Chinese Carmaker Seals Deal For Volvo

Michele Norris talks to Rebecca Lindland, director of automotive research at IHS Global Insight, about Chinese automaker Geely's purchase of Volvo.

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MICHELE NORRIS, host:

This week, the Chinese company Zhejiang Geely completed its takeover of the car brand Volvo. Geely purchased Volvo earlier this year from its former owner, Ford. The American automaker had owned Volvo since 1999, but Ford chose to sell the company at a third of the price it paid for the Swedish brand as part of a broader strategy to restructure operations.

The new Chinese owners of Volvo have pledged to preserve Volvo's reputation for safety and quality.

And to understand what this all means, we're joined by Rebecca Lindland, who's the director of Automotive Research for IHS Automotive. Rebecca, welcome to the program.

Ms. REBECCA LINDLAND (Director, Automotive Research, IHS Global Insight): Thank you for having me on, Michele.

NORRIS: First, tell us a little bit more about what prompted Ford to sell Volvo to Geely.

Ms. LINDLAND: It's a couple of things. Certainly first and foremost is simplifying those operations that you mentioned. Alan Mulally runs a very tight ship as CEO of Ford Motor Company, and some of these brands that they owned just sort of took the company's eye off the ball of making Ford and now Lincoln their two primary focuses of attention.

NORRIS: So they also shed Land Rover?

Ms. LINDLAND: Land Rover, Jaguar. That sale went through a couple of years ago.

NORRIS: And Aston Martin?

Ms. LINDLAND: And Aston Martin, as well, yes.

NORRIS: It's interesting. I've read repeatedly that Chinese automakers seem to be having a very hard time keeping up with their fast-growing domestic car market, fueled in part by the growth of the middle class in China. Given that, what explains the acquisition of Volvo, then, by a company that may be having a hard time meeting demand right now?

Ms. LINDLAND: Well, Geely has wanted to come into the U.S., as well. So, when you look at what their penetration could be in the world's two largest single markets, the U.S. and China, this deal is something that they've been wanting for a number of years, even before the explosion of growth in China.

So it also provides them with an established dealer network in the U.S., which is often the biggest hurdle to coming into the States and participating in this market.

NORRIS: You know, in terms of - when you think of the drive train, the design sensibility, the way the factories are run, the overall business sense, was this a kind of fusion that makes sense, bringing these Chinese and a company that has been owned by Ford, is still very much seen as a Swedish company? Did that make sense, or did that leave people scratching their heads and wondering what this new company would produce?

Ms. LINDLAND: Well, I don't think anybody questioned Geely's motives. It is to penetrate the U.S. market potentially and to gain a foothold in China. But from a cultural standpoint, there certainly are some concerns.

Having been to Volvo in Gothenburg, Sweden, I know the people there, and they are cosmopolitan certainly and used to different cultures. But one of the most common obstacles to making these kinds of mergers work is that blending of corporate culture.

We've seen it end badly in the Daimler-Chrysler merger that happened right around the same time, and that was dissolved several years ago. So it's not even that whether you're mixing Eastern with Western. Even when you mix Western with Western, it may not always work. So it's something that definitely needs to be handled very, very carefully.

Now that being said, bringing over Stefan Jacoby from Volkswagen to run this new company I think is a very good move. He is a very global player, and he understands some of these cultural issues that you can encounter when blending two companies.

NORRIS: And Jacoby ran Volkswagen America. Is that correct?

Ms. LINDLAND: Yes, he did. And the American Volkswagen and the German Volkswagen often need a good translator, and he would provide that for them.

NORRIS: Rebecca Lindland, thank you very much.

Ms. LINDLAND: Thank you so much, Michele.

NORRIS: That's Rebecca Lindland of IHS Automotive.

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