video on SAIC’s YEZ Concept car. This week another Chinese manufacturer is making global headlines by buying Volvo Automobiles. Unlike Government-owned SAIC, Volvo’s purchaser Zhejiang Geely is a public company controlled by Li Shufu (top left) a self-made 47 year-old billionaire who is being heralded as China’s Henry Ford. Geely’s ambition knows no bounds – it already plans to produce the world’s cheapest car (the tiny gullwing at top right), has a range of green drive trains ready for market including full electric and parallel and serial hybrids, has plans to produce a serious sports cars (bottom right) and now the first fully-owned Chinese prestige auto brand looks set to grab a fat slice of the Government fleet which makes up 8% of China’s auto market.
No-one blinked when Ford bought Volvo a few years back, but the concept of what is effectively a Swedish brand being owned by the Chinese is stretching a few brain cells. Coming hot on the heels of the purchase of the British MG marquee by SAIC and Jaguar and Land Rover by India’s Tata, it’s clear to see that the forces of change are afoot in the automotive industry. Existing automotive brands have saturated their own domestic markets and are now faced with stiff local competition for the massive emerging markets of China and India, and to a lesser extent, Brazil and Russia.
Last year China became the largest producer of automobiles and the largest consumer of automobiles simultaneously.
The Chinese government is making no secret that it wants its massive domestic market to buy more Chinese-owned cars. Just as nouveau riche have done across the world and across the ages, Chinese consumers have emerged in one generation from dire austerity to affluence and they are keen to display their newfound wealth and research heavily reinforces the Chinese marketplace’s obsessive brand consciousness.
Two out of every three automobiles sold in China are foreign brands produced under 50-50 partnerships, so the call has gone out to develop the percentage of fully-owned brands and there will be a number of financial incentives which will help persuade China’s populace to buy Chinese over the next few years. China’s largest auto maker, Government-owned Shanghai Automotive (SAIC) is investing US$1 billion in the development of its own brands, and it’s more than likely that Volvo will not be the first established brandname to be purchased by a Chinese auto manufacturer.
The purchase of Volvo for a mere US$1.8 billion is a bargain for Geely. Just 11 years ago, Ford paid US$6.5 billion for the same brand and assets, but after the company recorded a pretax loss of US$653 million from revenues of US$12.4 billion in 2009, a bargain price was on the cards.
Geely’s ambitions are massive and encompass both the proletariat and the bourgeois. The little gull-wing pictured is likely to be on sale within two years at a price which undercuts Indian manufacturer Tata’s legendary US$2500 Nano … and now that Volvo is 100% Chinese-owned, it will likely get a huge slab of Chinese government automotive procurements which account for 8% of the Chinese auto market. That may not sound like much, but it makes the Chinese government market bigger than most of the world's domestic marketplaces – as big as Thailand and Indonesia added together.
Last year Volvo sold one third of a million cars but with a series of hybrid and electric cars planned for market in the next two years, plus full access to the hottest auto marketplace in the world, and the ability to manufacture a truly prestige brand name in China with its low-cost manufacturing expertise, its 334,000 production tally is likely to rise dramatically in the next few years if it is to meet its stated goal of achieving sales of two million units in 2015.
Audi currently dominates the massive Chinese government automotive fleet but the Audi’s produced for the Chinese marketplace are manufactured by a JV that is only 50% Chinese owned. One hundred percent Chinese Volvos can be expected to grab an immediate and substantial share of the Chinese government market which numbers around a million vehicles per year – this marketplace alone could more than double Volvo production and go some way towards achieving the two million units a year goal. Then obviously, the company intends to renew sales in the existing European and North American markets and to pursue sales in the domestic Chinese marketplace and in other emerging markets.
Li Shifu has promised that production of the famous Swedish brand will remain in Europe and the company will remain “true to its core values of safety, quality, environmental care and modern Scandinavian design.” While Geely plans to retain existing Volvo production facilities, it can be expected to begin also building in China, just as Ford did for the Chinese marketplace, but in much larger numbers.