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Geely Investing $11 Bil in Volvo

Plans to rapidly expand Swedish maker’s presence in China.

by on Apr.09, 2012

Geely Chairman Li Shufu and Volvo CEO Stefan Jacoby.

Volvo is about to get a helping hand – a big one – from its Chinese parent, Geely Automobile Holdings, which plans to pump $11 billion into the Swedish maker.

According to a report in Wirtschafts Woche, the investment is intended to increase Volvo’s presence in the growing Chinese market.  Among other things, Geely wants to increase Volvo’s R&D, introduce new technologies and build a new engine plant.  Volvo is planning to migrate to a 4-cylinder-only powertrain strategy in the coming years.

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“We want to revive Volvo and give the brand its strength back,” Geely Chairman Li Shufu told the German weekly.

Exactly where the money will come from is a matter of debate.  While Chairman Li made it sound like Geely will be raising the capital, Volvo Per-Ake Froberg told the Reuters news service that the Swedish maker will have to come up with the capital.

The former Ford subsidiary has struggled in recent years, but is making a significant push to redefine itself with products like one likely to be based on the Volvo Concept You, introduced at the Frankfurt Motor Show last autumn.

Geely has said it wants to double Volvo’s global sales over the next decade, and it is betting that a significant share of that growth will come from the Chinese market.  That will take some significant momentum as Volvo sales totaled just 47,000 there last year.  But Li has targeted gaining a 20% share of the Chinese luxury market by 2014, which would mean sales of around 200,000 annually.

One way is by putting more emphasis on electric propulsion, something Chinese regulators are aggressively encouraging.  Volvo is currently developing a range of plug-ins, pure battery-electric vehicles and more conventional gas-electric hybrids.

During a recent interview, Volvo CEO Stefan Jacoby insisted his company won’t downplay the American market – long its largest – in favor of China.  But there seems little doubt that the leadership at Geely sees bigger opportunities, going forward, in the Asian nation’s automotive market, now the world’s largest.

Volvo will work together with Geely to develop another premium luxury brand that will use the Swedish maker’s technology but will operate as an independent entity under Geely Automobile Holdings.

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