In April 1927, though the Nordic weather was still chilly despite the arrival of spring, a factory in Gothenburg, Sweden, presented a lively scene.
A group of people were waiting excitedly in the open. Then a convertible slowly drove out of the factory, watched intently by the crowd, and they broke into a lusty cheer. It was the first car produced by the Volvo Group.
Since that day, Volvo led the Swedish automotive industry on a magnificent journey lasting nearly a century.
At that time no one thought that more than 80 years later, the venerable auto company would have a tie-up with Zhejiang Geely Holding Group, a young Chinese car maker.
Swedish city Gothenburg
Jan-Erik Larsson is vice president R&D at Volvo Cars Asia Pacific. As a child he grew up on stories of Volvo Cars told by his grandfather and father. The three generations have witnessed Volvo’s glorious as well as tortuous development.
Larsson’s grandfather participated in the development of the first Volvo car. At that time, Sweden had developed into an industrial country with ample domestically produced high-quality steel, sophisticated machinery, excellent technical teams and other conditions for automobile production. These advantages enabled the young Volvo Group to develop its first car soon. In the decades after its birth, Volvo Cars entered the global market and became the glory of the Swedish automotive industry.
Larsson’s father saw the golden age of Volvo when its sales reached the zenith, ranking among the top in the luxury car market. Volvo cars excel in safety, health and environmental standards. Almost half of the car safety technologies throughout automobile history have been developed by Volvo, including the well-known three-point seat belt, safety cage design of car bodies, and the rear-facing child safety seat. Its classic model S80 was a favorite with many royal family members and high-ranking officials, and became the benchmark for top car safety.
However, when Larsson joined Volvo, the situation had changed.
In 1999, the Volvo Group sold Volvo Cars out of strategic considerations. Ten years later, when the global automotive industry suffered the impact of the global financial crisis, Volvo faced sales, debt and loss problems. Annual sales of automobiles fell to 335,000 with a total loss of SEK17 billion (approximately US$2.38 billion at that time).
Volvo’s new S90 sedan is ready to go.
Under such circumstances, Volvo Cars was sold again.
After negotiations, Geely won the preferential bidding right among bidders around the world and finally reached an acquisition agreement for US$1.8 billion.
After the acquisition, Geely adopted a variety of effective measures to revive Volvo’s morale and optimize its structure, creating a new atmosphere.
That year, Volvo’s sales worldwide increased by 11.6 percent compared with the previous year. Sales in Chinese and Swedish markets increased by 36.2 percent and 26.5 percent respectively year on year.
Talking about Volvo’s rise from the nadir to the zenith, Larsson has much to say. “At the beginning of the acquisition, I would hear people expressing their worries but the facts speak louder than words. I am amazed to see Volvo’s fantastic development since the acquisition. Both in the global and the Chinese markets, its sales reached a new high in 2018 for five consecutive years. This is undoubtedly the best proof of the success of the entire acquisition.”
Geely’s acquisition of Volvo caught the attention of the global automotive industry. People were very curious. How could a young car company that had been around for less than 12 years acquire an established 80-year auto enterprise? More importantly, would they be able win over Volvo’s trade union?
The trade union virtually boycotted the acquisition. The employees were worried, wondering if the Chinese company would be able to lead them out of the doldrums. Would they care for a brand that was the pride of Swedes the way the Swedes did? Could they over- come the huge cultural differences? Would workers’ jobs and benefits be guaranteed?
To learn more about the Chinese company, Volvo’s trade union first thought of going to London, where Geely had acquired a stake in the London Taxi Company. The members inspected the company’s operations, consulted the employees and unexpectedly heard many complimentary things about Geely, which helped change their views.
Subsequently, the Swedish trade union and media delegations made a special trip to China to visit Geely and its production base. The inspection gave them a good impression.
In the course of the two-year negotiations, Geely also sent representatives to the trade union several times. They directly addressed the union’s concerns and legitimate rights and interests. This also helped dispel workers’ concerns.
The trade union chairman Glenn Bergström, who has been with Volvo for over 30 years, said frankly that initially the union was full of worries and resisted the acquisition. But after repeated communications and testimonies from witnesses, the fears and resistance slowly ebbed. In the end, they voted for the acquisition.
Impressing the trade union was the first step toward Volvo’s integration and the beginning of the story of its resurrection.
