Li Shufu, Chairman Geely
Two months ago, we wrote that Geely will pour $11 billion into a development program for the next generation Volvos, and that half of that money would go to Sweden. Our commentariat did not quite buy that and said that the technology will go to China. Right they were.
Volvo will open a new R&D Center in Gothenburg alright, where it will develop the announced modular architecture called SPA (Scalable Product Architecture) and VEA (Volvo Engine Architecture). But it will be a cross-brand strategy for Volvo and Geely. A modular architecture has high up-front costs, it only makes sense when deployed in volume. Strangely, Volvo now says that the R&D Center will develop a new C-segment car, and “in parallel, the development of the Volvo Cars architecture for larger segments (SPA) continues within Volvo Cars’ own R&D organization. The first SPA vehicle will be launched in 2014.” Lower volume larger segments are not as much suited for modular as smaller segment high volume cars.
But first, there will be painful cuts. Volvo isn’t doing so well, and it needs to shed “1,000 more jobs and save more than $200 million to reach breakeven this year after sales and Chinese growth have lagged,” as Reuters reports.
Volvo already did cut 900 contract staff last year, now 750 consultants and some white collar staff will need to go.
So Volvo will be to Geely what Opel is to GM?
Geely needs volvo to develop safety technology, Geely and Euro NCAP is sort of like wine and water now, so kinda but not quite.
How do you figure that?
Kind of early, don’t you think?
Really don’t think they are analogous.
“But it will be a cross-brand strategy for Volvo and Geely.”
I read this as, Geely makes the investment, Volvo does the R&D, and Geely builds the heck out of it in China. This is essentially what GM does with Opel.
That doesn’t mean it’s like what Opel is to GM.
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“Geely makes the investment, Volvo does the R&D, and Geely builds the heck out of it in China.”
Now…
“Ford makes the investment, Volvo does the R&D, and Ford builds the heck out of it in America.”
This is the exact same story as the Ford days of Volvo… but with a different author.
I once had a London Business School professor posit a theory the “Excess capital always gets destroyed due to excessive risk taking.” The Chinese have accumulated Trillions of dollars in capital and are trying to find ways to invest it. They are buying and investing in a number of western businesses like Volvo. This should be fun to watch.
It’s same same psychology with driving and a full fuel tank… brisk and hoon-y in the first 1/2, conservative and green as it nears empty.
In other words, China is a rich girl, and she’s going too far, but you know it don’t matter anyway.
@Conslaw,
So who would be the old man she relies on, USA?
Alternately, a company with competent R&D (producing products that are on the fun half of the spectrum by general consensus, and safe end of the spectrum, by general consensus) but priced where achieved sales didn’t justify the R&D expenditures (a common failure mode) is purchased by a company with a wildly growing home market and ambitions abroad, and a generally acknowledged lack of R&D, safety, or fun. Thus giving the opportunity to spread the R&D out over an adequate sales basis and perhaps infuse a whole new company with higher end performance and safety genes.
Chinese are just hanging Ina holding pattern till they can snag some existing tech. I say put a death watch on Volvo, it’ll take a few years but when every new model is not better than the competition, you have a problem. And when every single model moves away for what made Volvo a Volvo, that,s just suicidal.
I concur. Volvo death watch.
I give them 6 years.
Not sure about a death watch for Volvo. Beside the R&D, the Volvo name carries more goodwill in western markets than ANY Chinese brand at present. Just as Lenovo did with IBM’s Thinkpad line, keeping a loyal customer base alone is sufficient to keep the Volvo name around for decades.
The real question is once the R&D has been integrated into Geely’s other product lines, how “Swedish” will Volvo remain? Is there something intrinsic about Volvo’s design philosophy, which can’t be replicated in some research facility in China?
The same question should also be asked of Jaguar, Land Rover, and other brands who are now under the ownership of foreign entities quite different from their origin.
Look from Geely perspective. What else would they spend the money to buy Volvo, then invest some more in it? It’s not like Volvos are immensely profitable or selling in huge volumes.
Is Volvo laying off engineers or assembly line workers?.. that should tell you what the Chinese masters need from Volvo