Ford Motor announced yesterday that Zhejiang Geely Holding Group, the parent of Geely Automobile Holdings, is the company’s preferred bidder for its Volvo brand. That may be good news for Geely, which wants 66% of its total sales to come from overseas by 2015 – the acquisition of a foreign auto brand could amount to a handy shortcut to this goal.
But purchasing the Volvo brand is just the first step. Geely has to successfully integrate Volvo into its portfolio and then maintain the brand’s value. Doing this is harder than it looks. Although Geely has been making small acquisitions overseas such as Australia’s Drivetrain System International, it does not have the experience of managing a foreign car brand, let alone one with Volvo’s reputation.
Geely seems to realize this as it has said it wants to keep Volvo’s existing management in place for now. How long that relationship lasts and how much Geely executives can learn from their counterparts at Volvo will be a vital factor if the company is to prevent a drop off in sales once it takes over full-time management of the brand.
Those lessons will involve more than just how to market cars to foreign consumers. There are also the issues of relations with auto workers’ unions and pensions, areas in which Chinese auto makers have very little experience. For example, Shanghai Automotive Industry Corp’s investment in Korea’s Ssangyong was seen as a failure, partly because it couldn’t come to agreement with the company’s unionized workforce.
If Geely is able to absorb some of Volvo’s management wisdom and commits to a slow but certain approach to integrating the company into its portfolio, then that 66% target might inch closer to reality.