China cars: Volvo sputters, GM sails
Volvo is rapidly running into trouble and could eventually pull down Geely, while GM is consolidating its market leading position through strong growth for its low-end cars.
The latest auto news bits show that domestic nameplate Geely (0175.HK) continues to struggle with its plans to resuscitate its Volvo brand, while General Motors (NYSE: GM) is banking on rapid growth for low-end cars to consolidate its position as China's market leader. Meantime, I'd be remiss not to mention the latest news coming from sputtering domestic automaker Chery, which has disclosed its controversial plan for a joint venture with luxury car maker Jaguar Land Rover has just been approved by the key state regulator.
Let's start off with Geely, which made global headlines in 2010 with its landmark $1.8 billion purchase of Volvo, the struggling Swedish auto then owned by Ford (NYSE: F). Since then, Geely has announced a major plan to manufacture Volvo cars in China, and to reposition the name as a luxury brand to compete with the likes of BMW (Frankfurt: BMW) and Audi (Frankfurt: VOWG).
Now Volvo's head in Sweden is being quoted by local media as saying his company is unlikely to meet its target for China sales of 200,000 cars per year by 2015, as it experiences "significant weakness" in building its Chinese organization. In a separate announcement Volvo said it was replacing its China head, a foreigner, with a local Chinese who formerly worked for Mercedes. All this sounds like there are bigger problems at Volvo that are affecting its China plans. That bodes poorly for the debt-strapped Geely, whose own management may at least be partly responsible for whatever problems are occurring inside its troubled Swedish unit.
On a more upbeat note, the latest industry sales figures show an interesting transformation taking place at GM, as its Chevrolet nameplate that is newer to the market overtakes its older Buick brand. GM rose to prominence by positioning Buick as a mid-range brand, appealing to wealthier Chinese who were willing to pay a premium for a high-quality foreign brand.
Its strong focus on the Chevy name began a couple of years ago with its launch of the Sail, a lower-end, cheaper model aimed at competing with a segment of the market traditionally dominated by domestic car makers like Geely and Chery. The Sail has zoomed since then, becoming China's top selling model in August with strong growth that helped it to shoot past the Buick Excelle for the top spot. Chevrolet now controls about 4.5 percent of the China auto market, just a bit behind Buick's 4.6 percent, and its rapid growth means it will probably surpass its sister brand by the end of this year. In a sign of its commitment to the market, GM has also formally opened a test track near Shanghai, investing some $250 million in a facility it calls the biggest of its kind in China.
Last but not least, there's Chery, which says it has just received the key approval from the National Development and Reform Commission for its Jaguar Land Rover joint venture announced back in March. Just last week I predicted the chances for approval of the venture were improving, following a major PR push by both companies.
News of this approval is certainly good for both companies, as Chery desperately needs a foreign partner to help revive its flagging fortunes and Jaguar can use the venture to tap the huge Chinese market for luxury cars. But the approval is just the first step, and I expect this new joint venture between these 2 very different car makers could hit quite a few speed bumps before it finally finds its place in the China auto market.
Bottom line: Volvo is rapidly running into trouble and could eventually pull down Geely, while GM is consolidating its market leading position through strong growth for its low-end cars.
To read more commentaries from Doug Young, click on youngchinabiz.com