Volvo won’t quit Swedish home for China

Volvo Car Corp., snapped up in 2010 by a Chinese conglomerate, will remain a Swedish auto maker even as the European market sags, the focus on Chinese consumers sharpens and its reliance on low-cost manufacturing soars, according to the company’s new chief executive.

CEO Hakan Samuelsson said Monday that Volvo is pumping billions into its longtime home market as the company battles falling sales, a murky outlook and a need to reduce ties to former owner Ford Motor Co. F -0.35% Volvo is spending billions in Sweden to update manufacturing operations and revamp engines and vehicle platforms.

Mr. Samuelsson became CEO in October, succeeding Stefan Jacoby.

“If anybody thought that Volvo had the intention to move to China, I think we, with these signals, can put those ideas to rest,” Mr. Samuelsson said during a news conference at Volvo’s headquarters on Monday. The company currently employs 14,500 people in Sweden.

However, Mr. Samuelsson said it will be “very difficult” for the auto maker to avoid financial losses this year amid the poor economic outlook for Europe. He added that the company remains dissatisfied with its pace of sales in China.

“We’re not happy with China,” he said. “We need volume growth there to compensate for a weaker Europe. Unfortunately, there aren’t any positive signals on the European market. … It could very well get worse there.”
Changes at Volvo
Since the summer, Volvo has cut production at its plants in Ghent, Belgium, and Torslanda, Sweden, and released an unspecified number of agency workers due to weakening demand for its products.

Mr. Samuelsson, a Volvo board member since 2010, took over at the auto maker amid mounting pressure from Zhejiang Geely Holding Group Co., which bought Volvo from Ford for $1.3 billion in cash in 2010. Under
Mr. Jacoby, Volvo committed to an $11 billion overhaul, including updates to plants, vehicles and engines.

About half of that money has been earmarked for Sweden, and most of the other half will be spent in coming years on Volvo’s China operations. Volvo is waiting to finalize plans for additional financing, which is needed to keep the company’s growth plans on track.

Even though Volvo fired Mr. Jacoby after clashes with its board and the company’s lack of momentum in the Chinese auto market, the China plan is expected to proceed next year.

The future in China
In 2013, Volvo plans to open a Chengdu, China, plant with capacity to make 125,000 vehicles a year. The company also intends to add two more plants in China, including another car factory that will open in 2015.
Volvo also plans to launch its first vehicle platform developed after the company’s departure from Ford ownership. The architecture will allow Volvo to build a variety of vehicle sizes on a single production line and will primarily underpin Volvo’s bigger cars, or those carrying the designation of “60” or higher. The XC90 sport-utility vehicle will be the first vehicle to roll off the platform, with sales expected to start in late 2014.

Plans for survival
Volvo research-and-development head Peter Mertens said Volvo needed to drop its Ford ties to gain full control of its own models. When Geely purchased Volvo, one of the main goals was to transfer technology and expertise to Geely’s Chinese brands.

Another key initiative is to replace Volvo’s current family of eight engines with a new range of four-cylinder engines.

The plans are taking shape as Volvo struggles to keep its production in line with falling demand. Sales in China, the company’s third-biggest market, rose just 1.7% to about 21,000 cars in the first half of this year. Sales have fallen globally through the first 10 months of 2012.

Volvo’s attempt to compete more closely with larger rivals such as BMW AGBMW.XE -0.43% and Volkswagen AG’s VOW.XE -0.70% Audi brand has led to massive cash outflows. While Mr. Samuelsson said returning to profitability is Volvo’s top priority, he said losses are in part due to increased investment. The company intends to rely on a combination of cash on hand and loans to fund its plan to double sales to 800,000 by 2020, he said.

Mr. Samuelsson also said that a pending loan with China Development Bank is on track, with a decision expected soon. “There are good opportunities to find financers who will back this investment,” he said.

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