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Home » Opinion » Chinese Views
Chinese auto makers in a barefoot race
Source: Xinhua |
August 6, 2010, Friday
|
Print Edition
Print Edition
HE ventured into a start-up business 26 years ago as the boss of a backyard assembly line of refrigerator parts in a non-descript county.
Years later, he led his friends in dismantling a Mercedes-Benz and trying to imitate its designs to make China's own luxury brand. In 1998, he was appointed head of largely unknown domestic car maker Geely Group.
Today, Li Shufu is no longer a nobody. The ambitious businessman with big plans caught the world' by surprise by initiating and on Monday (August 2), by closing a US$1.5 billion deal to buy the Volvo unit of the US auto giant Ford Motor Co.
Li, of course, is the first Chinese chairman of Volvo Cars in the Swedish car maker's 85-year history. The privately owned Geely Holdings Group Co Ltd became China's first multinational auto group to own a world-class brand.
In an interview with Xinhua, Li recalled the arduous process and talked about his vision.
Compared with Volvo, the Geely brand is an infant in the auto market. In 2009, Geely sold 325,400 vehicles with a turnover of US$2.4 billion, about a tenth of Volvo's sales that year. "It was really difficult for Geely," Li said. "We first presented the acquisition deal to Ford in 2007, but it was completely ignored."
Li said he started to ponder the acquisition as early as 2002. "At the time, Geely had just got the state's nod to produce sedans and had not yet generated a penny of return on the 2 billion yuan investment."
However, Li said, Geely benefited from a policy of the National Development and Reform Commission (NDRC), the state economic planner, that ensured domestic companies engaging in a single overseas acquisition were narrowed down to the single, best-placed firm in order to avoid infighting.
"When Geely's plan was already on the NDRC's desk, Volvo picked China - it picked Geely."
Li believed Ford chose Geely for the Chinese market at large, as well as Geely's culture, the group's business potential and its respect for international business rules.
China overtook the United States to become the world's largest auto market in 2009 when car sales hit 13.64 million. It has retained that status into 2010 with more than 7.18 million units sold in the first half.
Industry analysts said Volvo needs to grab a bigger share of the Chinese market to revive the luxury Swedish brand after a sluggish 10 years under Ford.
But signing the deal was not easy. Li said the entire negotiation process was "extremely arduous" with tens of thousands of revisions of the original draft.
Li said the Volvo buy-out was not just a dream that came true for him, but also a much-needed move for Geely to survive the fiercely competitive domestic market. Encouraged by robust sales last year, major Chinese domestic auto makers have sharply lifted 2010 sale goals and are competing to build production bases and new innovations.
China's BYD, for example, is in talks with Germany's Daimler AG to develop electric vehicles. "If we can't enter a higher layer of industrial hierarchy, it is a dead-end road. For Geely to survive, overseas acquisition is the only way out," Li said.
He compared the Chinese auto industry's catching up to the industry in developed countries as "barefoot runners chasing those in running shoes." "We need another 20 years to develop the technologies, the brands. The overseas acquisition is the first step," he said.
Li said Geely's staff should learn the core competitiveness of Volvo and might apply "a few" of Volvo's technologies to Geely brands, but largely Volvo remained Volvo and Geely remained Geely as Volvo's advances in technology should be exclusive to Volvo. He described the relationship as that of brothers, and not parent and child.
Geely paid US$1.3 billion in cash plus a 200-million-dollar note for Volvo, less than a quarter of what Ford paid for it in 1999. Under the new ownership, Volvo Cars will keep its headquarters and manufacturing presence in Sweden and Belgium, and its board will have autonomy to execute its strategic plans. Volvo and Ford will maintain close relations in component supply, according to the company statement on the day of takeover on August 2.
Li said Volvo would strengthen its presence in Europe and North America while also taking advantage of growth opportunities in China, as part of the plan to restore its position in the global luxury auto market.
Volvo manufacturing bases would be set up in China with qualified local parts suppliers. But he said the plan required effort not just from Geely, but also the support of the state.
