Representative of that negative take on last week’s news that Geely had been picked by Ford to be the preferred bidder for Volvo is one comment from reader “R Johnson,” who responded to the report on the Ford move by The Wall Street Journal: “Geely is a very small auto manufacturer in the world and too small to digest Volvo.”
One comment from “Meon” on the Web site of Swedish business publication Dagens Industri says, “Poor Volvo, this doesn’t look good at all.”
The lack of confidence in Geely stems from its inexperience in running an international entity. It began selling cars in 2001, and it has focused its business mostly on China’s auto market, while exporting a small number of vehicles overseas, mostly to developing countries.
But the negative view also is the result in part of a lack of awareness of, among other things, the kind of new cars Geely has been developing since 2006 and a relatively talented management team that Geely’s founder and chairman, Li Shufu, has been able to put together, whose members include its product chief Frank Zhao, a former Chrysler senior engineer in Detroit.
Those down on Geely believe the Chinese auto maker, which they say is not even capable of lining up vehicle body panels flush when assembling cars, should not deserve to buy a storied auto maker like Volvo. They think Geely would run Volvo into the ground.
In many cases, the naysayers are basing their judgment on Geely cars on the roads today, whose quality often leave a lot to be desired. It’s not unusual to see the bumpers on Geely cars barely hanging on after a few years of use.
It’s important to keep in mind that these cars represent a shadow of Geely’s past and the auto maker needs to be judged on the models that are just hitting showrooms.
Naysayers also may not have met internationally trained Geely managers like Zhao. Nor have they likely met Peter Zhang, a financial controller from BP PLC whom Geely’s chairman Mr. Li hired in 2007 to lead the company’s pursuit of Volvo.
They also have not likely been to Geely’s tech center in Taizhou.
There, inside one of several buildings on the tech campus, stylists sketch cars with a special digital pen on touch-sensitive drawing tablets while engineers put a new engine on a test bench to gauge its emissions and performance. Upstairs, a chemist, clad in a white lab coat, mixes ingredients in test tubes to develop a new “new car” fragrance for auto interiors. Geely technicians also routinely check the durability of door hinges and locks by putting a car door on a machine that opens and closes it automatically 24 hours a day.
“We didn’t do it before, but this is how we build good quality into vehicles,” says Zhao, who spent nine years in Detroit teaching engineering at Wayne State University before joining Chrysler in 1997. He returned to China in 2004. He first joined Brilliance Automotive but jumped ship to Geely in 2006.
Zhao convinced Li to invest at least 8% of Geely’s revenue in product development. Toyota and its subsidiaries, by comparison, spend 5% of revenue on R&D. Since arriving at the tech center three years ago, Zhao has tripled the number of engineers to 1,200.
Geely has also attracted the attention of the private-equity world. In September, word came that a private equity fund managed by Goldman Sachs Group Inc. was investing about $250 million in Geely’s Hong Kong-listed arm to fund the Chinese auto maker’s growth ambitions.
Managers like Zhao and Zhang are a major reason Ford’s management, initially skeptical of Geely’s bid, now believes the Chinese company could successfully run Volvo and decided to negotiate exclusively with Geely over Volvo, according to people familiar with the situation.
Ford’s change of heart was also facilitated by John Thornton, a longtime Ford board member and former president of Goldman Sachs with extensive contacts in China, who learned of Geely’s interest in acquiring Volvo last year. With Ford management’s encouragement, Thornton started checking into Geely. In December last year, he met at Beijing’s Grand Hyatt hotel with Li and Zhang, who laid out Geely’s strategy. Thornton reported back that the bid should be taken seriously.
–Norihiko Shirouzu
