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VOLVO

Geely faces Volvo image challenge: analysts

Geely Automobile's confirmed bid for Volvo is evidence of China's growing economic clout, but the company will face the tough challenge of ensuring the Swedish brand's reputation for safety, analysts say.

US auto giant Ford said on Wednesday it had tapped Zhejiang Geely Holding Group as the preferred bidder for its Volvo Cars nameplate and would step up negotiations with a consortium led by the Chinese automaker.

But analysts warned the takeover was far from being finalised and, even if eventually successful, the independent Chinese automaker would struggle to protect Volvo’s image for producing sturdy, reliable cars.

“The biggest concern is whether Geely can manage such a premium global brand,” John Zeng, a Shanghai-based analyst at IHS Global Insight, told AFP.

“If Geely wants to keep Volvo’s brand independence and integrity, then it had better not get too involved with its operation — especially not to mix the brand of Geely with Volvo. Geely is targeted at low-end customers.”

Eric Xu, head of Timer-Auto Consulting in Shanghai, said a successful acquisition would enhance Geely’s image overseas but could hurt Volvo in the process.

“It will be very challenging for Geely to safeguard the value of the (Volvo) brand,” Xu told AFP.

“A successful bid is only the first step in a successful acquisition — it’s difficult to digest what you buy. That’s the challenging part for Chinese companies who want to go abroad.”

In a statement issued on Wednesday, Geely said under its bid, supported by Chinese banks, Volvo’s existing production and research and development facilities, union agreements and dealer networks would be maintained.

Geely said on Thursday it was “fully prepared” to make good on the bid to buy Volvo and would “make every effort” to ensure its success.

“We made the big decision to take part in the bidding after careful consideration and assessment. We think it is in line with the long-term development strategy of Geely,” Geely spokesman Yuan Xiaolin told AFP, without elaborating.

When asked how long the talks could last, Yuan said it was too soon to speculate about a timeframe. Ford emphasised that “no final decisions had been made”.

The Geely spokesman also declined to comment on the financial terms of a possible deal.

Geely’s shares soared as much as 4.5 percent in early trade in a weak Hong Kong market on Thursday on the news but later fell back to 2.92 Hong Kong dollars, up 1.7 percent.

Ford announced last December that it wanted to sell the loss-making Volvo unit, which it fully acquired in a $6.4 billion deal in 1999.

The US automaker did not take government aid to cope with falling sales and avoided bankruptcy this year, unlike rivals General Motors and Chrysler.

It has shed tens of thousands of jobs and closed plants in an effort to cut costs, and sold off the bulk of its luxury European brands, including Jaguar and Aston Martin.

Repairing Volvo’s weak balance sheet would be challenging for Geely, Zeng said.

“Volvo has been in the red for years,” said Zeng. “Whether Geely can alter its deficit situation remains the key question.”

AFP’s Allison Jackson

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VOLVO

Sweden’s Volvo regains strength after pandemic puts brakes on earnings

Swedish truck maker Volvo Group was hit by a sharp drop in earnings due to the coronavirus pandemic, but business rebounded at the end of the year.

Sweden's Volvo regains strength after pandemic puts brakes on earnings
Volvo Group CEO Martin Lundstedt. Photo: Adam Ihse/TT

In 2020, the group saw “dramatic fluctuations in demand” due to the Covid-19 pandemic, chief executive Martin Lundstedt said in a statement.

For 2021, Volvo raised its sales forecasts in its trucks division – its core business – in Europe, North America and Brazil.

However, it said it also expected “production disturbances and increased costs” due to a “strained” supply chain, noting a global shortage of semiconductors across industries.

The truck making sector is particularly sensitive to the global economic situation and is usually hard hit during crises.

In March, as the pandemic took hold around the world, Volvo suspended operations at most of its sites in 18 countries and halted production at Renault Trucks, which it owns, in Belgium and France.

Operations gradually resumed mid-year, but not enough to compensate for the drop in earnings.

With annual sales down 22 percent to 338 billion kronor (33.4 billion euros, $40 billion), the group posted a 46 percent plunge in net profit to 19.3 billion kronor (1.9 billion euros).

Operating margin fell from 11.5 to 8.1 percent.

However, the group did manage to cut costs by 20 percent.

“We have significantly improved our volume and cost flexibility, which were crucial factors behind our earnings resilience in 2020,” the group said.

Volvo's business regained strength in the second half of the year.

“Customer usage of trucks and machines increased when the Covid-19 restrictions were eased during the summer and this development continued during both the third and fourth quarters,” it said.

“Both the transport activity and the construction business are back at levels on par with the prior year in most markets.”

For the fourth quarter alone, the company reported a 38-percent rise in net profit from a year earlier.

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