Volvo enters new phase as it strives to become premium alternative to German giants

25 May 2017

25 May 2017

Strong growth and reinforced foundations at Volvo has led it to eye a potential listing as Chinese parent group Geely Automotive’s European presence continues to grow rapidly.

When Ford sold Volvo Cars to Geely in 2010, many expected mid-selling Volvo to follow domestic rival Saab into bankruptcy. However, with a smart sale by Ford, including involvement in the crucial XC60 SUV, its fortunes turned.

This, combined with a recognition by Geely founder and main owner Li Shufu of the great advantage the Chinese manufacturer had through accessing European expertise, led to heavy investment and trust in the company. And perhaps most vitally of all to the revival, Li trusted the helm to the intelligent stewardship of Volvo Cars CEO, 66-year-old Hakan Samuelsson in 2012.

With sales reaching a record 534,000 cars last year, Volvo is now looking towards the next phase of its future as it aims to go truly global and take its place alongside the premium German trio of Audi, BMW and Mercedes. Each of these sell around 2 million vehicles a year, around four times that of Volvo and British rival Jaguar Land Rover, which was also successfully sold by Ford in 2008.

Samuelsson’s contract has now been extended by a further three years until 2020 – the year which for a long time has been Volvo’s target for selling 800,000 cars, more than double that at the start of the decade.

It is also planning to launch its first fully electric car in 2019, and a self-driving vehicle in 2021. Its return on sales last year reached 6.1%, compared to 9% for BMW and Mercedes.

It still has plenty of room to grow, with its dominant market remaining Western Europe, accounting for 39% of sales according to its own figures, followed by parent Geely’s China (17%), the US (15%) and home market Sweden (13%).

Volvo believes a key strength is its nimbleness compared to the vastness of its German rivals. Samuelsson is particularly proud of his top management team, almost half of which are now non-Swedish and three of the 15 are female.

While its model line-up is much smaller than that of its German rivals, with notable successes including the XC60 and XC90 SUVs and its 90-series of big sedan and estate cars, it has been remarkably successful in its endeavours to surge its prices towards premium levels, and in the introduction of luxury extras including crystal glasses and cigar humidors.

Samuelsson is quick to praise the independence owner Geely has entrusted in the marque in contrast to the constraints imposed on it by previous owner Ford. He told the Financial Times: ′We have done the job. But we would never have been able to enter into China and make it our second home market, we would never have had the financial backing we needed four or five years ago. The third thing: they trusted us and gave us the freedom that was necessary to realise the transformation process.’

Samuelsson has decided to make Volvo act like a listed company, issuing quarterly reports and holding press conferences. He says that Volvo has benefitted from the increased scrutiny, which has spurred it to constantly sharpen its strategy. While Volvo’s management is keen on an IPO (initial public offering), Samuelsson says there are currently no plans and it is ultimately chairman Li’s decision, with Geely being more cautious about the concept. It is not needed to raise further funds, which could be financed through more debt or convertible equity sales, both of which Chinese investors are favourable towards.

However, two high-level sources have said that not all is rosy, with tensions rising between Volvo and Geely over the sharing of technology. Volvo is concerned that Geely is more concerned about maximising its own brands rather than putting the same focus on all the brands across the group. Geely is looking to take full advantage of its growing presence in Europe, which besides Volvo includes recently acquired UK engineering and sports car operations from Lotus and Proton in the UK, as well as the London Taxi Company with its new electric factory in Coventry. Geely is also preparing to place itself firmly in Europe in earnest with the launch in 2019 of the parent company’s Lynk&Co marque, which is targeted at younger buyers.

Cooperation between Geely’s divisions is already occurring, with Volvo having designed the three-cylinder petrol engine which extends the range of the London Taxi Company’s electric cars.

Photography courtesy of Volvo

 

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