By on December 9, 2008

Yesterday, we reported that Ford is in a big hurry to unload Volvo to interested parties (preferably) in China. The article quoted a story in London’s Times. The Times had received information that Ford is talking with SAIC to take Volvo off Ford’s hands.  There are more interested buyers:  Top executives of Ford’s Chinese joint venture partner Changan are in talks with Ford to buy Volvo. This according to China’s National Business Daily which has it from an insider at Changan.

At the Guangzhou auto show last month, Volvo’s top executives had long talks with Changan Auto president Xu Liuping. When Ford Motor announced its plan to sell Volvo, the presidents of Ford Asia Pacific, Ford China, and Volvo China met Changan’s president at Changan’s HQ in Chongqing for closed-door talks. NBD’s source added that it is logical for financially troubled Ford Motor to consider Changan as a possible Chinese partner of its Volvo brand, because they have the Changan Ford Mazda joint venture which is also producing the Volvo S40 and S80 models. There are more reasons to buy …

Allow us to reiterate why buying a foreign brand with international distribution would make absolute sense for a large Chinese automaker, and a large Chinese automaker only: The Chinese automotive industry is under considerable pressure to get on with their car exports. China is already the world’s second largest auto market. China will end 2008 as the world’s second largest auto producer. As an exporter of cars, China is a nobody. Last October, the officious China Daily rendered the official verdict: “China’s auto export numbers are discouraging,” There are a few exports to third world countries and Russia. These countries have problems with their economies and currencies. Europe, Japan, and the US have remained white spots on China’s export map. It’s not for a lack of trying.  Europe, Japan, and the US are using every regulatory trick in their vast arsenal to keep home-grown Chinese cars out. Home-growns lack the engineering clout and money to break through these barriers.

Most of the cars currently built in China could be exported immediately. The cars built in China under joint venture agreements are for all intents and purposes identical to their American, German, Japanese, or French counterparts. Same design, same technology, same production methods, same parts, same quality standards. But under current contracts, these cars cannot be exported. If a Chinese company buys the joint venture partner, that limitation falls.  Changan could sell made in China Volvos worldwide at the stroke of a pen.  The dire straits of Ford and GM could give China the keys to quick-start their export machine. Furthermore, China is concerned about Detroit’s demise. They bought a lot of Chinese parts, either directly or through companies like Delphi or Federal Mogul who use China as a production base. Parts orders are way down. Believe it or not, a lot in Made-in-China cars are imported parts. By law, 40% of fleet must be local content. A lot of the completely new models are TKD, totally knocked down, made entirely from foreign kits.  It is in China’s best interest that Western brands survive and that the supply lines, back and forth, do not get distrupted,

TTAC’s incessant interest in the tête-à-têtes between US and Chinese automakers is raising interest in China. In their reporting of the Changan-Ford dealings, Gasgoo felt compelled to add: “‘The urgent deal between SAIC and Ford also explains the suave reaction of Changan, Ford’s joint venture partner in China. If the deal is consummated, Changan could sell their Ford operation to SAIC, or SAIC could swallow the whole Changan kit and caboodle,’ said a news blog (“Confirmed: Ford Wants To Sell Volvo To China Real Fast) by Bertel Schmitt at www.thetruthaboutcars.com on December 8.”

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22 Comments on “This Is Not A Drill: Ford In Concrete Talks To Sell Volvo To China...”


  • avatar
    factotum

    I’m unclear as to why Chinese auto manufacturers want to export. To where? Already-saturated Western markets? (India I could see.)

    If the West is the case, what will attitudes be towards a Chinese Volvo? I think it’ll go over about as well as a lead balloon.

  • avatar
    Matt51

    Volvo knows how to engineer excellent cars. Selling Volvo and Mazda is a liquidation of the best part of Ford. Better they should sell Ford (but no buyers). Ford is losing just as much money as GM, but probably will survive for a short while when GM dies first. Ford management is just as clueless as GM and Chrysler management, they just borrowed a lot of cash while they could. Ford US now has an awful lineup of cars, only the Focus and Mustang make any sense when compared to the competition. Closing Mercury and Lincoln should occur in 2009. Maybe the Chinese would buy those brands – yeah, right.

  • avatar
    dwford

    So Ford will put another nail in its own coffin by giving another low cost producer easy access to our market? Brilliant!

  • avatar

    @factotum: Ever heard of foreign currency? The stuff you buy oil with? Raw materials? T-bonds? That kinda stuff.

