Skip to main content
Sister Publication Links
  • Automotive News
  • Automobilwoche
  • Automotive News Canada
  • Automotive News Mexico
Subscribe
  • Subscribe
  • Newsletters
  • Login
  • HOME
  • News
    • Photos
    • Automakers
    • Suppliers
    • Sales By Market
    • Environment/Emissions
    • Latest Launches
    • Sales and Retail
    • Car Cutaways
    • On The Move
    • China's Baoneng boosts stake in Qoros
      Citroen says Ami One two-seater is a new concept for affordable mobility
      EU, Japan back automatic braking regulation
      German auto jobs at risk from hard Brexit
    • Driv spinoff to build smart suspension systems
      Faurecia hopes to outperform uncertain market
      Plastic Omnium posts strong results despite global production slump
      Sweden's Veoneer forecasts flat sales in 2019
    • Porsche, Alfa Romeo and Nissan take big hits as European sales fall 5% in January
      Russia sales rise nearly 1% in January despite VAT increase
      Audi, Fiat, BMW among losers as Spanish sales fall 8% in January
      Volvo, VW gain sales in UK market down nearly 2% in January as diesel plunge continues
    • Volvo blurs the wagon/SUV line with the V60 Cross Country
      view gallery
      7 photos
      New Range Rover Evoque designed for the 'urban jungle'
      Range Rover Evoque gets hybrid tech to cut emissions
      Tarraco gives Seat a flagship SUV to help retain wealthy buyers
    • Ferrari will unveil V-8 hybrid supercar this year
      Mercedes outsold Audi in China last month on sedan demand
      Tesla's Musk visits Norway to review delivery delays
      Europe's minicar segment to shrink as VW, PSA mull axing their smallest cars
    • Suppliers to the new Porsche Panamera
      Suppliers to the new Peugeot 5008
      Suppliers to the new Seat Ibiza
      Suppliers to the new VW Touareg
    • Ford names new chief government relations officer
      Daimler appoints Airbus exec as finance chief
      VW China CEO to join VW brand's management board
      Mini USA names marketing veteran McKenna head of product planning
    • Geneva Photo Gallery
    • Beijing Photo Gallery
    • Frankfurt Photo Gallery
    • Paris Photo Gallery
    • Shanghai Photo Gallery
  • Auto Shows
    • Geneva Auto Show
    • Frankfurt Auto Show
    • Paris Auto Show
    • Beijing Auto Show
    • Shanghai Auto Show
    • Bugatti to unveil $18 million special edition named after Ferdinand Piech, report says
      Subaru Viziv Adrenaline concept to debut at Geneva
      Citroen says Ami One two-seater is a new concept for affordable mobility
      China EV startup Aiways will launch SUV in Europe
    • Bugatti considers four-door model for 2024
      Frankfurt's best and wurst
      Frankfurt photo booth
      Merkel says German car industry must work to rebuild trust
    • Vietnam's first automaker now has names for first sedan, SUV
      China's GAC likely to debut in Europe with an EV
      Bugatti mulls SUV as part of broader model range
      Ferrari Monza supercars will earn $755 million in revenue
    • VW will launch SOL EV brand in China with subcompact crossover
      view gallery
      9 photos
      BMW will export iX3 electric SUV to Europe, U.S. from China
      view gallery
      9 photos
      BMW's iX3 concept heralds electric expansion
      view gallery
      11 photos
      Mercedes seeks to keep China luxury lead with stretched A class
    • view gallery
      7 photos
      Jeep finds green groove with plug-in hybrid SUV concept
      Foreign automakers embrace China as EV development hub
      China lands Chevy Volt in a Buick wrapper
      Ferrari, Aston Martin, Maserati sales soar in China as rich snub austerity push
  • Opinion
    • Blogs
    • Luca Ciferri
    • Douglas A. Bolduc
    • Paul McVeigh
    • Ford's 'redesign' for Europe emphasizes SUVs, LCVs
      Russia's Google, Yandex, impresses with its self-driving tech
      Renault Twizy gets new life in Korea as motorcycle replacement
      Why the car is no longer the ticket to freedom
    • Ford's 'redesign' for Europe emphasizes SUVs, LCVs
      Russia's Google, Yandex, impresses with its self-driving tech
      Renault Twizy gets new life in Korea as motorcycle replacement
      Why the car is no longer the ticket to freedom
    • Ford's 'redesign' for Europe emphasizes SUVs, LCVs
      Russia's Google, Yandex, impresses with its self-driving tech
      Renault Twizy gets new life in Korea as motorcycle replacement
      Why the car is no longer the ticket to freedom
    • Ford's 'redesign' for Europe emphasizes SUVs, LCVs
      Russia's Google, Yandex, impresses with its self-driving tech
      Renault Twizy gets new life in Korea as motorcycle replacement
      Why the car is no longer the ticket to freedom
  • Maps
    • E-Car & Component Map of Europe
    • Powertrain Map of Europe
    • Assembly Plant Map of Europe
  • Supplements
    • Connected Car
    • Talk From The Top
    • BMW 100
    • Car Cutaways
  • EVENTS & AWARDS
    • Automotive News Europe Congress
    • Rising Stars
    • Eurostars
    • Leading Women
  • E-MAGAZINE
    • Read the latest issue
    • Download the app
    • Subscribe
  • More
    • E-Magazine
    • Contact Us
    • 2019 Media Kit
    • About Us
MENU
Breadcrumb
  1. Home
  2. Automotive News Europe
April 17, 2017 01:00 AM

