A Volvo car in Shanghai. (Photo/Xinhua)
Swedish automaker Volvo sees its expansion into the Chinese market as crucial to the company's revival, but it has not yet won the hearts of buyers in the country, Chinese-language magazine Business Value says.
The magazine reported that the Swedish car brand, known for promoting comfort, safety and design harmony, has yet to launch its mainstream luxury cars in the Chinese market and has been keeping the design of car interiors as simplistic as possible.
When talking about the brand, people would not relate it to the generation of the nouveau riche, the second-generation rich or the car-racing kind of brand, the magazine said.
In late October, Volvo announced that board member Hakan Samuelsson would take over as its new CEO, replacing Stefan Jacoby. However, this news focused media attention on the losses suffered by the company in the first half of this year instead.
Volvo reported that both its profits and sales in the first six months of this year declined.
The Chinese market only accounted for 9% of Volvo's total sales in the first half of this year, while the European market accounted for half of its total sales, and the US market made up 15%.
Business Value said the manner in which Volvo forayed into the Chinese market was important for the company's revival. This was the reason why Fu Qiang, president and CEO of Volvo China's sales department, had been assigned with the task.
One of the most important tasks for Li Shufu, chairman of the Zhejiang Geely Holding Group, which owns Volvo, over the last few years was to attract local professional managers and technicians who were familiar with the Chinese automobile market, the report said.
Volvo, an 88-year old Swedish automobile brand, is not well-known in the Chinese market. Geely acquired the Volvo Cars unit from Ford, which acquired it in 1999 from AB Volvo.
AB Volvo manufactures products such as trucks, buses, construction equipment, drive systems for marine and industrial applications, and components for aircraft engines.
A company as large as Ford usually begins downsizing its operations five years prior to selling a portion of its assets, causing it to hold off on expanding its Volvo sales in emerging markets.
The magazine said that as a latecomer into the European luxury car market, Volvo had joined the market through both innovation and tradition.
Since the 1950s, Volvo cars have had a reputation for safety.
The Volvo design team invented both the "safety cage" and "crumble zone," where passengers are protected by a strong, encircling frame and the energy of a crash is absorbed by the destruction of the hood or trunk of the car. Volvo also invented the easy-to-use three-point seatbelt; first introduced as an accessory in 1957 and later standardized in all Volvo cars in 1959. All these safety features were now a standard in all Volvo cars and were responsible for saving many lives.
Ong Eng Seong, former president of Ford's Premium Automotive Group China, said that Volvo's predicament had surfaced when it failed to break even. The company was supposed to sell 400,000 cars to break even, but owing to the 2008 financial crisis, it only sold 380,000 cars.
Low popularity, a shrinking customer base, insufficient size to utilize economies of scale and soaring costs were some of the factors affecting Volvo's profitability.
After acquiring Volvo, Geely came up with a new strategy aimed at increasing Volvo's sales to 800,000 cars a year, and boosting a return on investment in the Chinese market. The new strategy included improving products, pricing, communication with consumers, increasing the number of distribution outlets in China to 250 from the current 131, and introducing more than 10 new car models in China during the next five years.