Page last updated at 17:01 GMT, Wednesday, 23 December 2009

Will Swedes work on a Chinese menu?

By Emily Young
Business reporter, BBC News

The Americans are dumping the Swedes. Ford is passing on Volvo to Geely, while GM has said it is winding down Saab - the most likely option despite the last-gasp offer from the Dutch sports car maker Spyker.

Volvo cars for sale
Volvo cars have a reputation for safety

GM was the sole owner of Saab for 10 years. Before that, it had 50-50 shared ownership with the powerful Swedish Wallenberg-family's investment vehicle Investor.

For its part, Ford has owned Volvo for 10 years. In Ford's case, Volvo is left pretty much in the same position as it found it, says Matts Carlson, a car expert from the Goteborg Management Institute in Sweden.

"That's more than can be said for Saab, which was left in a very bad situation," he says. "It only developed two cars over the past 10 years."

I would never want to tar Volvo with the Saab brush
Michael Tyndall, Nomura

Mr Carlson says that while being owned by Ford was not brilliant for Volvo, it was more successful because they were better at sharing technology.

Ford benefited from Volvo's expertise in safety - for example, Ford's Taurus sedan is based on Volvo underpinnings. Meanwhile, Volvo cars used Ford's engines and other parts. "I would never want to tar Volvo with the Saab brush," says Michael Tyndall, automotive industry specialist at Nomura. "It is definitely the stronger of the two in terms of sales, but it's still too small to really thrive."

The sale of Volvo to a Chinese firm is a sensitive issue. China has now overtaken the US as the world's biggest car market. They are hungry for more knowledge and the more they get, the more competitive they become.

Details about the level of access Geely will get to Ford-owned Volvo technology have yet to be released and it is quite possible agreement has not yet been reached.

Meanwhile, Beijing Automotive has bought some of Saab's engine and gearbox technology for its 9-5 and 9-3 saloons.

Opportunity knocks?

The terms of the Volvo-deal are not clear, but it is thought that Geely will get access to the Swedish carmaker's network of some 2,100 dealerships, as well as access to its supply network and its famous expertise in safety. For the Chinese carmaker, this is a short-cut to understanding the international auto industry.

I would expect development and research to remain in Sweden, and maybe some production, but the big scale production will probably come from China
David Bailey, Coventry Business School

The final agreement may also give Ford better access to the Chinese market, making it easier to sell their models there.

But Mr Carlson says that if Geely keeps to its pledge to increase production to up to 100,000 - 200,000 a year, this could be the opportunity Volvo needs.

He thinks the fortunes of the car company could be turned around by the Chinese ramping up production and using its safety and environmental credentials.

"In that way, it is possible that it could compete against the likes of BMW," he says.

In Mr Carlson's view, it is the more expensive models, the S80 and the XC90 or XC60, that are likely to be marketed in China.

All in, this is good news for Volvo too, according to Mr Carlson.

"Volvo gets a new owner with a lot of money and which I expect will mostly leave it alone because it knows more about vehicle development, vehicle sales and vehicle distribution," he says.

Saab car
GM sold some of Saab's technology to Beijing Autos

Of course what the Swedish are really worried about, is whether production will remain in their country. Geely has already said that it wants to maintain production there - which has soothed the fears of union leaders.

"We had met Geely twice and they were both positive meetings," said Mikael Sallstrom, chairman of the Volvo cars union IF Metall. "They said Volvo would remain an independent company ... if they live up to what they have promised, it [the sale] will be a positive thing."

However, in the long run it is expected that the main production will be done in China.

Professor David Bailey from Coventry Business School said: "I would expect development and research to remain in Sweden, and maybe some production, but the big scale production will probably come from China," he said.

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