How Volvo defied the odds

Beating forecasts and raking in cash under Chinese ownership

Nick Gibbs
  • Tweet
  • Share
  • Share
  • Email
  • More
    Print
    CEO Hakan Samuelsson has led a revival at Volvo. The brand's comeback can be attributed in part to a carefully engineered sale of Volvo by Ford to China's Geely. In addition, Ford helped develop Volvo's best-selling XC60.

    "It shouldn't be possible for the bumblebee to fly, but it does. This falls into the same category." For Hakan Samuelsson, Volvo CEO and embodiment of the Swedish distaste for boastfulness, this borders on swagger.

    Samuelsson was answering a question on the sidelines of the Geneva auto show in March: Why had Volvo succeeded when conventional automotive wisdom rated its chances of survival as slim at best when Ford Motor Co. sold the brand to China's Zhejiang Geely Holding Group in 2010?

    Surely, ran the wisdom, a premium automaker of middling volume couldn't survive without the benefit of luxury pricing or a big partner with scale synergies.

    "Maybe what I've learned is that conventional wisdom is not always correct," Samuelsson said. "You can be big or small or whatever. But you can always be better."

    Volvo's success can be attributed to smart decisions, a tactfully handled sale by Ford, seductive vehicle design and an advantageous introduction to the world's largest car market, China.

    Geely, contrary to early fears, sensibly kept Volvo anchored in its Swedish homeland but also gave it access to Chinese finance, paid for a new Chinese manufacturing base and generally gave it the security it needed to think big.

    Hakan SamuelssonVolvo CEO

    "BMW is doing their best to design their vehicles to look like Scandinavian furniture inside. Why do we let them do that? That's our territory. They could design their vehicles like a Bavarian beer hall."

    Photo

    Volvo is now a success by any measure. Global sales last year stood at 534,127, almost exactly 200,000 units more that it sold in 2009. The figures make Volvo's ambitious statement made back in 2011 to grow sales to 800,000 by 2020 look modest. 

    The cash is pouring in. In 2016 Volvo's operating profit rose 66 percent to 11 billion Swedish crowns ($1.25 billion) on revenue of $20.2 billion, giving it an operating margin of 6.1 percent. It has cash reserves of $4.3 billion, up from $2.9 million in 2015. 

    "We generated a lot more cash than anticipated," Samuelsson told journalists at Volvo's annual results press conference in February. "Three years ago, no one would have expected we would be at this level this fast." 

    In the past Volvo mainly sold cars to northern Europeans and a dwindling band of die-hard fans in the North American snow belt. Now China is the automaker's top market, with 90,930 sales last year, followed by the U.S. 

    Volvo's global sales march is being shadowed by its expanding manufacturing footprint. Its new U.S. assembly plant opening next year near Charleston, S.C., -- which will have annual capacity of 100,000 vehicles and build the S60 plus a second model to be named -- will join a network of two in Europe and three in China. By 2020, U.S. sales will be nearly double last year's figure of 82,724 at 150,000, while China should hit 200,000, Samuelsson predicted.

    Pricing power

    Once considered a "near-luxury" brand, Volvo is now being cross-shopped with BMW, Audi and Mercedes and is achieving similar transaction prices, according to figures from TrueCar. For example, the XC90 large crossover was selling in the U.S. for more than $20,000 below the BMW X5 midsize crossover on average back in March 2013. In March this year, the XC90 was just $2,300 behind at $59,600.