  • avatar
    Ryan

    If it keeps Ford from Chapter 11 AND NOT TAKING A HANDOUT FROM UNWILLING TAXPAYERS, I am for it. Now, if only Chrapsler went under along with the Da-da-dodge piece of garbage nameplate. Toyota or Honda please purchase Jeep and restore the once iconic name. Keep the Wrangler but scrap the rest of the line. The leftovers are dismal selling, worthless, watered down junkers.

  • avatar

    @Ryan: It looks more like disposing of Volvo at firesale prices is a condition for receiving tax payer’s money

  • avatar
    tom

    TTAC’s incessant interest in the tête-à-têtes between US and Chinese automakers is raising interest in China. In their reporting of the Changan-Ford dealings, Gasgoo felt compelled to add: “‘The urgent deal between SAIC and Ford also explains the suave reaction of Changan, Ford’s joint venture partner in China. If the deal is consummated, Changan could sell their Ford operation to SAIC, or SAIC could swallow the whole Changan kit and caboodle,’ said a news blog (”Confirmed: Ford Wants To Sell Volvo To China Real Fast“) by Bertel Schmitt at https://www.thetruthaboutcars.com on December 8.”

    LOL, thanks to you Bertel, this site is now the #1 on the Chinese auto market in the west and it’s even getting recognized by the east. Great job.

  • avatar

    I guess the Chinese will rechristen the brand to Wu Wei instead of Volvo. :-)

    Manufacturing is moving to low cost countries. If GM and Ford had been allowed to, they would have moved every single manufacturing job to low cost countries long ago …
    This will only stop when the cost of manufacturing drops, and when people begin thinking along protectionist paths in their purchases, out of sheer self preservation.

    It’s interesting to observe that this fall/early winter, several government leaders in Europe have called upon people to shop local and protect their nation’s manufacturing.

    I guess the next WTO-meeting is going to be a shouting match.

  • avatar

    BTW – Going to China has its perils. The Max Planck Institute’s science magazine editors are red faced these days.

    They put what they thought was a poem on the front page of their journal.
    It was an ad for a brothel in Macau.
    http://www.independent.co.uk/multimedia/archive/00098/chinese-poem_98342a.jpg

    It’s already a collector’s item. Germans hate making this kind of mistake, so this is one for the history books.

    Max Planck Forschung
    “Hot Housewives in Action!”

    The Max Planck Institute reports that they had consulted a sinologist … right! And now complain that the text “contains deeper levels of meaning.” Sounds pretty obvious to me – that sinologist owes them some money:

    The use of traditional Chinese characters and references to “the northern mainland” seem to indicate the text comes from Hong Kong or Macau, and it promises burlesque acts by pretty-as-jade housewives with hot bodies for the daytime visitor.

    Some will have found the sites on the net that provide correct translations of some of the “This Side Up” tattoos that people think mean Dragonfire, etc. As the Independent reports, one web user “…recently met a German girl with a Chinese tattoo on her neck which in Chinese means ‘prostitute’. I laughed so loud, I could hardly breathe.”

    The Chinese chose not to see the funny, and considered the Max Planck front page to be a carefully couched insult directed towards Chinese engineering!
    http://www.independent.co.uk/arts-entertainment/tv/news/chinese-classical-poem-was-brothel-ad-1058031.html

    Jokes about Planck’s Inconstant abound.

  • avatar

    Well, as a graduate of the “Max Planck” school in Munich I can disclose that it carried the nickname “mach’s blank.” I leave it to the German speakers to explain the deeper meaning.

  • avatar
    PeteMoran

    The Chinese attitude to manufacturing is “why make one item when you can make it twice for half the price”.

    The idea that you create busy-work by manufacturing items with no durability so that they fail and can be sold again in a few years time is not sustainable.

    For example; I bought a water pressure cleaner to replace my old one. To my surprise it was less than a quarter of the price I paid over 5 years ago, but this time made in China. It lasted one year. When I asked if it could be repaired, I was asked “why repair it, just buy another one”. There are no repair facilities because the economics of the product mean it is essentially built to be disposable. Computing and electronics are similar.

    Customers will pay for niche quality. Durability as a purchase decision has to be trained back into consumers.

    Cars might treated differently for a while, but it won’t be long before “cheaper, cheaper” is the major motivation (as in computing).

    Two Earth’s? Three Earth’s won’t be enough if headlong disposable consumerism takes hold in cars.

