Chengdu

Volvo's new lease on life, in China

November 11, 2013: 12:55 PM ET

Geely's ownership of the onetime Swedish automaker could prove to be a valuable wildcard.

By Doron Levin

Volvo's factory in Chengdu, China

Volvo's factory in Chengdu, China

FORTUNE -- Conventional wisdom suggests that the latest attempt to revive Volvo as an automotive brand faces very long odds. Under the umbrella of its corporate parent Geely, the Chinese automaker, Volvo's 450,000 annual sales aren't self-sustaining.

But Geely's ownership of the onetime Swedish automaker could prove to be a valuable wild card if Volvos built at a new plant in Chengdu, China capture the fancy of Chinese buyers first, and then, perhaps, buyers abroad. Geely hopes eventually to sell 200,000 Volvos annually in China, maybe 140,000 in the U.S., and 800,000 a year globally by 2020.

If Geely's Chengdu plant is successful, some cars built in that country might be exported to the U.S. and elsewhere, presumably at a cost basis that could make them highly competitive in price with other cars in the premium category. In the meantime, Volvos sold in the U.S. continue to be imported from Europe.

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It's unclear if Volvo still has an identity or maybe has become the answer to a question nobody asked.

"We see Volvo as a premium car, but in a different way than the German brands," said Hakan Samuelsson, a former trucking executive who recently took over as Volvo CEO. Volvo, he said, will connote attractive design with a Scandinavian flavor, safety, environmental values, and "clever functionality," such as easy-to-use infotainment.

At a meeting with journalists last week in Detroit, Samuelsson said the company has narrowed its search for a new advertising agency to two finalists. He declined to identify them.

BMW and other German carmakers usually describe their brands in terms of power, luxury, handling, driving pleasure, and heritage. For a long time, Volvo was a classy alternative to the German brands, a favorite of thoughtful, intellectual consumers.

In its latest initiative, Volvo will confine its engines to three-cylinder and four-cylinder models, plus hybrids and transmissions under development with Geely. Samuelsson acknowledged that Volvo must develop and offer so-called assisted and autonomous driving technologies, which improve safety. A reputation for safety, after all, is Volvo's most memorable calling card from its past.

Ford Motor Co. (F) bought Volvo in 1999 as part of a strategy to accumulate brands, including Jaguar, Aston Martin, and Land Rover in its now-defunct Premier Automotive Group. Ford in 2010 sold Volvo to Geely, which was determined to own an automotive name that brought with it credibility, prestige, and customer acceptance.

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Since Volvo sales reached a peak of 139,000 in 2004 during the Ford years, it has declined more or less steadily. Through October of this year, U.S. sales were down 7%, which suggests the brand will sell a paltry 60,000 vehicles this year. That number means that some of its 300 dealers, who no doubt are discouraged, will throw in the towel. Indeed, they watched Saab, another Swedish car brand, flounder and then fail under the ownership of General Motors (GM).

In truth, Volvo was never more than a niche brand in the U.S. But it was a niche brand that elicited strong opinions and even affection from owners and automotive enthusiasts. As new consumers and players like Geely arise, it's unclear if Volvo will meet the fate of the Saabs, Skodas, Seats, and Ladas of the world.

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