    Volvo lured over luxury customers by focusing on quality, believes Francisco Riberas, CEO of metal parts supplier Gestamp.

    "Under the umbrella of Ford, they lost their image of quality a little," Riberas said. "Now they are rebuilding that with very good designs but keeping their DNA of safety."

    Volvo has worked hard on its interiors. In 2013, Samuelsson described how he took back the initiative from the Germany luxury makers: "BMW is doing their best to design their vehicles to look like Scandinavian furniture inside.

    "Why do we let them do that? That's our territory. They could design their vehicles like a Bavarian beer hall."

    The company posted a pretax loss of $653 million in 2009. But Geely wasn't buying a wreck the next year when it paid Ford $1.5 billion.

    Francisco RiberasGestamp CEO

    "I was a little bit concerned that most of the decisions would be moving to China, but the Chinese owners did the right thing to keep the most important decisions in Sweden. I think they are playing smart."

    Photo

    Volvo has taken pains to improve the design of its interiors, which has helped it compete in the luxury space. Its new design philosophy can be seen in the XC60.

    Steve Armstrong, the former COO of Volvo under Ford and the man responsible for handing over the company to Geely in 2010, said Ford wanted to leave Volvo in condition to survive. 

    "The instruction from headquarters was to be a responsible seller and not to just abandon it," Armstrong said. 

    Most importantly, Ford had helped develop what would become Volvo's best seller: the XC60 midsize crossover, a vehicle whose final sales year last year was also its biggest, with 161,092 sold globally. (The XC90 is its biggest seller in the U.S.) 

    "The XC60 has been key to Volvo's success," Tim Urquhart, principal analyst at IHS Markit, said. 

    An all-new XC60 goes on sale in the U.S this summer. 

    Geely gave Volvo financial security, but not much in the way of automotive resources. No synergies existed between the Chinese automaker's unsophisticated lineup and Volvo's premium range. So a financial plan was thrashed out in which Volvo would spend $11 billion on a new platform, a raft of new models and a new engine range. 

    It sounded like a lot, but spread out over so many models it really wasn't. Savings would have to be made -- particularly because this wasn't a gift from Geely. Volvo is paying back loans made by the China Development Bank, has recently tapped the bond markets and has sold shares worth $532 million to Swedish institutional investors. Samuelsson said a long-rumored public offering of stock would be "an option" in the future.

    Photo

    Volvo will share a platform with Lynk & CO's 01, above, which debuts in China this month.

    New mindset

    To cut r&d spending, Volvo's mantra would be "reduce complexity." It declared that "the days of cylinder counting are over" and boldly deviated from the premium rulebook by dumping engines bigger than four cylinders.

    Instead, cars such the XC90 large cross-over, new XC60 and V90/S90 large wagon/sedan built on the new Scalable Product Architecture would use a combination of turbocharging, supercharging and hybrid-electric drive to jack up power to the levels premium customers were used to.

    Volvo's r&d department, then led by Peter Mertens, is admired throughout the industry for what it has achieved on a limited budget.

    "Volvo is certainly batting above average in terms of r&d investment," Urquhart said. Volvo has now spent two-thirds of the $11 billion, Samuelsson said.

    Independence after 10 years of Ford ownership inspired its engineers, believes Gestamp's Riberas. 

    "Under Ford, the talent was a little bit trapped. Now it's a little bit more open," he said. 

    Gestamp and Volvo collaborated on the SPA platform, which uses a large percentage of the Spanish company's hot-formed high-strength steel, a cheaper alternative to reducing weight than the premium go-to material of aluminum. 

    Geely's handling of Volvo has been instrumental in its success, Riberas believes. 

    "I was a little bit concerned that most of the decisions would be moving to China, but the Chinese owners did the right thing to keep the most important decisions in Sweden," he said. "I think they are playing smart."

    Photo

    The XC90 large crossover is Volvo's top seller in the U.S.

    Li Shufu's restraint

    The credit for that goes to Geely's chairman, Li Shufu, the poetry-writing automotive entrepreneur who has referred to himself in the past as the Henry Ford of China. Li is admired by those who work for him for not meddling too much.

    "To me he's a guy who says, 'If I'm going to buy a company with expertise, why am I going to tell them what to do?' " Chris Gubbey, CEO of the Geely-owned London Taxi Co., said. Geely isn't state-owned, unlike many Chinese automotive firms, and that makes it more agile, Gubbey believes.

