Auto Industry

Done deal?

Geely readies team to manage Volvo

Done deal?

Li Shufu: in the driving seat

My dream is to make the safest, most environmentally-friendly and most energy-efficient cars and sell China-made cars to the world.”

It’s clear that Li Shufu – the chairman of Geely – has come a long way from his early days, in which the China Daily recalls his reputation as the “personification of cheap cars”. Perhaps he didn’t endear himself to the industry either, with comments comparing the car to “four wheels and a sofa” and carmaking itself to “suicide”.

But in buying Volvo, Li will fulfill the first of his goals: he will be making what has usually been reckoned as the “safest” car in the world.

Okay, the acquisition is not yet complete (or even formally announced) but Li is behaving like it’s a done deal.

Why else would he have hired Tong Zhiyuan and Shen Hui, asks China Business?

Tong’s recruitment caused the biggest stir, when he agreed to join Geely in mid-December as chief operating officer. He can lay claim to being one of the elder statesmen of the domestic car industry, and brings with him a cosmopolitan pedigree that should appeal to executives in Stockholm.

A brief look through Tong’s CV tells you why. In 1987 he joined Beijing Jeep, China’s first foreign joint venture auto company. He first served as a quality control manager, then as head of engine technology, before becoming executive vice-president when it was absorbed by Daimler as part of the Chrysler merger in 2005. Then in early 2008 he was poached by Beijing Auto Works to become chief engineer, and help the firm build its own brands.

Four months later, he was headhunted again, this time to become CEO of Shandong-based Huatai Auto, a maker of SUVs. At the firm he oversaw work on a low carbon vehicle, managing to increase profits threefold.

That meant that, when news of Geely’s bid for Volvo surfaced, so too did rumours linking Tong to the new venture. On sick leave, he put media off the scent by saying he was much more focused on getting back to full health. But by mid-December it was clear, as China Business put it, that “he had quickly rehabilitated”, and had been lured by Li Shufu and the prospect of integrating Volvo.

As to Shen Hui: he also had international experience as a former VP at FPT Fiat Powertrain Technologies.

Tong has since told media that the Volvo acquisition is proceeding “very smoothly” and that Shen has been sent to Europe to finalise the negotiations.

The Chinese press is much preoccupied with the final outcome. The consensus seems to be that Volvo will be allowed to operate autonomously, and that the initial goal will be to nurse the Swedish carmaker back to health. That means getting sales back to pre-financial crisis levels of 500,000 cars a year.

Apart from Volvo’s nine distinct models and its R&D division – which will also remain in Sweden – the other jewel in the crown for Li is the company’s international sales network of 2,500 dealers in more than 100 countries. As the Economic Observer points out: “The dealer network will likely benefit the overseas dreams of Geely.”

But the other key speculation is this: will more of Volvo’s production be uprooted to lower-cost China? Tianjin is rumoured to have offered low-cost land for a new plant, but Tong has said that making Volvos in China is not the immediate objective: “The key is not setting up factories in China, but to increase sales in China.”

The Economic Observer agrees that this is the shorter term goal – utilising Geely’s own China sales network and marketing clout to sell as many as 2 million Volvos annually.

Volvo already makes a vehicle specifically designed for the China market (the A80L). But WiC supposes it will have to make quite a few more if it is to reach this ambitious target.

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