After Growing Pains, Geely Seeing Growth with Volvo
A Volvo S60L being built at a factory in the southwestern city of Chengdu
(Beijing) – Ma Ning, a Beijing dealer of Volvo Car Corp., recently said his clients have started telling him the brand has become more "classy." Only a year ago Ma criticized Volvo for not doing a good job with promotion, but an increase in sales has changed his mind.
Sales at his dealership were up 40 percent last year compared to 2012, he said. Volvo sold a total of 61,000 cars in 2013 in China, up 46 percent. Although the number pales in comparison with that of industry leaders, the growth has nonetheless helped Volvo turn a profit last year, surpassing its goal of breaking even.
Sales in the country not only contribute to Volvo's global sales, but have also become a major source of profit. Volvo's China sales rank third among all its markets, but the market delivers the most profit to the company, a source familiar with the matter said.
The success is linked to Volvo's efforts to cater to Chinese consumers. But profit is not the only goal, says Li Shufu, chairman of Geely Holding Group Co. Ltd., which acquired the Swedish automaker in 2009. Volvo's task is to lead the group toward producing cars of world-class quality, he said.
Meanwhile, Volvo is trying to maintain its image in the process. The percentage of locally made parts in Volvo cars is much lower than that of its main competitors, namely Audi, BMW and Mercedes-Benz.
This is a compromise Li made to maintain quality. Volvo, meanwhile, faces the challenge of striking a balance between cost and quality.
Long on Style
On December 13, Volvo and Geely launched their first China model: the S60L. The National Development and Reform Commission, the country's top economic planner, approved the project in February 2013 after a three-year review. A plant in Chengdu, in the southwestern province of Sichuan, makes the S60L.
Since getting approval for the S60L, Volvo has focused on adapting to the China market, starting with brand promotion. Volvo sees high-end, medium-sized cars – the Audi A4L, the BMW 3 Series and the Mercedes-Benz C-class – as its main competitors.
So, like those brands, it invited celebrities to promote itself. Volvo invited three Chinese celebrities who have children – actor Huang Lei, architect Wang Hui and model Zhang Liang – to a press conference announcing the S60L, and the event focused on the safety of child passengers.
Volvo has also tried to develop a "green" image. Ning Shuyong, a public relations director of Volvo China, said air purification systems have become a major attraction for Volvo cars, especially as the country's cities battle with a major smog problem.
The S60L has a longer wheelbase than the imported S60 model. This is also an example of adapting the taste of Chinese consumers, who associate longer cars with status. Audi was the first to produce long-wheelbase models for Chinese officials and the design has become essential for luxury cars in the country.
The longer model also features chrome-plated decoration on the body and a new wheel design, all attempts to please Chinese consumers. Domestic and foreign designers and engineers worked together at the company's research and development center in Shanghai. A main focus of their work is to reflect the "Chinese style" on the car's design, an executive at Volvo China said.
Sourcing and production in China is desirable for carmakers because it means lower costs and greater competitiveness. Volvo is no exception, but Ning said the company is taking a slightly different approach than other automakers.
"The cars we produce in China are not only for the Chinese market but also for export to other countries," Ning said. "The quality of cars produced in China is the same as those produced in Belgium and Sweden."
Volvo plans to export some of the cars made in the Chengdu plant to the United States, and "this is different from other brands," he said.
The company wants to cut production costs in every possible way but at the same time maintain quality, which is why it has more parts sourced outside the country than its competitors who have factories in China, an executive at Volvo China said.
"If we start to have quality problems, people will say, 'See? Volvo is going downhill after Geely bought it,'" he said.
To ensure quality, Volvo China appointed Lars Danielson senior vice president overseeing the management and daily operations in China, and he reports to Volvo CEO Hakan Samuelsson. He succeeded Shen Hui, chairman of Volvo China, in February 2013. Danielson is an expert on manufacturing, who had worked for General Motors Corp. and Saab AB before joining Volvo.
Although Volvo, Audi, BMW and Mercedes-Benz all have production plants in China, the only 45 percent of Volvo car parts are produced or bought in the country compared to over 80 percent in the other three firms, a source from Volvo China said.
The low rate is a compromise on the part of Geely CEO Li, an executive from Volvo China said.
The Swedes stressed the importance of maintaining quality many times both before the acquisition and in board meetings after the deal, a source close to the matter said.
Although Li is still the chairman of Volvo, he has stopped attending regular board meetings. The vice chairman, Hans Oscarsson, now acts as his representative in the boardroom, a Swedish reporter familiar with the situation said.
"Li is more concerned with the general strategy and not so much the daily operation of Volvo," a person close to him said.
The biggest reason Li made the acquisition deal in the first place was he wanted a strategic investment, not short-term profits, the source said.
Volvo has also had to address its sales approach in China. Fu Qiang, president and CEO of Volvo's sales company in the country, said it has two major problems: the low quality of dealerships and low sales efficiency.
"Some of our dealers do not fully understand the value of Volvo cars and market them as economy cars," a source from Volvo said.
To establish its image as a luxury brand, Volvo invested heavily on showrooms in Beijing, Shanghai and Fuzhou, capital of the eastern province of Fujian in October.
A manager at a Volvo dealership said Fu's work on the sales aspect has had results. Volvo now talks to its dealers more and pay them more promptly, he said. In the pasts payments could be delayed by three months or more.
But Volvo still has a long way to go if it wants to stand out in the competition with established luxury brands, an industry analyst said.
Audi sold 488,000 cars in the country in 2013, making it the best-selling luxury car in China. BMW and Mercedes-Benz sold 390,000 and 218,000 cars, respectively, last year. The total share of luxury car market by the three topped 70 percent.
Volvo's growth strategy will focus on claiming smaller markets, such as cities and towns in inner China where established brands have not arrived, Fu said.
"Whoever can get into the fast-growing markets first will get a head start," he said.
Competition in the luxury car market has escalated in recent years, with many brands waging price wars, the analyst said. The leading position of three top three brands is stable and the next tier, like Infiniti and Lexus, also pose serious threats to Volvo, he said.
Whether Volvo can outperform competitors depends on its S60L model. Volvo has always lacked a flagship model, he said.
Volvo sold more than 500 S60Ls in the month after its launch, the latest data shows. "The number was within our expectation," Ning said, adding that the hope is sales will pick up in the coming months.
Dec 10 16:14
Dec 10 14:08
Dec 10 13:21
Dec 10 13:29
Dec 10 12:42
Dec 10 05:01
Dec 10 04:45
Dec 10 04:27
Dec 09 18:04
- 1Exclusive: Founder Warns of ‘Extremely Tight’ Liquidity After Bond Default
- 2Photo Essay: Chinese Farming in Mozambique
- 3Citigroup Edges Closer to Exiting Its Chinese Securities Venture
- 4In Depth: How the Queen of Gree Won, Again
- 5Chipmaker Secures Patent Deals as China Seeks to Break Foreign Tech Dependence
- 1Power To The People: Pintec Serves A Booming Consumer Class
- 2Largest hotel group in Europe accepts UnionPay
- 3UnionPay mobile QuickPass debuts in Hong Kong
- 4UnionPay International launches premium catering privilege U Dining Collection
- 5UnionPay International’s U Plan has covered over 1600 stores overseas