Volvo awaits OK to begin local operation

Even though it was sold to a Chinese automaker in 2010, Volvo Cars will have to form a 50-50 joint venture with new owner Geely to meet government requirements on local production, according to a senior executive of the Swedish carmaker.

Volvo has applied as a foreign brand for permission to build cars locally, so it must meet prerequisites that include a local partner, R&D facilities and developing a new brand owned by the joint venture, said Freeman Shen, senior vice-president of Volvo Cars and chairman of Volvo's China operations.

More details about the joint venture will be released in the next two months, the company said.

Volvo CEO Stefan Jacoby said the joint venture between Volvo and Geely will be more efficient than other Sino-foreign partnerships because both companies are "in the same boat going in one direction".

Both senior executives recently spoke to the media in the island resort of Sanya in Hainan province as the Volvo Ocean Race stopped over on its way to Auckland, New Zealand.

The nine-month around-the-world yacht race held every three years is co-owned by Volvo Group - which builds trucks, buses and engineering machinery - and Volvo Cars.

The race first made landfall in China in 2009 when it stopped at Qingdao. The decision to again call at a Chinese port was mainly driven by Li Shufu, the new Chinese board chairman of Volvo and head of Geely, who expects the move to improve understanding of the Nordic brand among Chinese consumers.

Pending government approval, Volvo's local blueprint includes plants in the southwestern city of Chengdu and Daqing in northeastern China as well as an R&D center in Shanghai. Shen said that the company is developing two new models in Shanghai for future local production, the first of which will be a mid-sized sedan that is expected to roll out next year.

Despite the unexpectedly long period to gain government approval, Shen said the company is sticking to its original plan to sell 200,000 cars a year in China in 2015, when it expects local production to play a decisive role.

Leading German luxury brands Audi, BMW and Mercedes-Benz together have about 80 percent of the premium car market in China mainly due to their successful strategy to build cars locally.

Volvo now imports the C30 and C70 coupes, S60 sedan, V60 wagon and the XC60 and XC90 SUVs to China. It also makes a small number of S40 and S80L models in the country at a Ford joint venture under contracts that will expire in 2015 and 2018.

Volvo's China sales surged 55 percent last year to more than 47,000 cars, making the country its third-biggest market globally. Its worldwide deliveries last year totaled nearly 450,000 cars, with the US and Sweden the top two markets.

According to the Swedish newspaper Dagens Industri, CEO Jacoby said the company expects to deliver about 60,000 cars in China this year, a 25 percent increase year-on-year.

But Shen noted that the most important milestones in 2012 will be building plants and a dealer network for locally made products.

He added that the company will nearly double its number of employees in China to about 1,700 to 2,000 by the end of this year.

Volvo's new Universe concept car that made its debut at the Shanghai auto show last April was brought to Sanya for display together along with some hybrid and electric models.

The carmaker's first full-sized luxury saloon - positioned to compete with top-of-the-line counterparts like the Mercedes-Benz S-Class - is likely to hit the market in 2015, Shen said.