Volvo China Plant Is Key to Success Under Geely, Odell Says

Stephen Odell, chief executive officer of Volvo Cars, speaks during a news conference at Volvo headquarters in Gothenburg, Sweden on March 28, 2010. Photographer: Erik Abel/Bloomberg

Volvo Cars’ success after its sale to Zhejiang Geely Holding Co. will hinge on building a manufacturing plant in China, the Swedish carmaker’s chief executive officer Stephen Odell said.

“When you look at the car industry in China, if you want to be even a 2 percent player there -- and 2 percent is not a bad aspiration -- you have to have local manufacturing,” Odell, 55, said in an interview late yesterday. “We already have local manufacturing through a contract party, but it’s clear Volvo needs more capacity to grow.”

Volvo builds its S40 and S80L models for the Chinese market at a factory co-owned by parent Ford Motor Co. and Chongqing Changan Automobile Co. Volvo will be able to use this plant even after Geely’s takeover, Odell said. The CEO, who will leave Volvo to run Ford’s European division, said he isn’t privy to Geely’s plan for Volvo’s future manufacturing in the country.

Volvo sold 191,832 cars in the first half, a 20 percent increase from a year earlier. In China, Volvo’s fourth-biggest market, deliveries surged 88 percent to 15,497 cars in the period, helped by last year’s introduction of the S80L, a longer version of the S80 that’s sold only in that market, spokesman Stefan Elfstrom said.

China Production Needed

Volvo needs its own Chinese plant “as quickly as possible,” said Yale Zhang, a Shanghai-based analyst with IHS Automotive. “You cannot rely on imported autos, they will just not be competitive.”

Last year, Gothenburg-based Volvo made about 8,900 S80Ls and 6,200 S40s at the Chongqing factory.

Volvo may be able to sell between 100,000 and 200,000 cars annually in China within three years with its own plant, said Glenn Bergstrom, a Volvo board member who represents workers. “In a year or two we must have our own production facility in China,” he said.

China’s Ministry of Commerce said yesterday it had signed off on Geely’s takeover of Volvo, paving the way for completion of the $1.8 billion acquisition that’s the biggest Chinese takeover of an overseas automaker.

“Volvo will have an owner that knows China, the biggest car market in the world, better than anybody else does,” Odell said by telephone. “Having manufacturing capacity will only help Volvo in China.”

Volvo plans to hire 500 to 600 temporary workers at its plants in Sweden and Belgium to meet demand and produce its new S60 and V60 models, Odell said. It’s the first time Volvo is adding workers since the financial crisis. Odell had cut 4,600 jobs, including 1,200 consultants, at the automaker.

The last time Volvo made an annual profit was in 2005, when it posted a pretax profit of $377 million.

Neither Ford nor Geely has said who will succeed Odell as Volvo CEO. Volkswagen AG U.S. chief Stefan Jacoby, who stepped down in June, may take over as CEO at Volvo, people familiar with the matter said last month.

To contact the reporter on this story: Ola Kinnander in Stockholm at okinnander@bloomberg.net