The automotive world is looking forward to Sweden. Not to Trollhättan to Saab, but to Gothenburg to the other Swedish brand. Since the takeover by Chinese investors, Volvo has been in the spotlight, because what happens there could also be a template for other companies. A study by the Norddeutsche Landesbank sees at least one other carmaker in Chinese hands by the end of 2015.
As possible candidates, four companies are traded. The names are no surprise. Fiat, Peugeot Citroen, Mitsubishi and Mazda. After the acquisition of the zombie brand Rover Volvo was the first major traditional brand, which changed in March 2010 in Chinese ownership. With Saab 2012 followed another appetizing swedish snack. Let's take a look at the last 3 years from Volvo's point of view! And yes, it's a long article.
It starts with a misunderstanding.
Some marriages start in strange circumstances. In China, Geely owner Li Shufu thought he had acquired a premium brand with Volvo, which could take market share from German premium manufacturers. In Gothenburg Geely was celebrated as the new owner, who would allow large investments with full bags. Both sides were wrong.
The sales negotiations with Ford dragged on 2 agonizingly long years. During this time, little was invested, and the now-released Volvo V40 was thus the last model from the Ford Group kit. Thus, the pipeline in Gothenburg is empty, new models have been moved to 2015. Under Geely, the Swedes invested in two new plants. One of them, the plant in Chengdu, is scheduled to go into operation in seven weeks. A topic we will talk about later.
Another issue, and a disappointment for Volvo, was Mr. Li Shufu's supposedly deep pockets. Acting as a billionaire, in reality he shrank into a debtor, completely dependent on state lenders. It took 51 billion crowns to pay for his 6% stake in Volvo Cars. He had only 1.5 billion available; the seller Ford loaned another 1.5 billion to his buyer. At an interest rate between 10 and 15%. The rest came from Chinese banks. Li Shufu, it became increasingly clear, is neither financially strong nor self-sufficient. Somehow that reminds of Saab and Victor Muller.
The emissary of Beijing.
The true ruler, a gray Eminence, sits in Gothenburg. His name: Yuan Xiaolin. He is a member of the diplomatic service and, according to Svenska Dagbladet, should be very high-ranking. Allegedly a member of the Chinese Communist Party, which is neither confirmed nor denied, and served in the Ministry of Foreign Affairs from 1994 to 2000. Yuan Xiaolin takes care of Beijing's affairs in the Volvo executive suite. In contrast to Li Shifu, he speaks English very well and is present at every board meeting. In Volvo's internal parlance he is considered a “Beijing spy”.
On to the events in China. The dealer network in China was expanded in a hurry, as Geely's vision was for 500.000 Volvos to be sold there. 24 months later, they were smarter, the initial enthusiasm had evaporated, and reality had caught up with Volvo. The Swedes had invested in the wrong dealers and in the wrong locations. There was also an embezzlement scandal with incorrectly billed premiums. The emergency brake was pulled in Gothenburg. The dealer network is currently being restructured, apparently with success. In the first quarter of 2013, Volvo was able to increase its sales in China by 27%, thus compensating for the weakness in other markets. But the frustration sits deeply with Li Shufu and in Beijing. Instead of the planned 400 to 500.000 vehicles, only 2012 were sold in 50.000.
Frustration in Gothenburg.
Swedes are reserved people. A lot has to happen before problems can be exposed. The dams now seem broken. Depending on political attitudes, the big magazines in Sweden write their opinion on the Volvo-Geely marriage. Dagens Industri has fears that the Chinese will lose their patience, Göteborgs Posten sees politics as an obligation, and Svenska Dagbladet sees Volvo being damaged by China.
There are many reasons that cause frustration. There is the chaos in China. The municipal partners want to see works like the one in Chengdu. But they do not just want a production, they also want research and development. Or another engine plant. The demands from the provinces that come to Gothenburg are uncoordinated. Factories that are not needed should be built. If they do not come, they deny licenses. China is becoming a crime thriller.
There are the missing investments. While Li Shufu goes on a global shopping spree and buys one company after another with political benevolence, his pockets remain closed to Volvo. The Gothenburgers are forced to borrow from Chinese banks for expensive money. There is the case with the new plants in China, which were financed by Swedish cash flow. Production is scheduled to begin in Chengdu in seven weeks. The promised since 2011 license is still missing, as Volvo press director Per Ake Froberg had to admit on Friday.
