Geely's Volvo Plans Take Shape

　　Zhejiang Geely Holding Group Co. is considering partly repurposing a nearly completed Geely plant in southwestern China to make Volvo cars—part of a turnaround strategy for the Swedish brand that its new owner hopes will kick-start sales in the world's biggest auto market.

　　China's Zhejiang Geely, having completed its purchase of Volvo, is firming up plans to produce Volvos in China. Above, a Volvo showroom in Beijing.

　　The plan also includes building another car-assembly plant, possibly in Shanghai, and an engine factory elsewhere in China within the next few years, according to a person close to Geely. Shanghai also is likely to be home to Volvo's new China headquarters as well as a research-and-development center, the person said.

　　China-based Geely, which completed its $1.8 billion acquisition of Volvo this month, has said it hopes to revive Volvo in large part by ramping up sales in China, which are now paltry. But details of its plan had been unclear. The turnaround effort is being closely watched by the auto industry as a test case of whether China's growing car makers have the ability to manage global brands.

　　The knowledgeable person said building a plant from the ground up would take at least a couple of years. But by using the plant already under construction in the southwestern city of Chengdu, Volvo could start production in about a year. That plant originally had been intended to produce Geely brand cars. The person said a "likely scenario" is for Geely to become, in effect, a contractor producing cars for Volvo at the Chengdu plant, which will produce Geely-brand vehicles at the same time.

　　The factory plans still are being evaluated by Geely and Volvo and require approval by the Chinese government. There are signs, the person said, that Chinese policy makers may be growing wary of excess auto-production capacity in the nation.

　　Geely Chairman Li Shufu's broad goal is to slash the Volvo brand's costs for some of its primary activities, such as product-development and manufacturing, by tapping China's relatively inexpensive labor force.

　　At the Chengdu plant, where Geely recently began test production of a new Geely sport-utility vehicle, Geely and Volvo are considering producing vehicles such as the Volvo XC60 crossover SUV, the knowledgeable person said. The Chengdu plant, which has one assembly line, could eventually produce about 150,000 vehicles a year. The site has room for a second assembly line.

　　For Shanghai, the person said Geely is seeking Chinese government approval to build a new Volvo car-assembly plant. According to information released by a Shanghai district government on its website this month, the factory should be capable of producing 300,000 vehicles a year when it begins production in late 2012. The Jiading District government said the new Volvo plant will produce the Volvo C30 coupe and the V70 station wagon. Geely intends to keep operating Volvo's factories in Sweden and Belgium.

　　GM Plans Chinese Sedan's India Launch. .Another key ingredient of Geely's turnaround strategy for Volvo is to bolster the auto maker's image as a premium brand. Mr. Li, the Geely chairman, is interested in adding two or three bigger, more luxurious cars to Volvo's lineup over the next three to four years to compete more head-on with vehicles like the BMW 7-series, the knowledgeable person said.

　　Geely, one of China's biggest privately owned auto makers, faces challenges in absorbing Volvo. It has little experience selling cars outside China, let alone running major manufacturing operations in a country as far away and as different from China as Sweden.

　　And Geely's lack of global stature, as well as its past reputation for making low-end vehicles, could be a drag on Volvo's reputation for quality and performance.Volvo's annual losses had grown to more than a $1 billion in recent years. It lost $934 million last year, following a $1.6 billion loss in 2008. This year, the brand is expected to post an operating profit.

　　Volvo has a meager presence in China. It sold 24,405 cars here last year, up from 12,640 in 2008, according to a Volvo spokesman in Sweden. Through July this year, the auto maker sold 17,330 cars, up 56% from a year earlier. That gave the brand 0.2% of China's overall passenger-car market, according to consulting company JD Power & Associates.