Ford, Volvo Step on the China Accelerator 福特与沃尔沃拟在中国大幅扩张

By newsdoug on April 6, 2012

Volvo to shoulder China expansion China’s auto market is showing all the signs of a rapid slowdown after a massive boom that saw it overtake the US as the world’s largest auto market in 2010, but don’t tell that to Ford (NYSE: F) or Volvo, which are happily discussing their latest expansion plans with local and international media. In a way, I have to admire both of these companies and many of their foreign rivals for focusing on the longer-term future rather than the next 1-2 years, which are likely to see China’s auto market post low- to middle-range single digit percentage growth as Beijing slams the brakes on the nation’s overheated economy to try to steer it to a soft landing. But at the same time, Volvo’s plan in particular looks fraught with risk, as it aims to build up a massive new manufacturing base and roll out a new brand with its Chinese parent, Zhejiang Geely, despite little or no name recognition among most Chinese consumers. Let’s take a look at the Volvo news first, which has executives at the Swedish firm finally mimicking its Geely parent by saying it wants to become a Chinese luxury brand and plans to spend $11 billion over the next few years to reach that goal. (English article) Geely founder Li Shufu had always promoted this vision for Volvo since his company purchased the money-losing Swedish brand 2 years ago, but Swedish executives at the company had resisted that vision, preferring to maintain the more mainstream image that Volvo had in the rest of the world. In this latest report, a Volvo executive is also saying the Swedish company will shoulder most or all new investment for its drive into China’s luxury car market. Those remarks are interesting because they seem to indicate that Geely, itself burdened by huge debt from the original Volvo purchase, is trying to add some distance from the massive Volvo expansion plan by making the Swedish company assume all the new debt that such an expansion will require. I don’t want to be too cynical, but such a move seems to imply that if the Volvo plan ultimately fails, responsibility for all its debt will be assumed by Volvo itself, meaning Geely could simply close the unit or let it file for bankruptcy reorganization if its ambitious plan doesn’t succeed — a very distinct possibility. Moving on to Ford, foreign media are reporting the company will spend $600 million to expand capacity at one of its passenger car factories by 60 percent, as it aims to grab more share in the China market from more established players. (English article) This plan seems a bit more modest than Volvo’s, and is part of more gradual approach to China by Ford, which came to the market relatively late through a joint venture with Chang’an Auto and is now attempting to catch up by taking share from both domestic nameplates and global rivals like GM (NYSE: GM) and Volkswagen (Frankfurt: VOWG), which came much earlier. At the end of the day I do like the fact that both Volvo and Ford are investing for the future, though I also think the Volvo plan may be a bit too ambitious and could easily see the company filing for bankruptcy in the next 5 years.

Bottom line: New expansions by Ford and Volvo in China auto are aimed at longer-term development, though Volvo’s plan looks overly aggressive and could end in financial collapse.

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