Volvo’s Identity Crisis
By Kevin Miller
On Sunday, a press conference was held at Volvo’s headquarters in Gothenburg, Sweden, announcing that Ford has entered into an agreement to sell Volvo Car Corporation and related assets to Zhejiang Geely Holding Group Company Limited. The release states that the sale is expected to close in the third quarter of 2010, and is subject to customary closing conditions, including receipt of applicable regulatory approvals. The purchase price of $1.8 billion will be paid to Ford primarily in cash at the time of closing.
“Volvo is a great brand with an excellent product lineup. This agreement provides a solid foundation for Volvo to continue to build its business under Geely’s ownership,” said Alan Mulally, Ford’s president and CEO. “At the same time, the sale of Volvo will allow us to further sharpen our focus on building the Ford brand around the world.”
Stephen Odell, CEO of Volvo Cars, added, “The Volvo management team fully endorses Ford’s sale of Volvo Cars to Geely. We believe this is the right outcome for the business, and will provide Volvo Cars with the necessary resources, including the capital investment, to strengthen the business and to continue to move it forward in the future.
Of great concern for any western company selling an innovative company to a Chinese buyer is protection of intellectual property. Ford and Geely have established agreements to govern the use of intellectual property; these agreements will allow both Volvo and Ford to deliver their business plans and provide appropriate safeguards against misuse. These agreements also will allow Volvo Cars to grant sublicenses to certain portions of Ford’s intellectual property used by Volvo Cars to third parties, including Geely.
Following completion of the sale, Ford will continue to supply Volvo Cars with powertrains, stampings and other vehicle components. As part of the sale, Ford also has committed to provide engineering support, information technology, access to tooling for common components, and other selected services for a transition period to ensure a smooth separation process. Too, Geely chairman Li Shufu stated that Volvo Cars would remain a separate company with its own management team based in Sweden, though a manufactuirng plant capable of assembling 300,000 Volvo vehicles per year is planned near Beijing.
Of course, official announcement of the sale (which has been in the cards for months) has die-hard Volvo fans wringing their proverbial hands once again. When Ford’s Premier Automotive Group acquired Volvo Cars in 1999 from Volvo AB, some were unsure what would happen to the well-known Swedish brand under Ford’s stewardship. That same year, Volvo introduced the front-wheel-drive S80 sedan, which replaced the rear-wheel drive S90, which could trace its roots back to Volvo’s 700 series cars of the early 1980s. Other successful models followed, including the S60 sedan and the closely related V70 sedan; the XC90 crossover, and the P1-chassis vehicle (S40/V50/C30/C70) which share many components with Ford’s second-generation (European) Focus and Mazda 3.
On the surface, then, Volvo appears to have prospered under Ford’s stewardship, rolling out an entirely new, modern lineup of vehicles. But looking a little closer reveals cracks in the veneer of that success. While Volvo has a modern product lineup, the automaker has been a perennial money loser. Too, late last week automotive website Jalopnik broke the news that Volvo is discontinuing sales of its V70 wagon in the US and is likely to do the same to the smaller V50 wagon, citing flagging demand for traditional wagons in a crossover-dominated marketplace. The same post uncovered plans to pare down powertrain offerings in the S40 and V50 (eliminating the option for a manual transmission and all-wheel drive in those vehicles), and to phase out the V8 engine in the S80 sedan, making the turbocharged T6 the range-topping motor.
For an automaker whose identity for the three decades of the 1970s, 1980s, and 1990s was built on a foundation of safe and functional wagons, the fact that the traditional Volvo wagon will no longer be sold in North American markets is a psychological blow, if not a physical one. While Volvo states that the V70 is being cut because of consumer tastes which have shifted toward crossover vehicles (such as the V70-based XC70 and the new XC60), one has to wonder if Volvo lost their focus, ignoring traditional wagons to chase other popular (though lucrative) segments.
While Volvo intends to import front-wheel-drive XC70 wagons to replace the V70 in its lineup, they may be missing the point. One of the reasons that buyers have shifted from the V70 to the XC70 is because optional all-wheel drive was phased out of the V70, meaning that buyers wanting an AWD Volvo wagon were forced to buy an XC70. By reducing customers’ choices in the traditional wagon segment, the shift toward XC70 sales has been a bit of a self-fulfilling prophecy. Buyers who want a traditional wagon for its handling benefits (as opposed to a “lifted” one like the XC70) with (or without) all-wheel drive will now need to look elsewhere; I’d say an Audi store is a good place to start that search.
So in the space of one week, Volvo finds itself facing a profound identity crisis. The carmaker is losing much of their Swedish identity because of the purchase by Geely, and they are losing their iconic family-wagon status in North America due to questionable product planning. If Volvo no longer embodies Swedish sensibility and utilitarianism, what unique thing is it that they offer in today’s automotive marketplace? It will be up to Volvo’s management under Geely to define what exactly that is in order to secure a prosperous future for the company.