Has Zhejiang Geely’s adventure into Europe’s automotive brands turned sour? There would be every reason to think so judging by recent events over the last few weeks.
Firstly, there is the news that British-based Manganese Bronze, the maker of London’s iconic black taxi, has gone into administration.
Since 2007 Geely has had a 20 percent shareholding in the company but rescue talks between the Manganese and Geely managements failed to produce any agreement on saving the firm. In any case, their hold on the London taxi market was looking tenuous. The joint venture has had to contend with a host of problems, not least among them fierce competition for market share from Nissan and Mercedes which I noted in a previous post.
Secondly, at around the same time as Manganese Bronze was in meltdown, Geely fired its Volvo chief executive Stefan Jacoby and replaced him with Hakan Samuelsson. It was well known that Jacoby had a fraught relationship with Geely’s founder and chairman, Li Shufu.
They had a number of disagreements, some more fundamental than others, among them Volvo’s long-term global marketing strategy; its brand positioning, including product styling, consumer and price segments; and the sharing of Volvo’s intellectual property with Geely, which the erstwhile German CEO wanted to keep under the protective wing of the Volvo marque. Mr. Jacoby sought more independence for Volvo from Geely, and was once quoted as saying: “I don’t report to Li Shufu.”
Differences in management style added to the duo’s rocky relationship. In view of these tensions and the underlying culture clash that occasionally boiled over into dramatic confrontations between the two management teams, it is hardly surprising that Mr Jacoby has left.
Samuelsson, the new man at the helm of Volvo, has a tough job on his hands. Geely bought the loss-making brand from Ford Motor Co. in 2010 to take advantage of China’s growing demand for foreign car brands and satisfy the lifestyle aspirations of its emerging middle class for quality western brands.
Since then Geely has committed €8.5 billion to ramp up annual global sales to 800,000 cars by 2020 from around the 220,000 shifted so far this year. But the Eurozone slump has depressed sales even further, especially in Sweden, Volvo’s own back yard, resulting in production cut-backs, part-time work and even layoffs at its Swedish plant. Volvo and the new CEO are in a race against time, not so far from teetering on the verge of a cash crisis if sales don’t pick-up over the next year or two.
Then there is the tricky question of Volvo’s brand positioning and market focus. Mr. Li needs to exploit his investment by leveraging the brand’s heritage as a European, specifically Swedish, marque, to capture sales in China. He is adamant that the brand’s future market is there and wants to move Volvo upscale from a mid-range brand into the luxury segment to serve the country’s affluent consumers. A prototype, aptly named the Tiandi (meaning ‘Heaven’ or ‘Universe’) was exhibited at the Shanghai Motor Show in 2011, looking sleeker, more elegant and sportier than what we’ve come to expect from Volvo. North America as a market doesn’t appear to feature much in Geely’s plans for its new Volvo models, though the USA was for many years Volvo’s number one market.
The brand equity that once relied on Volvo’s reputation as one the safest cars in the world to drive isn’t enough anymore to differentiate it. Safety is an intrinsic quality of most auto brands nowadays and arguably the Germans have taken over and re-engineered that basic attribute for their Audi, BMW, Volkswagen and Mercedes brands.
Besides, it is an attribute that Geely might want to steer well clear of themselves, bearing in mind last month’s safety issues with their own brands: the recall of 55,000 vehicles made and sold in China by Geely, as well as the recall of 400 Manganese Bronze black TX4 cabs manufactured in China due a power steering fault. It was not the first TX4 safety scare: four years ago 5,000 London taxis were recalled for safety checks after a few of them caught fire.
With Manganese Bronze in administration, and Volvo embattled from within and without, Geely is probably living more in hope than expectation that at least its one remaining European investment comes good.
It would be sad to see Geely’s European adventure end in failure. As a Chinese private sector company headed up by a dynamic entrepreneur, it has led its country’s automotive sector in taking bold and courageous decisions to appropriate a couple of Europe’s iconic brands.
With new management, a clear strategy and lots of luck, Geely’s corporate tagline ‘Beyond Value’ may not yet mutate into ‘Beyond Hope’.