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Is The Volvo/Geely Bromance On The Rocks?

Ten years ago, Volvo was grateful for the warm embrace of Geely Auto. Today, Volvo wonders if It will survive being absorbed completely by its Chinese benefactor.

[Note: This article about Sweden’s relations with China misstated a Chinese executive’s title and referred incorrectly to the corporate entities involved in a proposed merger involving the Swedish automaker Volvo. Li Shufu is chairman — not president — of both Zhejiang Geely Holding and its subsidiary Geely Auto Group. It was Zhejiang Geely Holding that purchased Volvo Cars in 2010, not the Geely Auto Group, and it announced plans to merge Volvo Cars with Geely Auto, not with itself. The article also misidentified the company in which Zhejiang Geely Holding became a major stakeholder in late 2017. It was AB Volvo, not its subsidiary Volvo Truck.]

An interesting article in the New York Times over the weekend suggests the marriage between Geely and Volvo may be under stress. China’s flexing of its newfound economic and political muscles on the world stage is causing fractures in the once happy relationship between Volvo and Geely at a time when the Chinese owner of Volvo says it wants to solidify its control over the company.

Volvo electric car

Image credit: Volvo

Volvo is vital to Sweden. Not only does it employ nearly 19,000 workers in and around Gothenburg, it also has become a symbol for life in The Elongated Country. A Swedish saying defines success in life as the three Vs — “Volvo, villa, vovve.” Loosely translated, it means if you own a Volvo, a house, and a pet dog, life is good. “Gothenburg is Volvo and Volvo is Gothenburg,” says local politician Daniel Bernmar.

Since World War II, Volvo has built a reputation for making automobiles that are among the safest on the road. “Volvo was really synonymous with Sweden because this small country produced a car that was sold all over the world and it was the safest car in the world,” says Olle Wastberg, a former director-general of the Swedish Institutes. Styling was never Volvo’s strong suit. Many of its cars had all the visual appeal of a railyard switch engine, but buyers didn’t care. They wanted cars that could protect them in the event of a collision with a rogue Buick.

Ford Comes To Call

When Ford Motor Company came calling in early 1999, it made Volvo part of its Premier Auto Group along with Jaguar, Land Rover, and Aston Martin. But Ford refused to provide the funding needed to develop those brands. Ten years later, Volvo was a shell of its former self and close to going out of business entirely. No one, it seemed, wanted to take a chance on reviving the brand.

Enter Geely Auto

That’s when Li Shufu, president of Geely Auto Group, threw the company a lifeline, one that promised full independence and virtually unlimited financial backing. To date, Geely has invested about $10 billion into the Swedish automaker. “We got near-total freedom to excel,” union leader, Magnus Sundemo told the New York Times in an interview. “We started believing we could fight with Audi, BMW and Mercedes. We got our confidence back.”

Recently, Li announced a plan to merge Volvo Cars with Zhejiang Geely Holding Group, the parent of Geely Automotive, to create a new company with a global reach. The new business arrangement would substantially alter Volvo’s ability to operate independently. That set off alarm bells within the company and the Swedish government, causing political and business leaders to ask whether the country rushed ahead too fast into its economic relationship with China. The latest moves by China to incorporate Hong Kong into the mainland are making many people wonder if there are not parallels between what is happening to Hong Kong with what is happening to Volvo.

Anna Margitin Blomberg is the head of the engineers union at Volvo. She tells the New York Times she is concerned Geely could move the company headquarters to China and “that there will be people sitting at the top making decisions and that we can’t be a part of. We are Sweden lovers and Volvo stands for something. We would like that to remain.”

Geely Holding declined to discuss its plans for Volvo directly but did tell the New York Times, “Geely Auto and Volvo Cars are continuing to discuss areas of cooperation and mutual value-creation that could lead to a full combination of the companies.”

Sweden & China

The newspaper also reports that some Swedish officials are rethinking the country’s warm embrace of China. Chinese investors have bought a variety of other Swedish companies recently, some of which make dual-use technologies they are forced to share with the Chinese military. Those officials are raising national security concerns if Volvo is absorbed completely by Geely, which is now the second largest shareholder in Volvo Trucks, which became a separate company after Ford sold off its stake in Volvo in 2010. Volvo Trucks owns Arquus, formerly known as Renault Trucks Defense, a maker of military vehicles.

In March, Sapo — the Swedish security service — labeled China as the biggest threat to the country’s national security after Russia, citing a sharp increase in Chinese acquisitions of Swedish technology and knowledge-based companies. The purchases include Silex, a semiconductor company, and Satlab Geosolutions, a satellite positioning company.

Fine Wine Or A Shotgun

A thorn in the Swedish/Chinese relationship is the case of Gui Minhai, a publisher based in Hong Kong who holds Swedish citizenship. He was abducted in Thailand and spirited into China, where we was convicted of various crimes. In response, Sweden honored him with a human rights award. That angered the Chinese government and prompted the Chinese ambassador to Sweden to say on a radio broadcast, “We treat our friends with fine wine but for our enemies we have shotguns.” Not terribly diplomatic in any language.

Many Swedish cities forged friendship agreements with cities in China over the past decade, but recently 11 of those cities have now rescinded their friendship pacts, citing China’s abysmal human rights record.

Repercussions For Others

Mary Barra, CEO of General Motors, said in a fireside chat yesterday that her company is cautiously optimistic about the future, despite a downturn in the new car market because of the pandemic. In particular, she indicated GM is pinning much of its hopes for future profitability on sales in China. Volkswagen is planning a big push in China, as is virtually every other global car manufacturer from Jeep to Ford to Mercedes. No one has made a bigger bet on selling cars in China than Tesla, which has already started expanding its factory in Shanghai.

If Volvo’s experience has any relevance for other companies, it is this. “Be careful what you wish for. You just might get it.” The allure of globalism has been tarnished of late by the coronavirus and the seething unrest caused by the economic turmoil it left in its wake.

The Chinese market for new cars is enormous with the potential for explosive growth, while sales in places like North America and Europe may have reached a plateau. But the idea that China may be the answer to the capitalist dream of unlimited growth is at odds with the fact that we live in a world with finite resources.

It also ignores the implied threat posed by a society that offers fine wine to those it likes and a shotgun to those it doesn’t. Perhaps those words should remind corporate and national leaders of the whimsical limerick about the smiling lady who went for a ride on the back of a tiger. The limerick ends this way: “They came back from the ride with the lady inside and the smile on the face of the tiger.”

 
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Written By

Steve writes about the interface between technology and sustainability from his home in Florida or anywhere else the Singularity may lead him. You can follow him on Twitter but not on any social media platforms run by evil overlords like Facebook.

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