Geely's Purchase of Volvo Car, 2010-2015 1
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provide enough information for the Chinese company to Leading Cross-border Acquisitions in progress as quickly as it wanted. Geely believed that Emerging Markets: Geely’s Purchase of acquiring a company was the best option because they Volvo Car, 2010-2015 1 could purchase the skills of the target. Volvo was a desirable target because the Swedish firm was the epitome of quality and safety, with strong skills and a stellar global reputation. Ford had purchased Volvo AB’s car operations in 1999, after Volvo had suffered several years of losses. Volvo did not thrive within Ford, even before the financial crisis. The financial crisis that began in 2008 caused Volvo sales to plummet since they had few models and their sales correlated highly with the economy. For 2009, Ford reported that the Volvo unit had an operating loss of $934 million on sales of $12.4 billion. More generally, Ford was feeling the effects of the financial crisis and CEO Alan Mulally decided to focus on their core brands rather than propping up struggling brands such as Volvo and Jaguar Land Rover (JLR). As a result, Ford sold JLR to Tata Motors in 2008 and Volvo to Geely in 2010. Geely purchased Volvo Car at a substantial discount from Ford’s purchase price. Geely paid $1.3B in cash and $0.5B in stock; Ford had paid $6.45B for the company 10 years earlier.2 Geely also was rumoured to be considering purchasing the struggling Fisker Automotive, the unsuccessful manufacturer of the Karma plug-in hybrid Zhejiang Geely Holding Group Chair Li Shu Fu and sports car. Fisker eventually was purchased out of Volvo CEO Stefan Jacoby look at each other during the bankruptcy for about $150 million by China’s Wanxiang Volvo Car China Business Strategy Launch in Beijing on Group, an auto components producer, in 2014. February 25, 2011 (photo credit: Reuters/Christina Hu) Post-Acquisition Goals Acquisition: Geely (China) Buys Volvo Car At the time of the purchase, analysts anticipated that Geely’s acquisition of Volvo Car from Ford in 2010 was Geely would rapidly integrate Volvo and use the the Chinese firm’s strategy to enter the luxury automobile intellectual property for Geely models. Instead, Volvo market. Geely was commonly viewed as a relatively low initially continued to operate independently, under new quality vehicle producer, especially by consumers outside leadership. The new CEO of the Volvo subsidiary, Stefan China. The perception of low quality, which was a Jacoby, joined in August 2010. Jacoby came to Volvo common foreign view of many Chinese automobile from a position as CEO of Volkswagen of America. producers, was hindering Geely’s goal to expand abroad. The company required knowledge of the automotive At the outset, the deal seemed to offer opportunities for industry and manufacturing, to improve quality more both companies. Since Volvo has a longer history and quickly than they were currently doing on their own. strong expertise, the acquisition meant that Volvo would share knowledge of the automotive industry with Geely. Among the build, borrow, buy options to fill Geely’s In turn, Geely would provide capital and share knowledge resource gap for the luxury market, an acquisition strategy of Chinese consumers with Volvo. dominated. Building internally would take exceptionally long without external assistance. A joint venture where When Volvo was owned by Ford, executives indicated Geely would borrow through an alliance would not that Ford required substantial reporting in terms of sales and marketing, while Volvo received little investment for R&D. Within Geely, Volvo gained access to increased 1 The note is based on a report by Jesse Mackewn, with updates by Will Mitchell, Rotman School of Management (April 2015). 2 http://www.bloomberg.com/news/articles/2010‐08‐02/geely‐said‐to‐ announce‐completion‐of‐volvo‐cars‐purchase‐from‐ford‐today 1 funding to develop new products such as improved The disagreement about goals reflects different market platforms, small and more efficient turbo dual electric perspectives. Samuelsson believes that changing Volvo’s assist engines, and Chinese market-specific innovations course to compete directly with BMW and Audi is risky such as the long body Volvos and passenger airbags3. because they would be giving up a niche they have cultivated over many years. By contrast, Geely’s Chinese Post-Acquisition Challenges leadership sees strong opportunities for growth in China. The post-acquisition strategy has faced challenges. In early 2014, reports indicated that Volvo’s management Recurring differences of short-term and long-term strategy was better aligned with Geely’s vision for the strategic vision have plagued the two management company. Volvo is now attempting a strategy that seeks cultures and have slowed the progress of the venture. growth in China for longer term investments, while continuing to emphasize Volvo’s established markets of Limited growth: After being taken over by Geely, Volvo Europe and North America as shorter-term targets. 