How to adjust the management structure was another key issue.
In the past, Volvo did not have much say in the decision-making for its own development, which curbed the enthusiasm of the management and slowed down its development.
It was essential to give the management full authority and incentives.
After taking over Volvo, Geely decided to implement localized management and rebuild the Volvo Board of Directors in accordance with the hierarchical governance structure of the shareholders’ meeting, the board of directors, and the operation and management. The new board of directors was composed of 13 directors from China, Sweden, Austria, Denmark, Germany and other countries related to automobiles, logistics, financial management and other fields. It was a combination of international talent and Swedish local talent, resulting in a global board of directors.
Volvo was given a freehand in its operations. The company’s headquarters is still in Gothenburg and has retained all its factories, R&D centers and sales networks. Bergström thinks the new management structure gives Volvo’s management a large mandate to take decisions independently. The extent of authorization is adjusted annually based on operating results.
In addition, Geely provides Volvo with advice and support in funding, talent, infrastructure and logistics management. Today, Volvo has more than 43,000 employees worldwide and has established an extensive sales and service network. In 2018, it sold 642,000 cars, improving the sales records again.
That is how the veteran auto company began its journey of revival step by step.
The acquisition of Volvo Cars significantly strengthened Geely’s advantage in scale. As a result, Volvo Cars can control its purchase costs more efficiently.
In the decade following the acquisition, Volvo Cars grew from a Sweden-based car maker into a global company in the real sense. Today, it has established complete commercial and industrial systems in Europe, the Asia-Pacific with China as the center, and the American markets with the United States as the core. It has realized efficient integration and allocation of resources across the globe and remarkably increased its competitiveness in a volatile international trade environment.
Geely-Volvo’s compact modular architecture
With the full support of Zhejiang Geely Holding Group, Volvo Cars has invested US$11 billion in research and development of core technologies such as Scalable Product Architecture (SPA). This has become one of the biggest industrial investment projects in Sweden’s history.
Cooperation produces mutually beneficial results. Following the development of the SPA, the Compact Modular Architecture (CMA) is a brand new platform jointly developed by Volvo Cars and Geely, with the former playing the main role. The platform fully demonstrates the technological collaboration and cooperation instituted after Geely’s acquisition of Volvo Cars. Based on the CMA, Volvo has developed a brand new car model, the XC40, manufactured in its Ghent plant in Belgium and other factories.
The plant began construction in 1965. It is located approximately 60 kilometers northwest of Brussels. The 2008 global financial crisis plunged the Belgian auto industry into a severe crisis with 50 percent of the jobs in the auto assembly industry slashed. It triggered a layoff crisis at Volvo’s Ghent factory. Geely’s acquisition saw it through the trouble.
Today, the number of employees has increased from 4,000 at the time of the acquisition to nearly 6,500, and also created 20,000 indirect local jobs. The plant has become one of the biggest employers in Belgium’s East Flemish Province. Apart from boosting the local economy and employment, the Ghent plant provides managerial expertise and technological support for the Chinese automobile industry. In the past three years, a total of 200 Chinese employees of Volvo Cars went to the factory for training. The factory also regularly sent experts to the plants in Daqing, Chengdu and Zhangjiakou to offer technological guidance.
In the synergy and integration of Geely and Volvo, the century-old automobile industry civilization of the West and Eastern culture are influencing each other, creating understanding and inclusiveness. It has made people optimistic about win-win cooperation between Chinese and European enterprises, which will grow together and realize their dreams in the automobile industry.
The Volvo Group is one of the leading manufacturers of drive systems for trucks, buses, construction equipment and marine and industrial applications. In 1999, it sold its car business to Ford Motor Company. In 2008, hit by the financial crisis, Ford sold several of its car models.
In 2010, the Zhejiang Geely Holding Group officially acquired Volvo Cars from Ford, obtaining 100 percent stake in it.
Since the acquisition, Volvo’s organizational structure has been adjusted and a clear and future-oriented development strategy has been formulated. The company has developed industry-leading platform architectures, improved its product planning and development, expanded its global strategic layout and achieved rapid growth.
Volvo currently has more than 43,000 employees worldwide and more than 2,400 sales and service outlets in over 100 countries. In 2018, Volvo sold 642,000 cars, setting a new global sales record for five consecutive years.