Volvo tiger?

China's Geely Zhejiang Holdings reached the deal with Ford Motor Co. on Sunday to purchase Volvo, ending months of ambiguity for the Swedish carmaker and the auto industry in the country.

Geely's Hangzhou-based parent company hopes to complete the purchase of the Ford unit for about 1.8 billion euros ($2 billion) by May.

Ford paid over 4.4 billion euros to acquire Volvo back in 1999, so the sale represents a substantial loss on its investment. But the deal is coherent with a recent strategic shift that has seen the US-based company shed luxury brands like Jaguar and Land Rover, which it sold to India's Tata Group last year.

Experts say the Volvo acquisition is an unmistakable statement of China's growing global ambitions in the industry.

Unleashing 'the tiger'

Li Shufu, a self-made entrepreneur who built Geely from scratch and turned it into one of China's largest carmakers in two decades, sees an enormous amount of untapped potential for Volvo in international markets, particularly in China, which is currently the world's number one car market.

"I see Volvo as a tiger. (The) tiger belongs to a forest, it can't be found in a zoo ... We need to liberate this tiger," Li told a press conference after the deal was signed at Volvo headquarters in Gothenburg, Sweden.

Douglas Bolduc of Automotive News Europe said Li wants to expand Volvo's distribution network beyond Europe and the US.

"There really are only two really global brands right now: BMW and Mercedes," Bolduc said. "Perhaps Li has those kinds of aspirations."

Banking on China

Geely's charismatic chairman is banking on the Chinese market for Volvo's survival. China is the fastest growing auto market in the world, so most experts agree the strategy is sound.

"Li believes that once Volvo starts production in China, it will have an entry into a whole different market," Bolduc said. "They have the potential to become a superstar in China."

"We've seen it a lot throughout the world that when an automaker starts producing in a different country, all of a sudden people in that country have a whole new respect for that automaker," Bolduc said, citing the success of BMW and Toyota in the US as examples.

Jobs moving east?

Geely has pledged to continue manufacturing Volvo in Europe – currently, the company has two plants in Sweden and one in Belgium – but plans to new plants back home in China.

So, will this see a significant number of Volvo jobs moving eastwards? Bolduc believes so.

"It will probably be inevitable. With Sweden, there's going to be a lot of pressure to keep that operation, but with Belgium, as we've seen with a lot of automakers, if that's not your true home market, that's usually where cuts would be made," he explained.

"I would be a little bit more concerned if I were building the automobile in Belgium than if I were in Sweden."

Recapturing past glory

Geely's chairman has said he plans to nearly double Volvo's annual production with a new factory in Beijing and make the Swedish brand profitable again within two years.

The Chinese conglomerate has announced it will run Volvo as a separate company with its own management and board. Some observers see that as an attempt to protect Volvo's premium brand status.

Other analysts like Bolduc hope that "it's an indication that Geely is saying 'we don't know everything. We've had amazing success, but we hope we can still learn something from Volvo because of its 80-year history'."

He points out that Volvo was a "jewel" in the Ford PAG collection of brands, referring to the Premier Automotive Group that supervised business operations of Volvo cars. In the past, PAG also watched over luxury brands like Lincoln – which is currently under the direct control by Ford – as well as Aston Martin, which was sold off in 2007.

Author: Ranjitha Balasubramanyam
Editor: Sam Edmonds