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Volvo To Invest $11-12 Billion In Global Expansion

Fri, 02/25/2011 - 3:22am
Joe McDonald, AP Business Writer

BEIJING (AP) — Volvo Cars said Friday it will invest $10-$11 billion worldwide over the next five years in an ambitious expansion following its acquisition by a Chinese automaker.

CEO Stefan Jacoby's announcement came as Volvo unveiled plans to target fast-growing China for stronger sales. The company said it will open a production base in southwestern China and is looking at a possible second site in the northeast.

"We plan to invest $10-$11 billion over the next five years globally," Jacoby said in an interview. He said that will pay to develop a new vehicle platform and power train and to expand Volvo's presence in China.

Volvo was acquired in August from Ford Motor Co. by Geely Holding Group, one of China's small but ambitious automakers. The $1.5 billion deal — China's biggest foreign auto acquisition — secured Geely a respected global brand but also the challenge of turning around a perennial money-loser in a distant country.

Volvo plans to raise part of the cash for its investment plans in China, drawing on its Geely ties, Jacoby said. He said the Goteborg, Sweden-based company also is raising money from European investment banks and the government of Belgium, where it has a factory.

Jacoby, a German-born former president of Volkswagen Group of America, was appointed to lead management installed by Geely following the acquisition.

Volvo's China plans call for boosting sales to about 200,000 vehicles by 2015, up from 39,000 last year, Jacoby said. Worldwide, Volvo hopes to double sales to 800,000 by 2020.

"China plays a significant role in this growth plan," he said. "We have also significant growth plans in the United States and Europe and in very attractive overseas markets like Australia or Brazil."

China has become the centerpiece of global automakers' plans amid weak growth elsewhere.

It overtook the United States in 2009 as the biggest auto market by number of vehicles sold. And in 2010, total sales grew by an explosive 33 percent over the year before to 13.7 million vehicles, boosted by tax cuts and other incentives launched in response to the global crisis.

General Motors CEO Daniel Akerson this month called China the "crown jewel in the GM universe" and said his company will launch at least 20 new or redesigned cars here in coming years. GM, Toyota and other automakers are creating models to appeal to Chinese tastes.

"If Volvo wants to recover and wants more sales volume, China will definitely be a very important part of that," said Boni Sa, an auto industry analyst for CSM Worldwide.

Volvo has the advantage that Chinese buyers see it as a premium brand on a par with Mercedes Benz or BMW, in contrast to its less luxurious image elsewhere, Sa said. But he said Volvo needs to meet rising Chinese expectations by adding accessories such as leather seats and sophisticated entertainment and air conditioning systems.

"If Volvo can build the right car for Chinese customers, they will see significant growth in China," Sa said. "They need to build more cars that can meet Chinese customers' demands."

Volvo and Geely make an unusual pairing — an established European brand better known for safety than style and a 14-year-old Chinese upstart maker of compact sedans and other low-cost vehicles that is barely known abroad.

Geely's strategy calls for making Volvo a "completely independent automaker" and giving Jacoby's team independence in decision-making, Geely chairman Li Shufu said Friday in an interview.

Li said Geely can help Volvo understand China's booming auto market but will keep the brand separate from its mass-market Geely Auto brand. Geely Auto sold about 495,000 vehicles last year.

"What Geely Holding Group can do is to do its best to help Volvo's development in China," Li said. "Volvo's management decisions will be made completely by its own management team."

Volvo plans to create a production base in Chengdu in Sichuan province in the southwest. It said its China headquarters and design center will be in Shanghai. The company also is looking at a possible production site in Daqing in the northeast.

Jacoby said Volvo picked Chengdu in part because Geely has a factory there. Volvos currently are produced at a Ford joint venture in Chongqing, an hour's drive from Chengdu.

"We are planning to have our plant directly next door to the Geely plant so we can benefit from the infrastructure and shared services," he said. "That allows us to have a setup in a very quick time."

Chinese news reports have suggested Chengdu was picked because the Sichuan government put up some of the money to finance the Volvo acquisition, but Jacoby denied that.

Volvo also wants to appeal to Chinese tastes but has no plans to design a model exclusively for China, Jacoby said. He said the company already has found Chinese buyers want more interior room.

"We are are looking very carefully for specific needs of the Chinese customers," he said. "By manufacturing here we have the opportunity to adapt our cars and tailor-make our cars for the needs of the Chinese customers."

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