Communication between Gothenburg and Beijing is difficult. The big decisions are made in China, not in Sweden. Former Volvo CEO Stefan Jakoby and today Hakan Samuelsson are finding it difficult to obtain information, as is now openly acknowledged. Different cultures collide. At the Geneva Motor Show, Li Shufu criticized the design of the retreaded vehicles as too Scandinavian and too lame
Who buys a title of nobility, does not automatically become a member of a family. A similar experience had to make Geely. With the purchase of a traditional manufacturer you will not naturally become a member of the European car family. Mats Fägerhag, who moved from Trollhättan to Gothenburg, was forging new alliances with other automakers. A venture that ended in failure. Volvo is regarded as the European spearhead for Europeans, and nobody gives the Swedes any insight into their own development department. To save face, a development center in Gothenburg, jointly operated by Volvo and Geely, is now under the management of Mats Fägerhag. 200 engineers are working on a new architecture for the C-segment. The V40 successor and a small SUV will be based on it, corresponding Geely derivatives are derived from it.
The suppliers in particular should bring savings. The “Shape 2020” program is intended to reduce purchase prices by 2015% by the end of 20. At the same time, the number of suppliers is to be gradually reduced from 500 to 200 to 250. According to the latest idea, the suppliers should have a greater share in the success of the brand. A program that will now start with 40 to 50 core suppliers and whose success is uncertain. Because the number of units at Volvo is low, so that a joint purchasing organization with Geely is to be established by 2015. And in 2015, a year later than planned, a new generation of Volvo will roll off the production lines with the successor to the XC90.
The Chinese make mistakes, that's clear. But the Chinese can afford to make mistakes. In China, excess liquidity desperately seeks investment opportunities, and what's going on in Gothenburg is a clear learning process for both sides. Volvo is the first heavyweight automobile in the Asian auto portfolio. The first years were hard for both sides and characterized by lack of understanding. Not every marriage that starts with tears, but must fail. Sometimes the best partnerships develop out of it. How Gothenburg will continue is also a blueprint for the situation in Trollhättan. Not everything can be transferred to Saab, but quite a bit.
The lessons for Saab.
With some things, both brands will have to live. There's the Chinese control bureaucracy. Whether it is the entry of Quingdao at NEVS, whether it is the new works for Volvo. Everything is firmly in an authority, which, from local to national level, must examine every major investment. This paralyzes some process. Volvo is waiting seven weeks before a start in Chengdu on the necessary stamp. Likewise, one can assume that in Trollhättan no chimney will smoke until the entry of Quingdao is not approved.
The fact that there is no complete chaos in Gothenburg is also due to the truck manufacturer of the same name. Volvo truck watches over the brand name and thus prevents some droll idea from Beijing. Mopeds with the Volvo logo? No joke, but seriously proposed by the Chinese as an extension of the product range. At Volvo's truck frozen faces as the idea came to the table. Declined. OK then!
Everything is different at Saab and not again. Theoretically Geely could really pull the plug at Volvo and relocate everything to China. This subliminal in Swedish newspapers expressed fears are more than improbable, because also in China one appreciates the engineering location Gothenburg. Nevertheless, the fact that the upheavals are taken seriously is shown by the trip of a delegation of the Stockholm Ministry of Economic Affairs to China last Friday.
In Trollhättan, some things are easier. The use of the brand name is tied to manufacturing, design and development in Trollhättan. Since everything at Saab has been running at zero speed since 2 years, meaning production is at a standstill, a restart is easier. Everything that comes off the production line from model year 2014 is almost automatically a success, and the Göta Älv plant is more modern and productive than the old Volvo equipment.
Only this situation does not protect against misjudgment. Both brands have something in common. Both Volvo's profile and Saab's profile are watered down. In one brand is too much Ford, in the other was too much GM. Both owners are looking intensively at China with their brands. Like a mantra, NEVS repeats its fixation on the Chinese market. There you compete against BMW, Audi and VW. Brands with a razor-sharp profile. In China, you can sell vehicles to authorities, or a target group that both Scandinavians have in common. That's about political relationships.
Another story is rich Chinese and the new middle class. Brands that are at home in good old Europe, which have a strong base there, are the big hit in China. Brands with a diluted brand core or, as in the case of Saab, a brand that is barely present in Europe, will have a hard time in China as well. Geely failed to invest in the Volvo range in the early years. New models come with a delay. NEVS wants to largely ignore Europe and the US and focus on China first.
Both decisions that do not work that way. Saab and Volvo only have a chance if they are strong in their home countries and are clearly recognizable as Scandinavian products. Design, ergonomics, safety and environmental compatibility are the core pillars of both brands. Saab, the sportier brand, adds performance with turbo technology. The political will of the Chinese is there, the necessary means too. Both brands can be a success.
To quote yet again the study of the Norddeutsche Landesbank: starting from 2020 one counts for Europe and the rest of the western world with a successful invasion of Chinese automobiles. Reliable, well-equipped, following the example of the Japanese success story of the 70 years. The Chinese may make mistakes. But they learn. Perhaps.