Chinese Volvo

We spent the evening watching a news program on CCTV International, a Chinese-based television network. The perspective on world events was much broader than anything you would see on a domestic US broadcast, or even CNN. The news broadcast, headed by an Englishman but run and reported by Chinese nationals, was followed by a three-man panel discussion show in which the host and his guests discussed the acquisition by Geely Automobile of Volvo. Largely unnoticed in America, Volvo became a Chinese company on Sunday (the deal will close in the third quarter).

If the television host's reaction is any indication, the Chinese view of the takeover of Volvo is that China has stepped up onto the world's automotive stage in a big way. China is now the largest automobile market in the world, and is eager to start making cars that the rest of the world also might want to buy. Chinese designs are famously derivative, to put it politely, and are notoriously poorly designed and built. The acquisition of Volvo, in Chinese view, will go far in raising the stature of the Chinese auto industry. Volvo is viewed as a luxury brand known for safety and quality, even though its products are not very well known yet within China itself. Geely, which is not a very prominent domestic maker, is seen as learning a great deal from Volvo's technology while enjoying the halo effect of the worldly Volvo name.

In fact, commentators believe one of the most important tasks for Geely will be to avoid damaging the Volvo brand. Unfortunately, to Westerners, this may be a nearly impossible task. Many car enthusiasts I am in contact with are deeply suspicious of Chinese carmakers, and believe that Volvo will suffer both in reputation and in actual product development. It will not surprise me at all if Volvo's sales in the U.S. fall precipitously in the next few years. Volvo not only faces the prospect of assuring American customers that Chinese ownership will not adversely affect its design and construction capabilities, but the sale by Ford and business losses over the last couple of years have delayed product development. For instance, the XC90 should have debuted a redesign this year; instead, it has received only minor cosmetic updates. The redesign has been pushed off a few years, which by the time it arrives will be years behind its competitors. This may do as much damage to the Volvo brand as fears about Chinese design and manufacturing prowess.

Even though Volvo will purportedly retain its Swedish management, the Chinese commentators speak of the buying power of the huge Chinese market causing the Volvo product line to change to favor smaller, more economic cars to suit the Chinese market, rather than the larger, luxurious models that have defined the brand for years. In this flexing of the muscle by the Chinese domestic market can be heard not just a potential makeover of the Volvo brand but the coming dominance of the Chinese economy.