Auto Industry

Keep him Swede

How does Volvo’s new CEO stay in Li Shufu’s good books?

Keep him Swede

Chinese takeaway: the Volvo S40

Volvo guys are too conservative. They do nothing without 200% certainty. But I will act with 80% certainty. Combining the conservative and the radical, we can make changes in two or three years”.

That was Li Shufu, chairman of Geely and new owner of Volvo, in an interview with China Weekly. Li was also quoted in a recent Automotive News report as wanting “more high-level cars” to compete with the Mercedes-Benz S-Class or the BMW 7-Series.

“We need products to compete in that segment,” was Li’s instruction.

But Volvo’s CEO Stefan Jacoby seems less sure. ‘’You can immediately recognise you’re sitting in a BMW or an Audi and I don’t think Volvo is there yet. Volvo at the moment is not sharp enough or in harmony with what the brand stands for.’’

That seems to imply that redesign plans will take time. In the meantime, sales strategy in China itself seems to show Li already on the more direct path. The website NetEase Finance has been reporting sales discounts of as much as 30% on many Volvo models, as well as even better deals for civil servants and media employees. “Almost unheard of” is how one industry insider put it.

Not that the discounts aren’t working in the short term. Sales were up 52% year-on-year in China to September, according to the latest data, much better than Volvo’s global average.

According to one dealer: “Take the Volvo S40, with a guide price of nearly Rmb290,000, which is not as competitive as the Audi A4 at a similar level. But if you are a member of a specific customer group, you’ll only need to pay Rmb210,000, the equivalent to buying a Honda Accord or a Volkswagen Passat”.

He went on to say that the scheme is a salesman’s dream, as potential Volvo buyers are much more price-sensitive than other customers of luxury brands, who have more questions about vehicle performance or handling.

Herein lies one potential problem: how the initiative fits with aspirations to take the brand upmarket, says Xu Chunze, an industry commentator. Pitching Volvo so aggressively on price may make it harder to join Audi, BMW and Mercedes-Benz in the top bracket.

Clearly Li Shufu wants a return on his investment. Last year Volvo sold only 24,000 units in China, according to NetEase, well behind the likes of BMW (90,000) and Audi (157,000).

At the time Geely officials believed there were major opportunities to boost sales. Pre-existing marketing efforts were concentrated on Europe and the Americas, they complained, with China accounting for less than 1% of revenues. Li’s plan was to be selling 200,000 Volvos a year in China within five years of his acquisition.

But how does that fit with his other aspirations: to be the first Chinese carmaker (some would say the first Chinese manufacturer in general) to take ownership of a respected overseas brand and make it work commercially in the premium segment?

Swedish meatballs won’t mix well with rice, warned Caixin magazine back in August, when the Volvo deal finally went through for $1.5 billion. It thought too that ramping up sales volumes could have drawbacks. “It’s impossible to maintain a car’s luxury status while attracting buyers from a broader spectrum,” one source told the reporter.

Of course, commentators also talked about other benefits from the acquisition, including the halo effect of Volvo’s reputation for safety. That seems all the more pertinent this week, following reports of a crash assessment test that gave one Geely model precisely zero stars out of a possible five.

The test, performed by Latin American NCAP, a vehicle tester, reported results “poor for most body regions” .

Perhaps “too conservative” Volvo can help Geely out with that…

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