Volvo targets China’s rich in $11 bn global push

Volvo targets China’s rich in $11 bn global push

Beijing: China’s Geely-owned Volvo will invest up to $11 billion into new product development and facilities over the next five years, its chief executive said on Friday, eyeing China’s growing number of rich to boost the Swedish brand’s global profile.

Stefan Jacoby was in Beijing to unveil the company’s development strategy in the world’s largest auto market, a key platform for Volvo’s longer-term goal of doubling sales to 800,000 units in 10 years.

In an interview with Reuters, Jacoby said the Swedish auto maker hopes to be selling up to 200,000 vehicles annually in China by 2015 from a little over 30,000 units last year, and has set a goal of capturing 20% of the country’s premium auto sector.

“We are investing into new products and we are of course investing into our industrial footprint here in China. But the majority of our investment is into new products," said the former Volkswagen executive bought in to run Volvo six months ago.

Geely, parent of Geely Automobile Holdings , took over Volvo from Ford Motor in August 2010, marking China’s largest overseas auto acquisition and reflecting the country’s rapid rise in the auto world.

Volvo is awaiting regulatory approval for its first China plant. The facility, based in the western province of Chengdu, will start operation in 2013, with an annual capacity of about 100,000 units.

It would also look into opportunities to build another plant in the city of Daqing in the northeast.

But Volvo’s new chairman, Li Shufu, and his team face an uphill battle to bolster the global status of the Swedish marque, which last year managed to make a profit for the first time since 2005.

Big car push

In the middle of the last decade, Ford had started to make Volvo S40 cars at its western China plant in Chongqing and added S80 into its portfolio later.

But with its low-key Scandinavian style, Volvo lagged far behind BMW , Mercedes Benz and Audi, which have racked up eye-popping sales with bigger, fancy models loved by China’s growing army of the super-rich.

Li, a self-made Chinese tycoon who built Geely from scratch to become one of China’s non-state automaker, sees the need for a change.

Volvo management, Li told Reuters in an interview on Friday, is gradually understanding the tastes of Chinese customers and is considering making bigger cars that will be available only in China.

“We keep communicating with each other. Many Volvo people have visited China and have a better understanding of the Chinese market," said Li, who has been described as China’s Henry Ford.

“Volvo has good genes. I am sure it will bounce back quickly with some adjustment of its strategies."

Li told Reuters soon after his dark horse bid for Volvo was sealed last year that he wanted to build bigger Volvo cars to compete with BMW’s 7 series and Mercedes Benz’s S series.

Jacoby on Friday denied speculation that Li’s strategy was in conflict with that of the board, which was said to favour smaller, less expensive vehicles.

“We want to be more luxury, we want to be more upscale, but of course we will contribute to the environmental requirements and objectives as well," he said.

“We will offer fuel efficient models and will be investing in new technologies. There is no disagreement between the board, chairman Li and myself," Jacoby said, describing Li as “a very challenging entrepreneur, a visionary and a listener".

Demand for premier cars is growing faster than ever in inland areas as national wealth grow, and Li said the location of the new plants was also in line with Beijing’s push to boost economic development in less developed areas.

Meanwhile, Volvo will also beef up its marketing in the country, bringing the number of its dealerships to 220 by 2015 from 106 now.

The China expansion, however, will not affect its operations and employment in Europe, the executives said.