Geely Leans on Struggling Volvo 吉利依靠处于困境中的沃尔沃
While most of China’s top automakers are relying on partnerships with major global brands to help get them through a domestic downturn expected to last for the next 1-2 years, Geely (HKEx: 175) is taking an interesting approach by turning to the struggling Volvo, with plans for a new joint venture. (English article) First off, I have to say that this is the first time I’ve heard of a company forming a joint venture with itself, since Volvo has been 100 percent owned by Geely since the Chinese automaker’s landmark purchase of the Swedish company 2 years ago. But perhaps more importantly, Volvo is a struggling, second-tier name that lacks the resources to be an effective partner for Geely, which itself is trying to bolster its China market position even as it struggles under a mountain of debt that it took on to buy the Swedish car maker. Let’s look quickly at this newly announced deal, which will see Geely and Volvo team up to develop a new brand for the China market, following a similar strategy by General Motors (NYSE: GM), which has launched a new brand, Baojun, with Chinese partner SAIC (600104), specifically for the China market. The big difference in this case is that Geely itself is already a well known Chinese brand, and I’m not sure why the company — whose resources are already quite stretched — is choosing to develop a new brand instead of focusing on reviving both its own Geely name as well as Volvo’s. Geely previously announced plans to set up 2 major new Volvo car manufacturing plants in China in a bid to boost its sales, and some of the reports are saying the establishment of this new joint venture may be partly designed to satisfy regulatory requirements in order to get the 2 new factories approved. Still, the plan to introduce a new brand, and also plans to develop green cars at the joint venture, seem like a total waste of resources for both Geely and Volvo, and will only lead to more operational and financial distractions just when the company should be focusing on its core Volvo and Geely brands. In fact, this latest plan is just the latest sign of a company in disarray following the Volvo purchase, which sadly is becoming normal for Chinese firms that buy struggling, major global assets at bargain prices, only to discover it’s much easier to buy such assets than to repair them. That said, this development of a new brand looks completely misguided, and is just the latest step of Geely’s downward spiral that could seriously damage the company.
Bottom line: Geely’s plans to form a joint venture with its Volvo arm is the latest sign of disarray for the former high-flyer, boding poorly for its future over the next 2-3 years.
Related postings 相关文章:
◙ Car Sales: Domestics Down, But Not Out 汽车销量：国产车下降，接近拐点
◙ Cars: US, Germany Clobber Japan, Domestic Rivals 美德汽车在华完胜日本和中国车商
◙ Geely Choking on Volvo Debt, Weak Sales 吉利债台高筑
