Serving the World's Largest Emerging Automobile Market
Home > M&A's > Volvo seen as U.S. foothold for Geely

Volvo seen as U.S. foothold for Geely

DETROIT – Volvo’s 320 dealers in the U.S. look ahead to two long-term benefits for the Swedish luxury brand’s owner – China’s Zhejiang Geely Holding Group.

The short-term benefit consists of the first acquisition by a Chinese automaker of a western vehicle brand with a franchised dealer organization.

But the second benefit is more significant for a Chinese automaker – providing Geely with an established dealer body that could be a launching base for Geely’s vehicles when–and if–it decides to export cars to the U.S.

Doug Speck, CEO of Volvo Cars of North America, said Geely has provided assurance that all Volvo dealers will be retained by the new owner and franchisor. What’s more, they will not be asked to reapply for franchises.

“We and they will continue using the existing dealer network,” Speck said in an interview at the New York Auto Show, “as well as retaining the present management, including me.”

Geely chairman Li Shufu, in an e-mail sent to Volvo dealers, gave the no-change assurance as he welcomed the dealers.

Dealers who e-mailed the Geely CEO in return said they got the impression that they would be considered as first-tier candidates for Geely vehicle franchises when the Chinese automaker decides to open an export market in the U.S.

Volvo dealers reported an average profit of $500,000 in 2009, according to Speck, up from $300,000 in 2008, according to Speck.

The dealers’ return on sales rose 2.4 percent last year from 1.1 percent in the previous year. Of the 320 dealers, 130 hold exclusive Volvo franchises, not dualled with other brands.

Volvo sold about 20,000 vehicles in China last year, a third of the 61,135 units sold in the U.S. Its U.S. sales rose in the first quarter of 2010 to 14,006 units from 12,624 a year ago.

Volvo’s lineup is being trimmed this year with the cessation of the full-size V70 station wagon. The Swedish brand has exported wagons to the U.S. since 1957 and will produce the midsize V50 wagon for another year.

“Customers are switching from wagons to crossover models in the U.S.,” Speck said, “and the size of the segment is really tanking. We’re looking at phasing out the V50 wagon after the 2011 model year.”

Volvo wagons share parts with Ford models, but this relationship is likely to wind down over the next few years, Speck said.

Geely paid $1.8 billion to Ford for Volvo, including $1.78 billion in cash and $200 million in a note for Volvo’s intellectual property.

| |

Leave a Reply