Volvo to invest $10-11 billion in next 5 years

Associated Press
February 24, 2011 9:44 pm

Volvo Cars said Friday it will invest $10-$11 billion worldwide over the next five years in an ambitious expansion following its acquisition by a Chinese owner.

CEO Stefan Jacoby's announcement came as Volvo unveiled plans to target fast-growing China for stronger sales. The company said it will open a production base in southwestern China and is looking at a possible second site in the northeast.

Geely Holding Group, a small but ambitious Chinese automaker, acquired the Swedish automaker in August from Ford for $1.5 billion. The deal secured Geely a respected global brand but also the challenge of turning around a perennial money-loser in a distant country.

Jacoby, a former president of Volkswagen Group of America, was appointed last year to lead management installed by Geely.

Volvo's plans in China include boosting sales to about 200,000 vehicles by 2015, a sharp increase over last year's 39,000 vehicles, it said.

The company said it will create a production base in Chengdu in Sichuan province in the southwest. It said its China headquarters and design center will be in Shanghai and the company also is looking at a possible production site in Daqing in the northeast.

Industry analysts say Geely, a 14-year-old producer barely known abroad, will face a struggle in turning around Volvo Cars.

Geely plans to make Volvo a "completely independent automaker" and give its executives independence in decision-making, Geely chairman Li Shufu said Friday.

In an interview, Li said Geely can help Volvo understand China's booming auto market but will keep the brand separate from its mass-market Geely Auto brand.

"What Geely Holding Group can do is to do its best to help Volvo's development in China," Li said. "Volvo's management decisions will be made completely by its own management team."

China has become the centerpiece of global automakers' plans amid weak growth elsewhere.

It overtook the United States in 2009 as the biggest auto market by number of vehicles sold. And in 2010, total sales grew by an explosive 33 percent over the year before to 13.7 million vehicles, boosted by tax cuts and other incentives launched in response to the global crisis.

General Motors CEO Daniel Akerson this month called China the "crown jewel in the GM universe" and said his company will launch at least 20 new or redesigned cars here in coming years.

"If Volvo wants to recover and wants more sales volume, China will definitely be a very important part of that," said Boni Sa, an auto industry analyst for CSM Worldwide.

Volvo has the advantage that Chinese buyers see it as a premium brand on a par with Mercedes Benz or BMW, in contrast to its less luxurious image elsewhere, Sa said. But he said Volvo needs to meet rising Chinese expectations by adding luxury accessories such as leather seats and sophisticated entertainment and air conditioning systems.

"If Volvo can build the right car for Chinese customers, they will see significant growth in China," Sa said. "They need to build more cars that can meet Chinese customers' demands."

The choice of Volvo production sites reflects the political dynamics of the financing behind Geely's purchase. The private company obtained backing from governments in Sichuan province, Shanghai and Daqing in the northeast.

Volvos currently are produced at a Ford joint venture in Chongqing, near Chengdu.

The Chengdu facility is "a little far away" from prosperous markets in eastern cities such as Beijing and Shanghai, Sa said. But he said Chengdu has a growing network of parts suppliers and Geely already has a factory there.

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