    Photo
    BLOOMBERG

    Geely Chairman Li Shufu has given Volvo leeway to manage its own affairs.

    It took a while, but Geely's decision to situate an r&d center near Volvo's Gothenburg, Sweden, headquarters is about to produce the much-needed scale that will help reduce costs. The two companies collaborated on the new smaller Compact Modular Architecture that will also be used by Geely's upscale, globally ambitious brand Lynk & CO, which launches this month in China with the 01 SUV. 

    Volvo's first car off the platform will be the XC40 compact cross-over, also due this year. Both cars will use Volvo's new Chinese-built 1.5-liter three-cylinder turbocharged engine, as will the new range-extended electric London taxi. 

    Volvo's battle isn't yet won. It recently lost its r&d guru Mertens to Audi just as Volvo starts to make tough decisions on future technologies. 

    "The challenging part is still ahead of us," Samuelsson said at Geneva this year. 

    The automaker plans to launch its first electric car in 2019 and is busy improving its autonomous driving knowledge via collaborations with Uber (which Volvo is persisting with despite Uber's public relations problems and a traffic crash last month in Arizona) and supplier Autoliv. But it'll still be a stretch. 

    "For a small manufacturer to make a difference in those areas is definitely a challenge," he said. 

    Still, it's not a life-or-death challenge any more. Seven years ago, many feared Volvo was on the same doomed trajectory as fellow Swede Saab. That's no longer the case. 

    Ford's Armstrong said: "They've found their place in the automotive world."

    Volvo's U.S. sales dropped by half, but they are rebounding.

    Monthly E-Magazine
    Thumbnail
    View latest issue
    See our archive
    Sign up for free newsletters
    EMAIL ADDRESS

    Please enter a valid email address.

    Please enter your email address.

    Please select at least one newsletter to subscribe.

    You can unsubscribe at any time through links in these emails. For more information, see our Privacy Policy.

    Get Free Newsletters

    Sign up and get the best of Automotive News Europe delivered straight to your email inbox, free of charge. Choose your news – we will deliver.

    You can unsubscribe at any time through links in these emails. For more information, see our Privacy Policy.

    Automotive News Europe Monthly E-Magazine

    Sign up to receive your free link to each monthly issue of Automotive News Europe as soon as it's published.

    GET THE E-MAGAZINE
    Connect with Us
    • Twitter
    • Facebook
    • LinkedIn
    • Instagram

    Founded in 1996, Automotive News Europe is the preferred information source for decision-makers and opinion leaders operating in Europe.

    Contact Us

    1155 Gratiot Avenue
    Detroit MI  48207-2997
    Tel: +1 877-812-1584


    Email Us

    Resources
    • About us
    • Contact Us
    • 2019 Media Kit
    • Advertise with Us
    • Ad Choices Ad Choices
    • Sitemap
    Awards
    • Rising Stars
    • Eurostars
    • Leading Women
    Legal
    • Terms and Conditions
    • Privacy Policy
    Copyright © 1996-2019. Crain Communications, Inc. All Rights Reserved.
    • HOME
    • News
      • Photos
        • Geneva Photo Gallery
        • Beijing Photo Gallery
        • Frankfurt Photo Gallery
        • Paris Photo Gallery
        • Shanghai Photo Gallery
      • Automakers
      • Suppliers
      • Sales By Market
      • Environment/Emissions
      • Latest Launches
      • Sales and Retail
      • Car Cutaways
      • On The Move
    • Auto Shows
      • Geneva Auto Show
      • Frankfurt Auto Show
      • Paris Auto Show
      • Beijing Auto Show
      • Shanghai Auto Show
    • Opinion
      • Blogs
      • Luca Ciferri
      • Douglas A. Bolduc
      • Paul McVeigh
    • Maps
      • E-Car & Component Map of Europe
      • Powertrain Map of Europe
      • Assembly Plant Map of Europe
    • Supplements
      • Connected Car
      • Talk From The Top
      • BMW 100
      • Car Cutaways
    • EVENTS & AWARDS
      • Automotive News Europe Congress
      • Rising Stars
      • Eurostars
      • Leading Women
    • E-MAGAZINE
      • Read the latest issue
      • Download the app
      • Subscribe
    • More
      • E-Magazine
      • Contact Us
      • 2019 Media Kit
      • About Us