Geely’s Biggest Challenge: Selling Made-In-China Volvos In America, Or In China?

Will “Made-In-China” Tag Do More Damage In Mainland Market Than Overseas?

Volvo, under the management of Geely, could face huge obstacles. But through careful brand management and quality control, it has the potential to turn the beleaguered Swedish company around

Volvo, under the management of Geely, could face huge obstacles. But through careful brand management and quality control, it has the potential to turn the beleaguered Swedish company around

The extended negotiations between Ford and Geely regarding the future of Volvo have, at least on the surface, come close to wrapping up. As the Wall Street Journal explained late last week, Ford recently settled “substantial commercial terms” of the sale, leaving financing of the deal (which, as another writer pointed out last month, shouldn’t be a problem) and government approvals as the last major hurdles. According to Ford, a definitive agreement should be signed at some point in the first quarter of this year, with the sale completely closed by summertime.

So, once the dust settles, Ford hands over the reins to Geely, and the first “Made-in-China” Volvos roll off the assembly line, what obstacles should Geely expect to encounter from consumers both at home and abroad?

The first, and most obvious, obstacle is that of consumer concerns about quality control and safety — the issue that has come up year after year in regards to China-made cars. Though this is, of course, a concern in China, it is arguably more of a concern overseas. One thing Geely has going in its favor here is its insistence that Volvo production will remain independent from Geely-branded vehicles and use Volvo’s own technology to keep the transition into Chinese production (and automobile quality) as seamless as possible.

However, it’ll remain to be seen if assurances from Geely — a company virtually unknown outside of China and not held in the highest esteem by the Volvo-buying demographic in China — will placate potential buyers. If the company can somehow mount a successful marketing campaign that plays to consumer worries while satisfying concerns about product safety through well-documented crash testing and certification and reiterating Volvo’s stated commitment to quality, it might be able to minimize consumer bias against made-in-China vehicles. At the moment, the way they’ll do this remains purely speculative, since Geely/Volvo is really going to be treading new ground as the company heads overseas.

A second major obstacle for Geely as it starts to produce Volvos is consumer bias at home— a counterintuitive idea, but a critical one nonetheless. Wealthier Chinese car buyers who can afford to buy a foreign-brand car generally prefer to go for imports rather than made-in-China, joint venture-produced models. While the Ford-Chang’an joint venture already produces Volvo S40 and S80s in China (which sell for nearly half as much as the imported Swedish models) — the sales of which have been anemic — the new Geely-owned Volvo wiill likely encounter customer resistance at home. As Reuters notes today, Volvo’s difficulties in China are two-fold: For one thing, heavily promoting a brand’s safety record doesn’t play as well in China as it does in other markets, and for another thing, Chinese car buyers (of a certain economic level) are obsessed with exclusivity and status.

From the article:

Volvo also occupies an awkward corner of the Chinese market. As a European brand, Volvo is positioned as a luxury brand. Indeed, the imported S80 sells at a price comparable to some Mercedes and BMW models. But Chinese consumers put Volvo in a different category.

“Volvo definitely doesn’t have the prestige of BMW or Mercedes,” said Bonnell. “And safety doesn’t sell that well in China. If buyers are looking at European cars, they’re looking for … something they can show off to their friends.”

Geely does have an opportunity, according to Bonnell: to reposition Volvo as a near-premium car to compete with respected Japanese brands such as Toyota and Honda.

To get there, Geely will have some convincing to do, however.

Victor Sun, a lawyer in China, recently upgraded his Volkswagen Passat to a Volvo for just under 400,000 yuan.

“I wanted my car to be classy, understated and of good value,” he said. “Once it becomes a more locally sourced vehicle, it might take some exclusiveness away. I’d also need to re-assess its quality.”

Definitely a story to watch, as negotiations continue in coming months. With smart marketing that addresses Chinese consumer concerns about exclusivity, performance and quality — and addresses issues of safety and, yes, quality — abroad, Volvo under Geely has the potential to finally become a profitable company after so many years of stagnation. But focusing too much on one market to the detriment of the other, or sending either uniform or mixed messages has the potential to alienate both Chinese and non-Chinese consumers and could sink the brand forever.

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