Ford bought Volvo for $6.45 billion in 1999 and sold it to Geely of China in 2010 for $1.8 billion. Ouch, it hurts…and I’ve been there before. Buy something and sell it out at a lower cost. But alas, that was in the wake of the auto industry crisis of 2009. Geely (officially Zhejiang Geely Holding Group Co., Ltd) is a Chinese automotive manufacturing company headquartered in Binjiang District, Hangzhou, China. Its principal products are automobiles,motorcycles, engines, and transmissions.
Since acquisition, Geely has helped Volvo fund an $11 billion transformation centered on a new, leaner one-size-fits all architecture for Volvo production lines. This means, production of sta standard parts that are reusable with new models and varieties without necessarily changing the lines equipment. This is a breakthrough approach in delivering unified designs and fabrication. Now one production system can be used on all future models and body types.
Volvo is claiming that this Scalable Product Architecture (SPA) will enable it re-use the same components on various body styles and wheelbase lengths. Now a smaller, but leaner operating company, Volvo is in a make or break stage now. Will this approach win? How feasible will it be on the actual products? Indeed iy sounds much more sensible this approach, but how it will really pan is something we can all watch in the coming years.
Four years into Geely’s ownership, Volvo is kicking of it’s strategy with the coming launch of the XC90. Primarily know as the safest car, or a car that first focusses on safety than performance, the availability of V8 engines will diminish as the company seeks to use more tubor charged four cylinder engines in it’s future cars.
Also Volvo is looking to a new level of safety, touting it’s 0-fatality principle as it’s value proposition for 2020.
The demise of some European automobile in recent years will only continue to be a trend. Many were saved by acquisition bailouts by Ford, but the changing optics on the global economics is shifting and restructuring manufacturing and workforce costs. Just like the era of IT outsourcing to the east (India, Philipines, China), the auto market is as well shifting gradually to the east. China has become the worlds largest economy in almost everything. As at August 2014, global sales of BMW’s group – BMW, Rolls-Royce and Mini — rose by 7% over the same period last year and China sales were up by 23%. Audi and BMW. Even including Mercedes are almost everywhere with daily sales visible on the streets as I see faceless new models acquired by employees at my work place. It’s almost abdaiky routine now to see a new BMW parked in the lot and it’s just the beginning.
We all watched keenly as Landrover was acquired by Tata Motors. In China automobile companies are a mix of Chinese ownership and foreign boards.
If Volvo and Geely can succeed with the XC90, which is aimed at sporty utility markets, like udi Q7 and BMW X5, it would be the first time a Chinese carmaker has had marked success globally. State-owned SAIC Motor, China’s largest car company which has joint operations China with General Motors Co. (NYSE:GM), failed in its effort to go global when it bought Korean automaker SsangYong in 2004. SAIC later sold its majority stake after facing allegations it stole SsangYong’s hybrid technologies for its own domestic cars back in China, a charge SAIC denied. The company is now primarily owned by Indian automaker Mahindra & Mahindra Limited.
As Volvo prepares for its big event Aug. 28 in Stockholm, the company’s chairman Li is calling for China to open up its auto manufacturing sector. “It’s best if it’s completely open, like in the U.S. and Europe; whoever wants to produce cars can do it”. But it’s only a dream for now as the market flourishes, chances for opening it up will become increasingly difficult and complex.
Li is a major proponent for reforming the Chinese manufacturing sector. The billionaire industrialist founded Geely Automobile in 1986 and has since grown it to become one of the country’s largest privately owned car companies. Under current rules, foreign car companies must from joint ventures with Chinese counterparts. A strategy that in my opinion has served China extremely well due to it’s market size. I wish same would be adopted in Africa based on a well structured enterprise mechanism.
Prices in China are still high comparatively. While benchmarkably similat to prices in Africa for cars manufactured on soil in South Africa, it is obvious Auto makers are raking in solid earnings from China given the low cost of manpower and the large market size. Li though has a different thinking, that by allowing foreign automakers to incorporate their own local subsidiaries it would increase competition and lower prices. Surely, we understand Li’s strategy is to force the hand of the Chinese governmentnin order to enable exports of China manufactured vehicles worldwide.
Watchout, very soon you will be ordering your brand new Volvo from China, and it’s just the begining of how automobile sourcing will change.