Changan sticks to OEM contracts

After Ford confirmed the Volvo would be acquired by Geely Holding Group (hereinafter referred to as Geely Group), prospect of Volvo’s OEM contracts in China's are capturing considerable attention from various sides. Person at Changan Automobile which is Volvo's OEM cooperation partner in China told National Business Daily on December 24 that Changan would continue to adhere to the agreement of cooperation between them and the acquisition hasn’t impact its cooperation with Volvo.

　　OEM contracts up to 10 years

Volvo's OEM cooperation partnership with Chinese companies began in 2007. That year Volvo S40 was launched in Chinese car market. According to opinions of various sides, S40 was produced by means of the transfer of technology after Changan Ford Mazda obtained authorization from Volvo. In fact, this was the first time Volvo known for safety started to be manufactured in China. Considering that S40 made a success in Chinese car market, Volvo accelerated its pace of producing cars in China and on March 12, 2009 launched Volvo S80L. Some analysts are concerned that after Geely Group’s acquisition cooperation between Changan and Volvo would have conflict with Geely’s overall strategy of Volvo, hence the industry suspects that Changan Ford Mazda would exit from the production and sales levels of Volvo.

However, Public Relations director of the Changan Automotive Zheng Changjiang said that Changan’s current OEM cooperation plans with Volvo would not change, because the two sides signed a 10-year OEM contract. Moreover, deadline of the Volvo S40 and S80L’s OEM cooperation period are respectively in 2015 and in 2018, so car production and spare parts supply and so on would not stop midway. Marketing Public Relations Department director of Changan Automobile Zhang Baojun told reporters on December 24 2009 that Changan still insists on the agreement in accordance with the established route, that is, cooperation between Changan and Volvo hasn’t been impacted by the acquisition for the moment.

　　Prospect of Changan need negotiation

After Geely’s acquisition of Volvo, Changan Ford Mazda’s Volvo cooperation project will induce substantial conflict of interest with Geely. According to industry analysts, urgent issues for Changan Ford Mazda are to balance the result after Geely’s acquisition of Volvo. Relevant project chief of Geely Group's acquisition of Volvo told the reporter on December 24 now is still the stage of tackling the details of the acquisition, the above issues are still not clear. Geely Group will not comment on opinions of Changan.

However, informed sources at the Geely Group revealed it is not particularly difficult to tackle Geely’s relationship with Changan Ford Mazda. In terms of the relationship between competition and cooperation as well as the overall strategy of Volvo in China, Geely is likely to discuss these with Ford in following days and it has the confidence of dealing with the matter well.

　　Stores of Geely won’t sell Volvo?

After many years of development, Geely has established a marketing network across China and three major marketing systems of brands. As a result, will Volvo be sold in existing stores of Geely? Relevant people pointed out that at present these are still the subject of the future and it is not convenient to say something now. However, a person revealed that Volvo would maintain its own independence and have its own marketing system after acquisition.

Actually opinions of the people mentioned above are consistent with Geely Group’s idea of the marketing strategy changes. According to strategic plans of Geely Automobile in 2009, according to strategic planning, Geely Automobile need full implement multi-brand marketing strategy, ranging from the original product-based network marketing mode to sub-brand marketing and the layout of multi-brand strategy. The so-called multi-brand strategy refers to the current GLEAGLE, EC7 and GE. Person within Geely told reporters that the early Geely’s auto brands such as King Kong now belongs to the GLEAGLE system, and EC7 is its current high-end brands. Three brands are under management in different companies according to project and they are independent with each other.

For the future of Volvo, the person said that Volvo is definitely Geely’s third brand, as a representative of high-end brands Volvo would independently operate and not be confused with other Geely’s brands. (Translator: Qinghua Wade)

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