By on December 3, 2012

Two years ago, China’s Geely bought Sweden’s (and Ford’s) Volvo lock, stock, and barrel. Among the assets: A few good Volvo platforms, along with a fair technology licensing contract from Ford. However, the platforms are not getting younger, and from what I heard back then, the licenses with Ford also have their limits. Geely has to invest into the future if Volvo is supposed to have one. Price of admission to the future: Many times the purchase price of the car company.

In August 2010, Geely bought Volvo for $1.5 billion. Now, Geely will pour more than seven times as much, $11 billion until 2015, into a development program for the next generation Volvos, Reuters says.

The billions should also be a lecture to private equity funds and closet captains of industry who want to snap up moribund car companies on the cheap.

The main part of the R&D will be performed in Sweden. About half of the $11 billion will go to building the infrastructure in Sweden that helps bringing the new technology to market. According to Volvo, this amounts to “one of Sweden’s largest ever industrial investments.”

At the heart of the project are two programs: SPA (Scalable Product Architecture) and VEA (Volvo Engine Architecture).

VEA is the basis for a new four-cylinder fuel-efficient engine family. The big challenge is SPA.

SPA appears to be a variation on the modular systems that have been pursued mostly by European and Japanese carmakers. Volvo says its SPA consists “of shared modules and scalable systems and components, all manufactured in a flexible production system.” These frameworks are considered to be the high art of automotive engineering. Volkswagen’s MQB/MLB/MSB architecture is a notable example.The modular systems, and not cheap labor are key to flexible low cost mass production.

Explains Volvo’s R&D chief Peter Mertens:

“SPA makes us technologically independent, without any link whatsoever to our previous owner. The new architecture covers about two-thirds of our total sales volume. With about 40 percent of all components shared by all car models irrespective of size, we will benefit from economies of scale.”

The architecture was first shown at last year’s IAA motor show in Frankfurt in Volvo’s Concept You vehicle. The first car model based on the new architecture is the Volvo XC90, planned for the end of 2014.

When Geely bought Volvo, many expected that the company would be dismantled and shipped to China, and used as a Trojan Horse for cheap Chinese cars coming to the West.

None of this happened. To this date, there is no Volvo production in China, although Volvo took steps to get Chinese production going. Being a Swedish entity however, Volvo is treated by the Chinese government just like a foreign carmaker and needs to wait for government approval.

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20 Comments on “After Paying $1.5 Billion For Volvo, Geely Must Pay Seven Times More...”


  • avatar
    KitaIkki

    Who needs new platforms? Bring back the RWD classics: 24x, 26x, 74x, 76x. They were the safest cars in their era. The last ones had a full set of airbags. Shouldn’t be that hard to bring them up to code now.

    • 0 avatar
      Jesse

      My thoughts exactly. :^)

      Why develop a “new 4-cylinder engine family” when you can just bring back the redblock!

    • 0 avatar
      tatracitroensaab

      Lol no, nd you know that. Every Volvo internet fanboi will demand this, but none of them would buy new volvos anyway, except as used maybe ten years from now. You may as well ask for a RWD diesel stationwagon in brown. Volvo needs a partner, I cannot see them surviving in the long run if they are going alone. Idk who they could partner with…. maybe Jag??? Tata must be in the same dilemma and honestly its not like Jag/Land Rover really compete with Volvo anyway….

      • 0 avatar
        FuzzyPlushroom

        Actually, that /is/ asking for a brown RWD stationwagon. ;-)

        I think an updated S/V90 could sell reasonably well to old money, just as the Jeep Grand Wagoneer used to, but it’s certainly outdated from the perspectives of safety and gadgetry. It just wouldn’t be worth it. A sensibly styled RWD flagship, however, wouldn’t be a bad idea in theory, and could sell to the same demographic.

  • avatar
    ranwhenparked

    At the time of sale, Volvo was basically in the same position as Rover and Saab in terms of intellectual property, shared platforms, and engineering resources. The key difference really is that, while the other two were sold to undercapitized entrepreneurs, Volvo went to a another fairly large automaker that could actually fund development of new cars. We’re seeing the wisdom of that play out now, as Geely has the money to properly support and develop Volvo, while the other two are dead.

    • 0 avatar
      CJinSD

      While the S40 was built on a Ford platform, weren’t there still some Volvo designs in the mix? The current Taurus and Explorer have Volvo DNA rather than the other way around. Saab hadn’t engineered their own platform since the late ’60s.

      • 0 avatar
        TTACFanatic

        A really weird thing occurred: actual platform sharing!!!

        The current S60/S80 and XC60 all stem from the EUCD/Mondeo platform … specifically the now old Mondeo platform.

        The for Taurus/Flex etc. all stem from the Volvo P2 platform, which made up the first gen. S60/S80 and still the old as dirt XC90.