  • avatar
    WEGIV

    Here’s me, hoping that now that this news is more credible than a rumor that it will knock loose some money from the Swedish government and other home-country investors to buy Volvo and Saab before they’re completely ruined by their respective (and prospective) owners.
    If Lenovo is any indicator of Chinese ability to purchase an established Western brand and continue at or near the same level of quality and innovation, then Volvo is doomed. I haven’t heard anyone singing the praises of any Lenovo box that was designed post-IBM. Volvo was already worse for wear after a few years in Ford’s control. Under Chinese “innovation?” I shudder to think.

  • avatar

    Guys & gals: I have been in the auto business all my professional life. I am old enough to remember when Japanese cars were the butt of the jokes. According to lore at that time, the Japanese copied everything, and their quality sucked. Sound familiar? Western automakers ignored them. Then suddenly, in the beginning of the 90’s, western automakers made pilgrimages to Japan to study quality production. Then, when Piech took over the helm at Volkswagen in 1993, he initiated a quality improvement program that originally was called “Kaizen” – that’s Japanese for “continuous improvement.” The automaker’s attitude towards China today is totally different. The automakers aren’t arrogant towards China. They are scared. They know what the Chinese are capable of. The large multinationals all work with them. Their technology is there. They know there won’t be a 20 year window for the Chinese to figure it out. The multinationals trained them, built their factories with them. There is a huge pool of labor that won’t run out as quickly as it did in Japan and Korea. Sure, western automakers push stories about bad quality. And they keep it a thinly disguised secret that their “Made in Germany” or “Made in the USA” already are up to the roof antenna in Chinese parts. Chrysler just stopped a small car project with Chery. They wanted to import the car to the US. They stopped it because Chrysler doesn’t have the cash, even for a cheap car.

    Germany developed a maglev train and was incapable of commercializing it. Where is the maglev train running? In China. China has more mobile phones and more internet users than America has people. The HP computer I’m typing this on, and that I’ve had for years, is made in China. In the meantime, Sony stuff is becoming the butt of “Sony timer” jokes back home in Japan. Are people complaining that cars are too expensive? Is Germany, look at today’s WAS, suddenly more concerned with price than quality? I recommend to everyone not to get lured into arrogance. Don’t mistake the real China for the Made-in-China water pressure cleaner that is as shoddy as Wal-Mart had specced and ordered it. It would be a rude awakening.

  • avatar
    PeteMoran

    Bertel, I agree with you on the threat, but “cheaper cheaper cheaper” is absolutely not sustainable.

    Electronic products have component lives less than 60% of equivalent product from 20 years ago (this does not include technology related exchange).

    The Chinese are not interested in making products that last longer and longer (as appears to be happening in cars in the US market; average fleet age is growing).

    The water cleaner I mention was from Karcher sold in Australia. I would say it’s absolutely the real China, along with Lenovo, GMC Tools, Benq etc on and on and on…..

    BTW, I work for a global organization advising manufacturers about quality, process, marketing and innovation.

    I would also add, I think it’s disturbing that the Germans (of all peoples) are beginning to put price ahead of quality.

  • avatar
    WEGIV

    @Bertel – I get that China is good at making high-tech stuff and has a huge semi-skilled labor force that may eventually evolve into the next Japan. However, you sorta missed my point. Until the HP laptop that you’re typing on and the maglev train in China is designed in China, it doesn’t matter where it was manufactured or installed. It’s not about manufacturing capability, it’s about initial design. Just because you have a factory populated with people who can do one job repeatedly to assemble something high-tech doesn’t mean that those same people collectively have the necessary technical knowhow to pick up where the engineers who designed it and the people who figured out the process to assemble and test it left off. That’s specifically why I mentioned Lenovo – any of the laptops designed after the last IBM engineered designs came out of the pipeline bear a striking resemblence to the previous generation, but there’s little things that make them inferior and buggy. It’s not hardware quality that’s the issue, but software bugs and designs that are derivative and show lack of attention to detail.
    Please don’t misinterpret my comments as arrogance or xenophobia or jingoism. The Chinese will get there eventually, and you’re right, it may not take 20 years, but it’s not going to happen overnight either. It’s been highly publicized that China is struggling with how to translate their reputation as the “world’s factory” into something more – to start building the corps of engineering knowhow to progress beyond implementing something designed elsewhere, or worse yet, making copies and knockoffs of existing designs and into actually innovating and synthesizing something entirely new. And unlike Japan, they can’t necessarily speed up the process by hiring away the best and brightest from other countries, because of the current limitations on personal freedom – I know for me, that’d be a price too dear no matter how good the money was.
    My point was simply that Volvo may be a casualty of that, because it won’t be competitive against other European brands right away – it was such a niche player that it wasn’t really best-in-class even under Ford. Whether it eventually comes around and competes alongside other brands is entirely dependent on how long China, inc. wants to run it at a loss until they get their engineering legs under them. Add to that the perception problems brought out by youtube clips of Chinese-designed vehicles disintegrating in crash tests, and even if quality isn’t an issue, will anyone really buy into the concept that a brand like Volvo with a reputation for being not only the safest cars on the road, but safety innovators will continue to be safe when owned by a Chinese conglomerate? The Big Three have a perception problem around quality right now too, and it’s one of the things that’s killing them, even if it’s not true anymore….

