China's Geely bought the $1. 5bn acquisition of Volvo from Ford catapulting a Chinese car maker into the global league for the first time. Geely is one of China's largest car companies. But while the booming Chinese market became the world's biggest last year, the industry is fragmented: Geely sold just 330,000 cars in 2009, the same as Volvo. The group plans to use vast Chinese demand to double Volvo sales, while using the Swedish group's technology, dealership network and global brand to push Geely outside China. Volvo sales of 335,000 globally are off 11% this year and 27% off their peak, according to this Bloomberg story.
The Swedish carmaker has lost $2. 6 billion during the last two years. The brand hasn’t been a real moneymaker for a very long time. Its costs are high and prices are strong, but Volvo doesn’t command luxury premiums for its cars. This could be very good deal for volvo as buyers indicate that Volvo won’t just be folded into Geely and lose the brand’s strong Nordic identity. Volvo will keep its own management team, board of directors and headquarters in Gothenburg, Sweden. That would mean that Volvo will keep its Swedish heritage and cachet.
European and American Volvo loyalists will still be buying cars engineered in Gothenburg and built in Europe. The Chinese luxury market is booming and still has room for some other players to come in and build a brand. Geely will assemble Volvo cars in China using cheaper manufacturing. The brand is upscale and Geely ownership might even be seen as preferable by Chinese consumers. So the company car grow sales and get fatter margins in China. That makes the business case work better than it ever did either under Ford or as an independent carmaker. After so many failed auto deals, this one has the makings of a success.
Of course, it means Geely can’t manhandle Volvo. They need to rely on Ford and the Swedes for technology that will make the Chinese cars real Volvos. In short, they should manage it as a separate subsidiary. Volvo is a niche brand and will never be a cash cow. But it certainly could work if Geely gives it some independence. From volvo brand management perspective there are several things to retain in order not to lose brand identity and board of directors should take in mind that the essential attributes of Volvo brand, such as safety, quality, and design should be influenced in a positive way.
Volvo cars produced after the acquisition by Geely are perceived as providing higher safety, better quality and design than before. The association of Volvo with these attributes became stronger too. This improvement can be the result of the large investments that Volvo is expected to receive from the new parent company. Nevertheless, the level of technology as the attribute of the brand image suffered losses after the Chinese takeover. What is of particular interest is that the acquisition has added uniqueness to the brand image of Volvo.
Apparently, the combination of the Swedish production and the Chinese management makes Volvo stand out among other car manufacturers in the consumers’ minds. In addition, excitement and curiosity strengthened their position in the emotional component of the Volvo brand image. At the same time the improvement in the essential attributes such as safety, quality, and design ascertained the image of Volvo brand as being a logical and reasoned choice for the consumers. The more intangible aspects of the Volvo image, however, were affected negatively by the acquisition.
To specify, Volvo brand seems to be losing its association with care for environment. Even though it has been one of the core values of Volvo for decades, it is now challenged by the involvement of the image of China. Care for family has undergone similar changes, that are however of milder character. Furthermore, the image of a typical Volvo owner appears to be changing. The association with a successful confident person as a driver of a Volvo car has become weaker. Similar conclusion can be made about the symbolic value of the brand image.
Volvo as a symbol of success and stability in its owner’s life started losing its positions. As a sum of all the transformations happening to the brand image, the consumers’ attitude towards Volvo became less positive. Despite this, the brand still has a large margin of safety and great support from the consumers. Few years have passed since the acquisition, and the brand image, as well as the company itself, is still at the at the transition stage. Consumers are still not sure where this change is going to lead.
The further development in the brand image of Volvo is largely dependent on the branding strategy and managerial decisions of the new management The idea of China being the production location for Volvo hits hard on all the elements of the brand image. The long-term essentials of Volvo, such as safety, quality, technology, and design become depreciated for the consumers. Care for environment suffers severe losses. Uniqueness and symbolic value of the brand are downgraded. Consequently, the attitude towards Volvo produced in China is to become less and less positive.
Recommendations for this brand should be that the board of directors should take in mind that important thing is to retain volvo’s image by focusing on the segment of people who are volvo users. Those people buy this specific car because they want to get feeling of safety, stability,confidence , care for environment and all the other things that stand behind this brand image. It’s essential not to lose those core values which makes volvo to stand by from other competitive car producers.