        Ford has already moved on, Volvo is just planning for its future.

    • 0 avatar
      jimbobjoe

      When you say Rover, I assume you mean JLR. TATA has the means to get that type of money. I don’t know if they’ve decided to do that yet, but they certainly can get that type of money.

      It often seemed like GM went out of its way to avoid selling Saab to any company with the money to support it.

      I wouldn’t agree that the three companies were in the same place in terms of IP, platforms and resources. Saab had been ignored by GM for some time, Ford had made some healthy investment in JLR and Volvo. (Volvo in particular. Interesting that Ford had a lot less fear about what Volvo would in another company’s hands than what Saab would be.)

  • avatar
    wsn

    The article is a bit misleading.

    With or without Volve, Geely needs to invest into R&D to remain relevant anyway. Right now, with the know-how from Volvo, Geely is going to spend $15B until 2015. If there hasn’t been a takeover, suppose that Geely could be forced to spend $30B. So the purchase was a net gain.

    • 0 avatar
      CJinSD

      Suppose is an expensive word in your equation. Still, if you’re right that Volvo was a bargain in terms of accelerating Geely’s learning curve, that doesn’t mean that Volvo itself is worth investing 11 billion additional dollars into. Wouldn’t it make more sense to take the R&D bargain and run?

      • 0 avatar
        th009

        If they successfully develop the SPA, I would fully expect Geely to use it for both Volvo and Geely models. The modular architecture is the bee’s knees, but it also needs volume in order to extract full benefits from it.

        And once you have the platform, building Volvos in addition to Geelys (or vice versa) isn’t all that much more expensive …

      • 0 avatar
        L'avventura

        @th009

        Unfortunately, neither Volvo nor Geely have much volume. Geely sold around 421k cars in China last year, accounting for a 2.6% marketshare. Volvo globally sells around 450k cars. Even combined, volume is comparatively small to even the smallest global brands.

        Worse, a lot Geely’ best sellers, like the affordable Panda/LC, aren’t good platform & engine sharing candidates for Volvo. Meaning that the synergies may not exist for meeting its volume targets.

        But its a start. And Geely’s commitment and tenacity may result in success in the long-term.

  • avatar
    Lampredi

    “When Geely bought Volvo, many expected that the company would be dismantled and shipped to China, and used as a Trojan Horse for cheap Chinese cars coming to the West.

    None of this happened.”

    None of it’s happened *yet*. It probably will, though, eventually, albeit gradually. One of the first steps will probably involve CKD kits shipped from China for assembly in Sweden.

    • 0 avatar
      Xeranar

      Right now the chinese are having a hard time being competitive in the quality department of cars. I agree eventually we’ll see some chinese volvos but that sounds atleast a decade or more away. The domestic makers of China still haven’t shaken out and while Geely looks to be on of the survivors till that occurs and the domestic market settles it’ll be hard rowing in the US or any 1st world state.

  • avatar
    CJinSD

    This sounds like the best business plan since Saturn.

  • avatar
    L'avventura

    Large R&D spending such as this is what makes me think that Chinese automakers just may be able to compete on the global market.

    However, I fear that $11 billion may not be enough for Geely to come back from behind. VW recently announced an $86B plan over the next few years to overtake Toyota as the world’ #1. VW will be spending $16B just in China alone. Toyota spent near $10B for R&D in 2011 alone. Its a similar story for GM and others.

    http://businesstoday.intoday.in/story/apple-most-innovative-research-spending/1/189770.html

    And established brands start ahead; with decades of R&D, IP, and arsenal of mature technologies. Geely will need to use those $11B wisely, but investing in Sweden, and having them lead development, may pay dividends for Geely.

  • avatar

    Ahh so the Wheel turns, I oftened wondered where Volvo Cars where made after Ford more or less dumped them on the Free Market and Geely purchased them, probably without not knowing all the facts.

  • avatar
    mulled whine

    The question is, does Geely have the said 11 billion dollars?

  • avatar
    Dimwit

    How much has Volvo made during Geely’s ownership? You might be surprised. Yeah, it’s not Ford but it’s still a large manu. That’s the thing about autos. It runs like any other mfg co. but the numbers are huge. It’s the cost of doing business.

    Another thing… where does it say that Geely has to do it all by themselves? PSA, Renault, FIAT, Opel are all in the same boat. Aging, less competitive platforms. And it’s not the platforms that are the issue in this case. It’s future mfg. These modular systems are for ease of building, not superior cars. If the platforms are so flexible, why not licence them from someone else? Ford? VW? How’s that for a giggle? Use the new Ford platform, leverage Ford’s supplier network but build something that’s a Volvo through and through. Customer gets an excellent car and you save a ton of money on a modern platform and Ford gets a piece of the action on every car sold.


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