  • avatar

    @PeteMoran: BTW, I work for a global organization advising manufacturers about quality, process, marketing and innovation.

    Interesting. So am I. The two of us know: Quality is mostly a matter of quality management. If you demand quality and insist on it, you will get it in China. You just need to stay on top of them. If you insist on the lowest price, and look the other way, you’ll get what you pay for.

    And if that pressure washer was made by Karcher, then they screwed up on quality management. You can’t just send a drawing and a P.O. to China. You need to be there, work with them. I could give you several highly successful examples. The Japanese for instance are very good at getting quality out of China. So are companies like Bosch.

  • avatar
    michaelC

    @ WEGIV

    Re: Lenovo
    i have used IBM laptops for a very long time. My experience with Lenovo’s post-IBM products has been excellent. Of course, these are the business grade laptops. The consumer versions I have seen are not so good — but then that was true before Lenovo bought the business.

    Chinese manufacturers can and do make world-class equipment. It would be foolish to believe they cannot compete in automobiles given a solid brand and the deep knowledge and experience held in a company like Volvo.

  • avatar

    @WEGIV: That’s exactly the point I’m trying to make. China is full with cars designed according to Western specs. They can make them according to Western specs. Exactly that’s why they need the Western brand. With the brand, they can sell the Made-in-China western spec cars worldwide now. New generations of cars take 5 years to develop, on an accelerated schedule (I think it will slow down to 7.) There will be enough western know-how to buy. Look at Chery. Today’s WAS. They use a $1.45b loan to buy Western know-how.

    And unlike Japan, they can’t necessarily speed up the process by hiring away the best and brightest from other countries, because of the current limitations on personal freedom – I know for me, that’d be a price too dear no matter how good the money was. Excuse me? I have lived in China for 4 years now. Nobody has bothered me. As we all know, I sure speak my mind. They know where to find me. Nobody has knocked at my door at 4am yet. As a foreign expert in China, you are treated as royalty. Come on over, you’d be surprised. I am married to a Japanese and I am in Japan often. Foreigners are much better treated in China than in Japan.

  • avatar
    guyincognito

    I agree with Bertel. Get ready for the Chinese. If you think things are bad for the Big 3 now, think about their volume projections and the downsizing measures they are taking to meet them, and how much further down they’ll have to go once China enters the market.

  • avatar
    factotum

    @Bertel:

    Thank you for that condescending answer. Yes, I’ve heard of foreign currency. Have you heard that the dollar and the euro and the pound are going to be severely debased? That the money men are moving to gold, the yuan and the yen?

    China has enough T-bills that, if the US doesn’t default, will earn them more (worth less) dollars in interest than selling cars.

    So, I reject your argument. It’s more about tremendous gains in intellectual property and less about exports.

  • avatar

    @factotum: I’ve heard that the dollar rose drastically against the Euro since July and is range-bound since October.Doesn’t seem to want to break out of the 1.25 -1.29 range against the Euro. I’ve heard that the Yen rose due to the collapse of the Aussie/Kiwi carry trade. I’ve heard that the Yuan didn’t budge against the Dollar. I’ve heard that gold was over $1000 in March and it’s said to trad around $770 now. I’ve also heard that the T-Bill yield is next to zero.

  • avatar
    PeteMoran

    Bertel, I agree with what you are suggesting, but it’s not what I’m saying.

    ….if that pressure washer was made by Karcher, then they screwed up on quality management.

    It’s not that simple as part of my point is, Karcher have been happy to lower the quality on the insistence of consumers (real or otherwise) that things be cheaper cheaper cheaper, and now items like this are made twice.

    When one considers the resources of the planet, it is not sustainable. It’s happening with electronics and it would be frightening to think this might begin to happen with cars.

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