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Volvo Outgrows Safe Image as Geely Targets BMW Buyers: Cars

Much of Volvo’s ambitions rest on the Chinese market. Photographer: Nelson Ching/Bloomberg
Much of Volvo’s ambitions rest on the Chinese market. Photographer: Nelson Ching/Bloomberg

July 12 (Bloomberg) -- Volvo Cars wants to expand beyond consumers like Frances Wong, a would-be mom in China who is considering trading in a Golf from Volkswagen AG for a bigger, safer model from the Chinese-owned Swedish brand.

“I looked at many cars, and Volvo’s cars offer value for money and good safety features,” said Wong, 30, a partner at an information technology services firm in Shanghai, as she was taking a close look at a Volvo XC90 sport-utility vehicle.

Volvo, which built a reputation around security and reliability, aims to broaden its appeal, especially with Chinese consumers, by adding user-friendly comforts and a touch of luxury. The goal is to more than double sales to 800,000 vehicles and challenge German premium leaders Bayerische Motoren Werke AG, VW’s Audi and Daimler AG’s Mercedes-Benz.

The shift in image was instigated by Chief Executive Officer Stefan Jacoby. The former VW executive was brought in by Zhejiang Geely Holding Group Co. after purchasing Volvo from Ford Motor Co. last August for about $1.5 billion.

The 53-year-old executive determined that safety advancements throughout the auto industry meant Volvo’s reputation was a diminishing asset. The main message now is user-friendly, simple luxury, Doug Speck, Volvo’s sales and marketing chief, said in an interview.

“People haven’t flocked to Volvo because most customers are looking for safety-plus,” said Alexander Edwards, head of the automotive unit for researcher Strategic Vision in San Diego.

Shrinking Share

The outmoded image has led Volvo to drop off the radar screen for many Americans. Just 15 percent of U.S. auto buyers would consider a Volvo, compared with 22 percent for Toyota Motor Corp.’s Lexus and 21 percent for BMW, said Edwards. Still, the brand has “great potential” if it boosts marketing, because consumers “trust” the company, he said.

Geely Automobile Holdings Ltd., the Hong Kong-listed unit of Zhejiang Geely, fell as much as 5.5 percent and was trading 4.3 percent lower as of 2:31 p.m. local time. The stock has risen 1.6 percent since its parent acquired Volvo on Aug. 2, versus a 2.1 percent increase in the benchmark Hang Seng Index.

Geely, whose best-selling car is the $14,355 Emgrand EC7 sedan, is the eighth-largest auto manufacturer in China with a market share of 3.7 percent.

Much of Volvo’s ambitions rest on the Chinese market. Volvo plans to produce a new car designed for China in 2013. In February, it selected Chengdu in the southwest for a new auto plant and may build a second as well as an engine factory with a capacity of 200,000 to 300,000 motors, Freeman Shen, head of Volvo’s Chinese operations, said in an interview in Shanghai.

The mainland looks set to overtake the U.S. as the company’s biggest market as early as next year.

‘Second Home’

China “is going to be our largest single market in the world,” Speck said by telephone from New Jersey. “It’ll be where we grow our volume more than any other market, and it’s where we’ll have significant infrastructure. We’re establishing China as a second home market.”

The carmaker, whose models include the four-door S60 sports sedan and C70 convertible, increased sales by about 24 percent to 44,700 cars last month, marking the best June in its 84-year history. The company should “comfortably” deliver at least 425,000 cars this year, up 14 percent from 2010, Speck said. The figure is still shy of its 2007 record of 458,323, as BMW, Audi and Mercedes target new best marks this year.

Luxury Symbols

Volvo may also continue to lag behind its German competitors. BMW’s sales will probably grow by about 482,000 vehicles through 2014, compared with Volvo’s expected gain of 140,000, according to data from IHS Automotive. Audi is projected to pad sales by 400,000 and Mercedes by 490,000 in that period.

Volvo is also trailing in China. Sales rose 36 percent to 21,028 vehicles in the first six months of 2011, while BMW gained 61 percent to 121,614. Audi, the luxury-car leader in China, delivered 140,699 vehicles, a gain of 28 percent. Mercedes jumped 52 percent to 92,174.

“It will be very hard for Volvo to shake the market position of BMW, Audi and Mercedes” in China, said John Zeng, a Shanghai-based analyst at J.D. Power & Associates. “The three are very strong brands, and they sell large volumes.”

Audi, Mercedes and BMW have traditionally been regarded as luxury symbols in China, Zeng said. Volvo has the opportunity to win customers from brands such as Toyota Motor Corp.’s Lexus and Nissan Motor Co.’s Infiniti, because of its better brand perception, Zeng said.

Still Safe

The Swedish automaker aims to boost Chinese deliveries by at least 60 percent to 50,000 cars this year, said Shen. By 2015, the goal is 200,000 by targeting buyers who “don’t want to show off” but rather “want to have a feeling of simple luxury,” he said.

Even with the shift, Volvo isn’t losing sight of safety. Last year, it introduced in the S60 sedan technology that warns drivers of a potential collision with a pedestrian. Now, the company is developing a system that will automatically brake for animals.

To contact the reporters on this story: Ola Kinnander in Stockholm at okinnander@bloomberg.net; Liza Lin in Shanghai at llin15@bloomberg.net

To contact the editor responsible for this story: Chad Thomas at cthomas16@bloomberg.net

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