Volvo's Transformation under Geely: No Smooth Ride in the US?
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Case Code: BSTR494 Case Length: 20 Pages Period: 2010-2015 Pub Date: 2016 Teaching Note: Available |
Price: Rs.600 Organization: Zhejiang Geely Holding Group, Volvo Car Corporation Industry: Automobiles Countries: China, the US Themes: Overseas Mergers & Acquisitions, Turnaround |
Abstract Case Intro 1 Case Intro 2 Excerpts
Excerpts
About Volvo
The history of Volvo dates back to 1915 when its founders, Assar Gabrielsson (Gabrielsson) and Gustaf Larson (Larson), incorporated the company as a subsidiary of the Swedish ball bearing manufacturer, AB SKF. In 1924, Gabrielsson and Larson decided to manufacture a Swedish car which could withstand the rigors of the rough roads and cold temperatures in Sweden. The emphasis on durability was a feature of Volvo cars since its inception.
On April 14, 1927, Volvo Car Corporation, also known as Volvo Personvagnar AB (Volvo), was established in Gothenburg, Sweden, as an automobile manufacturer...
Acquiring Volvo
Li had always had the ambition of entering the luxury car segment and he felt that acquiring Volvo from Ford would help him fulfil this dream. During his research, he found out that Volvo had never been a strategic brand for Ford. This was because Ford had been a mass-market company and Volvo being a premium brand, had been out of the reach of many of the company's target consumers. In early 2002, Li started contacting Ford in a bid to convince them to consider his intention of buying Volvo seriously. He wrote letters to senior management of Ford and networked with them at auto shows but without any success....
Reviving Volvo
To revive Volvo, Li planned to take advantage of the booming Chinese auto market and bring the Swedish brand back to profitability. Zeng also believed that China was the crucial market for Li's effort to turnaround Volvo and offset its losses in Europe. In 2011, Volvo announced a US$ 11 billion strategic plan from 2011 to 2015 to turn Volvo into a global luxury brand, make China a major manufacturing market for it, and increase its sales from 373,000 vehicles in 2010 to 800,000 vehicles by 2020. Under the transformation plan, Volvo also planned to develop new products, increase its R&D spend, and upgrade technology. 27 In the new Beijing factory, Li aimed to manufacture 300,000 Volvo branded cars a year.....
The Results
Volvo's road to recovery was far from smooth. In 2013, it reported that for the year 2012 it had recorded a drop of 6 percent in vehicle sales due to intense competition in the auto industry. Analysts pointed out that Volvo had struggled to gain momentum for a revamp aimed at targeting customers in the hugely competitive Chinese auto market and keeping up with bigger competitors. The company's sales in China in 2012 declined by 11 percent to 41,989 cars from 2011. The decline was attributable to the fierce competition in the imported luxury segment and due to termination of the S40 model....
Tapping China's Luxury Car Market
In August 2014, Volvo unveiled its first car under Geely's ownership – the XC90. Commenting on the launch, Bin Zhu, China forecast-team manager at consultancy, LMC Automotive, said, "If Volvo is successful, it will have a great significance on Chinese automakers. It could boost their confidence and set an example for the whole industry." It was observed that more number of cars were produced and sold in China but the domestic brands in the country had failed to make an impact in international markets. Even in China, most of the consumers drove cars made by foreign automakers rather than ones produced by domestic car makers.....
Looking Ahead
While Volvo was reviving its operations and planning to make a mark in the US market, the slowdown of the Chinese economy added to its troubles. However, defying the slowdown, Volvo boosted its earnings goal for 2015 stating that the sales in the European market would outweigh the slowdown in China. According to Samuelsson, "The price situation in China is getting tougher. The important thing is to see the strength of having Volvo global. We can balance out softer development in China." Volvo believed that the company’s roll out of the XC90 in late-2015 and the S90 sedan in 2016 would drive sales in China despite a slowdown in the economy. The S90 sedan featured semi autonomous driving, in addition to providing the utmost comfort and luxury. Commenting on Volvo's ambitions, Stuart Pearson, analyst, Exane-BNP Paribas, said,...
Exhibits
Exhibit I: Geely's Milestones
Exhibit II: Geely's Organization Chart
Exhibit III: Geely's Five-Year Financial Summary
Exhibit IV: Volvo's Five-Year Financial Summary
Exhibit V: Volvo's Sales and Market Share in the US
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