Tuesday, February 21, 2012

Volvo is Geely, and Geely is Volvo

It was only a matter of time.

The privately-held Chinese automaker Geely has announced that it will be forming a joint venture with its subsidiary Volvo.  As you may remember, Geely’s owner, Li Shufu conducted a high-profile purchase of the Swedish automaker Volvo from Ford in 2010.

The concern at the time had been that Geely simply wanted to strip away Volvo’s intellectual property for itself, but Li Shufu assured observers that the two entities would remain separate: “Volvo is Volvo, and Geely is Geely.”  And indeed, the purchase was structured so that both the Hong Kong-listed Geely Motors and Volvo are both subsidiaries of a holding company controlled by Li Shufu.  (In other words, Geely doesn’t own Volvo, technically, Li Shufu does.)

So why is Geely now forming a JV with Volvo?  Because it has to in order to build cars in China.  China’s rules require that any “foreign” automaker that wants to assemble cars in China may only do so through a joint venture with a Chinese automaker, and the foreign entity may hold no more than 50 percent of the JV.  Since Volvo is still headquartered in Sweden, it is considered foreign.

The icing on the cake for China here is that, like all other foreign automakers who have sought permission from Beijing for expansion or establishment of a new venture anytime during the past two years, Volvo is also being required to “assist” Geely in building a Chinese-branded car.

Until now, this has only applied to state-owned enterprises because only state-owned enterprises had joint ventures with foreign automakers (with the exception of a small JV between BYD and Daimler to develop electric vehicles).  The assumption had been that the SOEs, which had been dragging their feet in terms of developing their own brands, would be “given” slightly out-of-date technology by their foreign partners.  They would then produce cars under a Chinese brand name using the foreign technology and designs.  (I have previously written about this phenomenon, which I refer to as "sub-brands" or “JV Brands.”)

What is interesting here is that Geely, unlike the SOEs cannot be accused of “dragging its feet” in developing Chinese brands.  Indeed, Chinese brands are all Geely has ever made!

So what does this mean for Volvo?  What it means is that Volvo will simply be handing over technology onto which will be slapped a Geely-owned Chinese brand name.

Perhaps Li Shufu would now like to change his quote to, “Volvo is Geely, and Geely is Volvo.”

1 comment:

  1. Welome to the China auto industry...where truth is stranger than fiction!


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