The locations of the assembly lines and parts suppliers should be considered and decided after consultation with state authorities, he said.
Years later, he led his friends in dismantling a Mercedes-Benz and trying to imitate its designs to make China's own luxury brand. In 1998, he was appointed head of largely unknown domestic car maker Geely Group.
Today, Li Shufu is no longer a nobody. The ambitious businessman with big plans caught the world' by surprise by initiating and on Monday (August 2), by closing a US$1.5 billion deal to buy the Volvo unit of the US auto giant Ford Motor Co.
Li, of course, is the first Chinese chairman of Volvo Cars in the Swedish car maker's 85-year history. The privately owned Geely Holdings Group Co Ltd became China's first multinational auto group to own a world-class brand.
In an interview with Xinhua, Li recalled the arduous process and talked about his vision.
Compared with Volvo, the Geely brand is an infant in the auto market. In 2009, Geely sold 325,400 vehicles with a turnover of US$2.4 billion, about a tenth of Volvo's sales that year. "It was really difficult for Geely," Li said. "We first presented the acquisition deal to Ford in 2007, but it was completely ignored."
Li said he started to ponder the acquisition as early as 2002. "At the time, Geely had just got the state's nod to produce sedans and had not yet generated a penny of return on the 2 billion yuan investment."
However, Li said, Geely benefited from a policy of the National Development and Reform Commission (NDRC), the state economic planner, that ensured domestic companies engaging in a single overseas acquisition were narrowed down to the single, best-placed firm in order to avoid infighting.
"When Geely's plan was already on the NDRC's desk, Volvo picked China - it picked Geely."
Li believed Ford chose Geely for the Chinese market at large, as well as Geely's culture, the group's business potential and its respect for international business rules.
China overtook the United States to become the world's largest auto market in 2009 when car sales hit 13.64 million. It has retained that status into 2010 with more than 7.18 million units sold in the first half.
Industry analysts said Volvo needs to grab a bigger share of the Chinese market to revive the luxury Swedish brand after a sluggish 10 years under Ford.
But signing the deal was not easy. Li said the entire negotiation process was "extremely arduous" with tens of thousands of revisions of the original draft.
Li said the Volvo buy-out was not just a dream that came true for him, but also a much-needed move for Geely to survive the fiercely competitive domestic market. Encouraged by robust sales last year, major Chinese domestic auto makers have sharply lifted 2010 sale goals and are competing to build production bases and new innovations.
China's BYD, for example, is in talks with Germany's Daimler AG to develop electric vehicles. "If we can't enter a higher layer of industrial hierarchy, it is a dead-end road. For Geely to survive, overseas acquisition is the only way out," Li said.
He compared the Chinese auto industry's catching up to the industry in developed countries as "barefoot runners chasing those in running shoes." "We need another 20 years to develop the technologies, the brands. The overseas acquisition is the first step," he said.
Li said Geely's staff should learn the core competitiveness of Volvo and might apply "a few" of Volvo's technologies to Geely brands, but largely Volvo remained Volvo and Geely remained Geely as Volvo's advances in technology should be exclusive to Volvo. He described the relationship as that of brothers, and not parent and child.
Geely paid US$1.3 billion in cash plus a 200-million-dollar note for Volvo, less than a quarter of what Ford paid for it in 1999. Under the new ownership, Volvo Cars will keep its headquarters and manufacturing presence in Sweden and Belgium, and its board will have autonomy to execute its strategic plans. Volvo and Ford will maintain close relations in component supply, according to the company statement on the day of takeover on August 2.
Li said Volvo would strengthen its presence in Europe and North America while also taking advantage of growth opportunities in China, as part of the plan to restore its position in the global luxury auto market.
Volvo manufacturing bases would be set up in China with qualified local parts suppliers. But he said the plan required effort not just from Geely, but also the support of the state.
The locations of the assembly lines and parts suppliers should be considered and decided after consultation with state authorities, he said.
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