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Volvo's revival: How Ford's folly turned into Geely's gold
CHINESE medicine may be bitter, but in the car world it can produce sweet results. It's now 10 years after Ford Motor Company put Volvo Cars on the auction block, and the Swedish company is now more successful than it has ever been, a fact that some might find surprising because it has spent nearly a decade under the ownership of China's Geely automotive group.
Far from ruining Volvo Cars, Chinese investment has revived it. In the first six months of 2019, it earned S$18.4 billion in revenue, up from S$17.4 billion last year, with an operating profit of S$780 million.
It also sold a record 340,286 cars, a year-on-year increase of 7.3 per cent, which is an impressive feat in the face of faltering car sales in the United States, China, and Europe, all major auto markets.
The rest of the year looks just as rosy, with Volvo Cars on track to outperform 2018, the company's best full year on record, during which it sold a total of 642,253 cars.
"For Volvo to achieve this sort of sales and performance, many people said that it was just not possible," says Keith Schafer, with a knowing smile. The head of operations for Volvo Cars Asia Pacific, Schafer has been at the company since 1991, and the smile is backed by the knowledge that he's finally getting to see the brand live up to its full potential.
Mr Schafer spoke to The Business Times at last week's launch of Volvo's S60 and V60, two new cars that aim to compete with BMW's 3 Series and the Mercedes-Benz C-Class.
Playing it safe
Volvo's current performance has been built on steady growth over the past decade, but it's easy enough to forget that for much of its history, it was characterised as a brand that made cars that were as staid as they were safe, and never quite up to challenging the German luxury leaders BMW and Mercedes-Benz head on.
The brand's latter day success is all the more dramatic considering that a decade ago, things looked exceptionally bleak for Volvo.
Ford put the division up for sale to raise capital in the wake of the Lehman Brothers crisis in 1999, having bought Volvo Cars from its previous parent, Swedish industrial group Volvo AB, which divested its car business to focus on building trucks.
While the Swedish car maker was profitable when Ford acquired it, things headed south under American ownership. When Geely came sniffing in 2009, Volvo's sales volume was less than half what it is today. That year brought S$917.5 million in losses, making it the fourth consecutive year in the red for Volvo.
To Mr Schafer, Volvo was a piece of the puzzle that never quite fit in with the Blue Oval.
"Ford's idea was to put together a number of premium manufacturers: Jaguar, Land Rover, Volvo. For Volvo Cars, we became part of a very big industrial group and we needed to fit into that," he told BT. "For us, with an aspiration to grow, it also created compromises in a lot of things."
From an engineering perspective, those compromises are quite clear in hindsight: older, heavier vehicle platforms and less advanced technology put Volvo's models at a disadvantage from the start, even when paired with the brand's vaunted safety advances.
But when Geely, then a little-known Chinese player, emerged as the winning bidder for Volvo, it seemed even less clear how the two companies would gel. Geely was known for little else than making cars that were cheap to a fault, and presumably knew nothing about managing a premium car brand like Volvo.
Yet, Geely's founder and chairman, Li Shufu, has turned out to be more perspicacious than anyone in the West might have guessed. The Economist hailed him as "the Chinese Henry Ford", but pointed out that it would be "remarkable" if Geely were able to buck the trend of failed cross-border automotive takeovers.
But after tasting success with Volvo, Mr Li has become even more acquisitive. He quietly amassed shares in Daimler AG, the parent company of Mercedes-Benz, until he became the company's single largest stakeholder in 2018.
Geely has also bought 49.9 per cent of Malaysia's Proton and controls legendary sports car brand Lotus. It invested in Terrafugia, a startup hoping to get flying cars off the ground, and owns 29 per cent of Italian motorcycle brand Benelli.
As if to bring things full circle, Geely is also the biggest shareholder of Volvo AB, the group that originally sold Volvo Cars to Ford.
Perhaps having seen its former car division prosper in Chinese hands, management there has sounded a welcoming note.
"We see a lot of areas where we feel that Geely can add both insights and competence," the truck maker's chief executive Martin Lundstedt said in an interview in April.
If Geely's expansionist ambitions seem to mirror those of China itself, Volvo's Mr Schafer said the Chinese company has succeeded with the Swedish brand due to one simple trick: Being hands-off and letting the company run itself.
The Chinese company offered working capital and broad access to the Chinese market, but otherwise adopted a policy of non-interference.
"I've met Chairman Li once this year and that's the only interaction I've had with Geely," Mr Schafer said. "Under Ford, every action was very controlled, and we needed to think twice about everything. But Geely has given us much more flexibility to develop what we need, and are going to need."
Getting the SPA treatment
Post-Ford, Volvo needed cash to develop a new generation of cars, and with Geely as a parent it gained the financial stability to invest 90 billion Swedish kronor (S$12.8 billion) in a Scalable Platform Architecture (SPA), a common foundation on which many different vehicles could be built.
Together with a new engine family, SPA underpinned a complete revamp of Volvo's model range, beginning in 2014.
The S60 and V60 that the brand has just launched here are two of the latest cars to sit on the platform.
Volvo is now working on SPA 2, a next-generation architecture that can support electric drive technology and artificial intelligence computing. The first SPA 2 cars should appear by 2021 with self-driving capabilities, although a human will still be needed to supervise.
Alongside that, Volvo is amping up its efforts to bring more electrified cars to production soon.
Its first battery electric vehicle (BEV) will debut this year, with a total of five BEV models to be on sale by 2021.
The brand is still a relatively small player (Mercedes and BMW each produce nearly three times as many cars a year), but its size means it can move with agility, particularly with a hands-off parent.
"We are owned by Geely but we are really an independent Swedish company," Mr Schafer said. "We're able to take steps much quicker than before, and that's very important in the automotive industry today."
"Chairman Li said of Volvo, 'We will liberate this tiger from the cage'," he added. What he understood that Ford didn't is that when dealing with a tiger, it might be best to simply stay out of the way.