Volvo Cars will commence building cars at its first production plant in China this month. This means that Volvo, a unit of Chinese company Zhejiang Geely Holding Group Co., could now avoid paying a 25-percent tariff for imported vehicles in the country and become competitive in terms of prices. Volvo so far had imported cars from overseas or had built them in limited numbers at Ford’s Chongqing site in China.
Zhejiang Geely had thought it could quickly and easily open a new plant for Volvo in China, considering that it is a Chinese-owned company. But the Chinese government still subjected Volvo to the same regulatory approval procedures as all foreign carmakers, and the Swedish brand had to wait for three years before it could open its first plant in the country. Despite this miscalculation, the opening of the new plant would allow Volvo to double its sales in China to 800,000 by the end of the decade.
Lin Huaibin, an analyst at IHS Automotive, told Bloomberg that if Volvo fails in China, he doesn’t see where the carmaker can gain volume significantly. He noted that if Volvo can “do China right,” it would gain strong momentum. Volvo logged a loss in 2012 after its global sales dropped 6.1 percent to 421,951 units, suffering the biggest fall in its home market, Sweden.
Volvo saw its sales in China fall 11 percent, in contrast to Audi and BMW which posted surges of 40 percent and 30 percent, respectively. Dismal sales in the country lead to a fall of the carmaker’s share of the Chinese luxury vehicle market from 5.3 percent in 2009 to 3.4 percent, according to estimates at IHS Automotive. The carmaker’s decline in China could be attributed to the prices of its products, which are typically higher than those of its competition. [source: automotive news - sub. required]