7 In sought to more than double its annual global sales to June 2014, Volvo introduced a redesigned, larger, and 800,000 cars by 2020, from 373,000 in 2010, and become more upscale, long wheelbase Volvo S808. Reports that a stronger global luxury auto brand. But Stefan Jacoby Samuelsson would be replaced have subsided. reported that Volvo was unlikely to meet its goal to sell 200,000 cars a year in China by 2015. Volvo sold about Technology transfer: During his time as CEO, Stefan 47,000 cars in China in 2011 and was likely to sell Jacoby sought to protect Volvo from Geely obtaining its 45,000-46,000 in 2012, he forecast. Volvo reported a net technology. 9 Indeed, commentators noted that “Mr loss in the first half of 2012 as the euro zone crisis dented Jacoby’s resignation is likely to be greeted with some sales in Europe. disappointment at Volvo where he had become liked by Executive turnover: In September 2012, Jacoby was staff for his love of cars and his unwillingness for Geely replaced at Geely by Hakan Samuelsson, the previous to get its hands on too much of the Swedish group’s CEO of German truck manufacturer MAN SE. Reports technology.” Geely, of course, believes that it has a right indicate that Jacoby, left Geely after disagreements about to the technology, because it owns Volvo. strategic alignment with Geely’s chair, Li Shu Fu, and Hans-Olav Olsson, the former CEO of Volvo who was More active technology sharing between Volvo and began acting in an advisory role as Vice Chair of Volvo. Jacoby in 2013. In its 2013 annual report, Geely noted that now serves as Executive Vice President and President of cooperation with Volvo Car was now on track to achieve GM International Operations (GMIO) at General Motors. the company’s purpose of improving product quality and strengthening competitiveness. In September 2013, Geely Design and market positioning: Jacoby wanted Volvo to created an independent research and development centre continue the heritage of safety and Swedish style whereas called CEVT (China-Euro Vehicle Technology) located in Li Shu Fu wanted to create large, flashier high-end cars to Lindholmen Science Park in Gothenburg, Sweden as the compete directly with BMW, Mercedes, and Audi. 4 platform to facilitate the cooperation. Jacoby also wanted to pursue the U.S. market more aggressively and establish a North American plant in In 2014, CEVT was staffed by 200 resident engineers. Its partnership with another manufacturer, while Li Shu Fu first task was to develop a new modular architecture and wanted to emphasize growth in China.5 set of components for future C-segment cars, addressing the needs of both Volvo Car and the Geely Group. The Questions about Volvo’s strategic direction have modular strategy seeks to deliver on premium aspects for continued under new CEO Hakan Samuelson. Li Shu Fu Volvo as well as the Group’s broader needs in the has complained that the current execs are only meeting his automotive market. Geely’s goal for the modular wishes half way. Similar to Jacoby, Samuelson at least architecture is to deliver world-class product technologies, initially viewed the U.S. & EU as Volvo’s focal markets, while saving development, testing, and sourcing costs. while Li Shu Fu continues to want to emphasize the Chinese market.6 Leadership conflict: Strategic differences also appear to have arisen between Jacoby and Hans-Olav Olsson, a former CEO of Volvo (from 2000 to 2005, after serving at 3 http://www.ibtimes.com/volvo‐execs‐explain‐swedish‐carmakers‐relationship‐geely‐its‐ chinese‐owner‐volvo‐working‐its‐own 4 http://www.autonews.com/article/20121022/OEM02/310229814/why‐jacoby‐was‐ ousted‐at‐volvo?‐one‐theory 7 http://www.ft.com/intl/cms/s/0/acaf843a‐a924‐11e3‐9b71‐ 5 http://www.motorauthority.com/news/1073971_volvo‐latest‐to‐eye‐north‐american‐ 00144feab7de.html#axzz3SX4KDARK plant 8 http://in.reuters.com/article/2014/01/16/autoshow‐volvo‐idINDEEA0F0GZ20140116 6 http://www.autonews.com/article/20140127/GLOBAL03/301279940/at‐volvo‐ 9 http://www.ft.com/intl/cms/s/0/23919bce‐19c5‐11e2‐a379‐ tensions‐said‐to‐be‐rising‐on‐the‐sweden‐china‐border 00144feabdc0.html#axzz35kfOOILw 2 Volvo since 1966 10 ). Olsson was brought in to “keep vehicle technology as part of a gradual transition from Jacoby on his toes” at the new Volvo. Insiders indicated hybrid to pure electric technology. that the poor relationship between the two impeded a quick turnaround of Volvo.11 In parallel, the Geely Group is undertaking substantial restructuring of production, marketing, and sales activity. Disagreements arose about the roles that the board and The global vehicle market grew from 87.5 million executive management should take.