Sunday, April 4, 2010

The new owner of Volvo -- from Ford to Geely

Volvo has created a reputation of making boxy, but very safe cars. There are even articles pointing to the generosity of the brand. Volvo were the first company to develop and patent the 3-point safety seat belt. Because it was such a revolutionary safety feature with the ability to easily save millions of lives, they decided to make the technology readily available to other auto manufacturers, including their competitors, for free. Until then, most cars only had the two point seat belts, the ones that were the standard for the rear passengers back in the 80s and early 90s.

Unfortunately, the now well known Scandinavian design never made it to the design of their vehicles. Most Volvo models, from the 740 Turbo, 940/ 960, to the 850 Turbo (the last vehicle made solely by Volvo independently) were all boxy. This design philosophy translated to the interior of the car. Although the interiors were well appointed, they were not very well thought out and generally boxy as well. For example, the 1996 Volvo 850 Turbo my parents owned, had cup holders that when in use will eliminate any ability for you to open or close the windows from the drivers or passenger side. Yup, the controls were on the center console right below where the cup holders extend to.

People feared when Ford bought Volvo for $6 billion + in the late 90s that the Volvo DNA would be diluted. In fact, I would like to think it was the complete opposite. Ford in general left Volvo as an independent auto manufacturer. Ford did later on "borrow" some Volvo parts for their Aston Martin brand, but overall just served as a financing arm for the car's R&D and design. In other words, as my girlfriend puts it, Ford was Volvo's "sugar daddy".

14-years later after my family first bought the Volvo 850 Turbo, the time came to put the vehicle out to pasture. I brought the trusty Volvo 850 Turbo in for trade in and left the dealership in a new 2010 Volvo XC60. The changes that has occurred since 1996 has astounding. The interior of the new Volvos showed amazing style, design, and thought. The materials were also very high quality. All-in-all, the Volvo looked like what it should have been if it had enough financial resources in the first place.

This trend started with redesign of the 2004.5 Volvo S40. The exterior design philosophy showed a refreshing modern interpretation of the Volvo theme that translated to a modern Scandinavian design in the interior of the car. The recent design refresh definitely helped remake the brand to make the vehicle much more modern and sporty to attract younger buyers. For the price, there isn't much that can match the vehicle's design, safety, and build quality. When I was looking at the 2010 Volvo XC60 competitors, they were all similarly equipped in the mid $40,000. The XC60 was priced very reasonably in the mid $30,000. In addition, all new Volvos offer 5-year/60,000 mile free maintenance along with the same warranty.

At the end of the day, I don't think the sale of Volvo from Ford to Geely for $1.8 billion (what a discount!) will change much. Many of us American first heard of Geely by the now infamous crash test video.

Geely also confirmed that it intends to keep Volvo’s existing headquarters and plants where they are, citing a desire only to expand, not change the automaker.

“Volvo comes from Northern Europe and is rooted in Sweden. Volvo will not be Volvo any more if taken out of the soil,” said Geely chairman Li Shufu. “Profit will only emerge if we expand the business scale, thus making costs per vehicle lower.”

In other words, Geely wishes to learn from Volvo on how to build their international prescience but they are smart enough to realize they should not interfere with the brand goodwill that Volvo worked so hard to achieve. My parents continue to joke that we all need to buy Volvos before the sale is complete because, "you know the Chinese are cheap and we'll just start cutting costs and screwing things up at Volvo very quickly". Based on that crash test video, I can understand why people are worried about the sale of Volvo to Geely. Geely also suggested they will make the production of Volvos international and have some Volvos made in China (for obvious cost savings). My impression is they are probably only going to make cars sold in China, in China. Even if that's not the case, this isn't a new idea. Volkswagen (VW) has for years now assembled their US-based and sold Jetta and Passat in Mexico.

In my opinion, Geely will learn a lot from Volvo, and it's smart they are leaving them along besides providing financial and economy of sale support. Maybe Geely will in the future learn how to create a car that doesn't fold like an accordion in a crash.

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