Five years ago, hardly anyone ever thought that Chinese and Indian car manufacturers would acquire premium European and British brands like Volvo, Jaguar, Land Rover and Saab, giving them a second chance. But that is what happened after American auto giants General Motors, in the throes of bankruptcy and Ford Motor Co., downsizing to streamline operations, discarded their less marketable brands.
GM cast off Pontiac, Mercury, Hummer, Saturn and Saab while Ford unloaded Jaguar, Land Rover and Volvo. Chinese and Indian automakers with deep pockets saw the fire sale as an opportunity to become major players in the global car market. There were no takers for Pontiac, Mercury and Saturn, which landed on the scrap heap, while the bid of a Chinese firm (not an auto manufacturer) to buy Hummer fell through.
In 2008, Tata Motors Limited, India’s largest automaker, snapped up the storied British brands Jaguar and Land Rover (JLR) for US$2.3 billion. This was ironic because Tata is best known for the world’s cheapest car, the $3,000 Nano microcar and for commercial vehicles and low-cost small-to-medium passenger cars for the Indian market. No synergies there, so few were surprised when JLR lost more than $500 million in its first year under Tata.
But in the quarter ending Dec. 31, 2010, JLR posted earnings of $443 million and last March, Land Rover’s US sales leaped 26 percent from a year earlier while European sales reached nearly 9,000 units in the first two months of 2011. The nascent turnaround is attributed to Ford’s investing billions of dollars to restructure JLR and develop a freshened lineup of sleek models after acquiring the two brands in 2000.
$2B MORE
Tata Motors itself poured another $2 billion in JLR after its acquisition and will open Land Rover’s first assembly plant in India later this year, hiring some 1,000 engineers, together with plans to build cars in China. JLR has to make big technology investments to comply with stricter emission regulations in the US and Europe. To remain viable in the longer term, JLR has to sell 500,000 cars a year globally, or double the current volume. Tata has to position JLR in India’s still nascent luxury market as an alternative to Mercedes-Benz, BMW and Audi.
While JLR appears to be on its way to success under Tata’s wing, two Swedish brands—Volvo and Saab—are still feeling their way around their new Chinese owners. Volvo was acquired by Zheijang Geely Holding Group Co. from Ford in August 2010, placing a global automaker in Chinese hands for the first time. Li Shufu, the hard-charging chairman of Geely, is the son of farmers, a self-made billionaire entrepreneur who created several successful businesses in the late 1970s before converting his home appliance factory into Geely Automobile, which produced its first model in 2001.
In contrast, Stefan Jacoby, Volvo Cars’ German-born CEO who came from Volkswagen AG, is reserved and cautious. Aside from the clash of corporate cultures and management styles, friction arose between the two men when Li wanted to quickly build three Volvo assembly plants in China, starting with Geely’s newly completed plant in Chengdu, which would be revamped to kick-start Volvo’s large-scale production in China.
And to compete head-on with, BMW, Mercedes-Benz and Audi, which were outselling Volvo in China, Li wanted Volvo to upgrade its product lineup with bigger, flashier, more luxurious cars that would appeal to the rapidly growing new rich population in China, where luxury car sales soared 49 percent in 2010. He also aimed to bolster Volvo’s status as a global luxury brand on par with the three German marques since Volvo is regarded as almost but not quite a premium brand. Li said that Volvo has to understand the tastes of Chinese customers for its revival plan to succeed.
TRADITION
Jacoby, on the other hand, advocated a less aggressive, less risky approach and adherence to Volvo’s core tradition of building safe, understated midsize models like the S80 sedan and the XC90 crossover/SUV to preserve the brand’s quality and image. Instead of transforming Geely’s existing manufacturing facility in Chengdu, Jacoby favored building a new Volvo plant there, using Volvo production systems to allow Volvo to distance itself from Geely and uphold its brand image. Slowly, one factory at a time, was Jacoby’s advice.
After a series of meetings in Beijing and Gothenburg, Li and Jacoby managed to reconcile their competing visions for Volvo’s future and announced an ambitious new global strategy last February. Volvo, under Geely, will invest $10 billion over the next five years to upgrade its products and technology, turn the Swedish carmaker into a “true” global luxury brand, make China Volvo’s major manufacturing base and second home market with Shanghai as its Chinese headquarters, spend much more on advertising, double the number of dealerships from 100 to 230 by 2015 and increase global sales to 800,000 cars a year by 2020, more than double the 373,000 it sold last year.
A new Volvo assembly plant in Chengdu will start producing in 2013 with an initial capacity of 125,000 cars a year. Li said that Volvo is considering making bigger cars that will be available only in China. He added that Geely plans to make Volvo a completely independent automaker and give its executives independence in decision-making.
At the Shanghai Auto Show last April, Volvo displayed an eye-catching new concept luxury car that symbolized the compromise reached by Li and Jacoby on Volvo’s global turnaround strategy.
Meanwhile, Dutch automaker Spyker Cars, which bought Saab Automobile from GM last year, has been rescued from its cash flow problems by two Chinese companies—Zhejiang Youngman Lotus Automobile and Pang Da Automobile Trade —which are infusing a total of $351 million for equity stakes in Spyker. Although Saab is considered a premium European brand, this will be the first time it will enter China and it has never been marketed in the Philippines.
(With reports from Reuters, Bloomberg, WSJ and IHT)