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China's lucky man bags Volvo
« on: 2010-08-05 15:48:15 »
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So will you be hungry soon after driving a Chinese Volvo ?



Has the founder of Geely, an upstart carmaker, got what it takes to revive Volvo?

Source: Economist
Author: Economist Print
Date: Aug 5th 2010

LI SHUFU, the chairman of Zhejiang Geely Holding Group, China’s biggest privately owned car firm, and from this week of Sweden’s Volvo Cars, likes to describe himself as the Henry Ford of China. There are some similarities. Both men began life down on the farm and both quickly discovered they were more interested in engineering and building businesses than ploughing fields.

Face value: Li Shufu -Safe car; risky bet

Unlike Ford, however, who grew cranky and anti-Semitic as he aged, the 47-year-old Mr Li seems admirably grounded. Although one of China’s richest men, he dresses inexpensively and lives in a modest Beijing apartment. In conversation, he smiles and chuckles frequently. His only known eccentricity is a weakness for writing verse. He has published more than 20 poems on his personal website and another is woven into the carpet in the reception area of Geely’s Hanghzhou base, 100 miles (160km) southwest of Shanghai.

Mr Li’s career began with a school-graduation prize that he used to buy a bicycle and an old camera to take snaps of tourists visiting local beauty spots. By the late 1980s, with a master’s degree in engineering under his belt, he had moved on to making refrigerator parts. In 1994 he started making motorcycles, transforming a bankrupt state-owned manufacturer into one of China’s biggest private firms. In 1997 Mr Li’s thoughts turned to making cars. He says that he saw China “entering into an historic period” of growth and opportunity in which the demand for affordable transport would soar.

After a slow start, Geely, which means “lucky” in Mandarin, has the potential to compete with the joint ventures between Chinese and Western firms that dominate what is now the world’s biggest vehicle market. Only a handful of homegrown firms can say as much. Mr Li is hugely ambitious. Geely often takes the biggest stands at Chinese motor shows, filling them with both its prosaic current offerings and brash prototypes. The Shanghai Englon GE, a shameless knock-off of a Rolls-Royce Phantom, has a single throne-like seat at the rear. Over the next year or so Mr Li is promising a range of 25 cars spread out over five platforms and three brands. This year sales of Geely’s range of still mainly cheap, compact cars should reach 400,000, of which about 5% will be exported to countries with undemanding safety and emissions standards. In Cuba the Geely CK is now the car of choice for the police. By 2015 Mr Li aims to be producing 2m vehicles, half for export.

This week Mr Li realised another longstanding ambition: a deal he struck several months ago with Ford Motor Company to buy its Volvo subsidiary for $1.5 billion finally closed. It reminded investors just how bold and opportunistic Mr Li can be. A cash-strapped Ford had already sold its other European premium brands, and was determined to offload Volvo. But last year was hugely stressful for big car firms. Their survival was uncertain. Few were in the mood for making risky acquisitions. The lack of credible rival purchasers offered Mr Li his chance. Typically, he grabbed it.

Acquiring Volvo gives Geely an international profile and a degree of credibility it could never have achieved on its own. But it is a huge gamble. Although Volvo is currently close to breaking even (Ford says it is operating at “sustainable levels”), last year it lost $1.3 billion and sold only 335,000 cars. (At its peak in 2007, it sold 458,000.) Yet Volvo’s revenues are five times greater than Geely’s.

Mr Li knows that owning a sophisticated Western brand such as Volvo is a big step up for Geely. He says: “Volvo is Volvo and Geely is Geely. Volvo is premium, tasteful and low-profile, whereas Geely is a volume brand. We don’t want to put the two together. We will give Volvo independence and autonomy. By setting it free, we will help Volvo return to its glories in the 1960s and 1970s.” This week Stefan Jacoby, a Volkswagen executive who has been running the German group’s operations in America, was appointed as Volvo’s new boss. Volvo will continue to be headquartered in Gothenburg and a strong-looking board will set the firm’s strategy.

Armed with $900m of working capital from Geely and a commitment to build a Volvo factory in China, Mr Li’s target of driving sales to 600,000 by 2015 depends on the Swedish firm competing more strongly than in the past with the German premium brands, such as Audi and BMW, especially in China. Some Swedes worry that if things do not go well, Mr Li may cut costs by moving more production to China. (This happened with the London taxis made by Manganese Bronze, which Geely part-owns.) Some also fear that he will ransack Volvo’s intellectual property to boost Geely’s less sophisticated cars.

Mr Li insists that he will support Volvo’s management. He hopes that Geely will learn from Volvo’s global experience, and from its ability to innovate, particularly in the area of safety. Ford’s negotiators believe he will honour his promises. Despite a reputation for ruthlessness, the Ford team found him to be “very straightforward—once we had agreed something we never had to revisit it.”

A Ford executive says of Mr Li: “He’s a very ambitious individual, but he understands he has a lot to learn about doing business in the West. He will give Volvo autonomy because he knows it’s the only way to make it work. He’s more interested in growing businesses than in the details—he is very trusting of the people who work for him.”
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Where there is the necessary technical skill to move mountains, there is no need for the faith that moves mountains -anon-
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