Volvo Car Group’s newest, fanciest car has a built-in refrigeration compartment, handmade crystal Orrefors glassware — and the hopes of China’s premium auto-manufacturing industry riding on it.
Zhejiang Geely Holding Group Co., Volvo Cars’ Chinese owner, unveiled upgraded versions of its S90 sedan, including the top-of-the range S90 Excellence, in Shanghai on Wednesday. The executive vehicles will be made in Daqing, China’s oil capital, and represent the latest product of a reinvigorated research and development program that’s bolstered profit and helped drive record sales for the Swedish icon.
Eventually, production of the premium cars will move from Europe to China, where Geely is building a third factory, in Luqiao, for making both Volvos and mid-tier Lynk & Co.-brand cars, the company said in a statement. The changes are part of billionaire Li Shufu’s plan to make China a global manufacturing and export hub for its new range of cars.
“China will play an increasingly important part in our global manufacturing ambitions,” said Hakan Samuelsson, Volvo’s chief executive officer, in the statement. “Our factories here will deliver world-class products for export across the globe in coming years, contributing to our objective of selling up to 800,000 cars a year by 2020.” One-third of Volvo’s global production will be out of China by 2020, Samuelsson said at the event to unveil the new model.
Geely bought Volvo in 2010 for $1.5 billion, about a third of the price Ford Motor Co. paid a decade earlier. Under Ford’s control, sales peaked in 2000 and started to fall from 2006. Volvo, known for safety after inventing the three-point seatbelt, made a $1.8 billion loss the year Li took it over.
The 89-year-old automaker returned to profitability in 2013, the year after industry veteran Samuelsson was appointed CEO. Last year, it became the first Western automaker to export a premium China-made car to the U.S., with the S60 Inscription.
Volvo is poised for another record year of sales and operating profit will “improve substantially” in 2016, Samuelsson, 65, said in a statement last Thursday. The new S90 goes into production this month, with the S90 Excellence following next year. Both will be on show at the 2016 Guangzhou Motor Show later this month.
“Li Shufu managed to get Volvo back from the brink,” said Jochen Siebert, the Singapore-based managing director of JSC Automotive Consulting. “Geely has already gained much from the acquisition by getting world-class people on board and much more by getting technology for the next generation of cars.”
Since the takeover, Volvo has invested $11 billion through a loan from China Development Bank to modernize production and build plants in the U.S. and China, adding to Volvo’s sites in Gothenburg, Sweden, and in Ghent, Belgium. The first car wholly developed under Geely stewardship was the XC90 sport utility vehicle that’s helped to boost sales and profit margin since its 2014 release.
Since the ownership transfer, Volvo has been beefing up its presence in Europe and the U.S., while expanding in developing countries, such as China, now the manufacturer’s biggest market.
Nowhere are the change in Volvo’s fortunes more appreciated than in Gothenburg, where the company has its global headquarters, about 14,000 staff, and its historical ties are venerated in a museum.
“Volvo could probably not have asked for a better owner,” said the city’s mayor, Ann-Sofie Hermansson, a former Volvo employee and union official, in an e-mail. “Geely has not just done impressive R&D investments, it has also had the ability to lift the knowhow and the creativity that exists at the company.”
Running as Premium Brands
At the time of the Geely takeover, the first of a premium global carmaker by a Chinese company, the auto industry was reeling from a slump in demand following the global financial crisis. Ford put Volvo on the block in 2008 to shed overseas luxury lines to focus on its namesake brand. Its Jaguar and Land Rover brands were sold the same year to India’s Tata Motors Ltd.
“For Volvo — as well as Jaguar Land Rover — it has paid off for them to get away from being part of a large company, running alongside mass producers as premium brands,” said Ferdinand Dudenhoeffer, director of the Center for Automotive Research at the University of Duisburg-Essen in Germany. They were “lucky to have investors that provided the capital to let them get on with what they were good at — develop cars — and not expect immediate returns.”
Under Geely, Volvo has pushed ahead with plans to renew its entire product lineup and expand into compact cars. Last year’s operating margin tripled to 4% as the XC90 helped offer an alternative to customers bored with buying another Audi Q5 and BMW X5. That puts Volvo about half-way to reaching a target of lifting its return on sales in line with other luxury carmakers, like BMW AG.
Sales last year reached a record 500,000, with hopes of hitting 800,000 by the end of the decade. That’s still dwarfed by BMW’s 1.9 million sales of its namesake brand last year, and shows the comparative advantage of bigger carmakers as they shoulder increased spending demands for electric and self-driving cars.
To help share some of the costs, Volvo in August teamed up with ride hailing company Uber Technologies Inc. in a $300 million pact to develop fully autonomous cars ready for the road by 2021. Its first all-electric model is set to hit showrooms in 2019, in line with other carmakers like Mercedes-Benz’s EQ coupe-style SUV.
The first carmaker to introduce side airbags, new Volvo cars feature driver assistance systems that help prevent collisions at intersections, keeping a car from turning into oncoming traffic. They also use radar and cameras to detect large animals, cyclists and pedestrians, and help drivers react.
The new S90 will be the most premium car ever made in China, Volvo said Wednesday.
“The first thing you notice in the S90 Excellence is that we have removed the front passenger seat and replaced it with what we call the Lounge Console, designed to meet the chauffeur-driven executive customers’ need to relax or work while on the move,” Thomas Ingenlath, the Swedish carmaker’s design chief, said in the statement.
Features include a full panoramic roof, foldout worktables, a heated and cooled cup holder, and a built-in entertainment system with a large display for work or entertainment purposes. In contrast, Geely, which is based in Hangzhou city, began as a private, budget automaker in 1997 under Li’s vision that a car is just a sofa on wheels.
“Under Geely, Volvo eventually gained much more independence and also R&D funds, and has come up with much more compelling car models in the recent years,” said Siebert at JSC Automotive. “They have managed to find a modus operandi, and now things are looking much better.”
After concluding the deal in 2010, Li said that he saw Volvo as a tiger that he vowed to set free back to the mountains. The heart of the tiger was in Sweden and Belgium, and its paws should extend across the world, he told reporters.
Under Volvo’s manufacturing plan announced Wednesday, vehicles will be made in three Chinese, two European and one American plant on either its Scalable Product Architecture (SPA) or Compact Modular Architecture (CMA) platforms.
“It’s absolutely impossible to grow in a country like China based on exports from Europe. It’s too expensive,” Samuelsson said in an interview with Bloomberg TV in Shanghai. “You have to be here.”
Bloomberg News, with assistance from Stephen Engle.
