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Does Volvo Alone Offer Consistent Global Quality?

Date:12-27 11:06 Authour:He Lun

Does Volvo Alone Offer Consistent Global Quality?


——Auto Market Hotspots Q&A (114)

At the launch event of the all-new Volvo S90 long-wheelbase sedan, Yuan Xiaolin, President of Volvo Cars (Asia-Pacific) and Chairman of Volvo Car Sales (China), suggested a novel idea – Volvo’s “Made in China” is not “domestically produced”. This made me think of two controversial questions – do domestically-produced international luxury-brand cars really apply consistent global standards? And if so, why aren’t these domestically-produced luxury cars exported to other countries? The former concerns the interests of consumers, and the latter is related to government requirements, and the two are also closely related.

Q: Yuan Xiaolin said “Made in China” and “domestically produced” were two concepts. What do you think?

A: What is the difference between “Made in China” and “domestically produced”? There is no standard answer. From what I understand, “Made in China” refers to vehicles produced in China but sold on the international market, implying that these products apply high standards, and that’s why vehicles “on sale in China but originally produced for export” are always priced at a premium. Meanwhile “domestically produced” refers to international-brand products that are produced in China and sold specifically to Chinese customers, implying that they apply lower standards, especially for automobiles – imported versions of the same vehicle model are always more expensive than “domestically produced” ones.

Of course, all international luxury-brand car makers claim that their domestic cars are produced according to global standards. FAW-VW Audi, which puts special focus on “localizing the whole value chain”, has to add emphasis - “based on Audi’s global standards”. Chery Jaguar Land Rover even claims that their domestic cars apply higher standards than their imported cars. However, almost all car makers, including the luxury-brand ones, apply double standards to products put on the international market and those on the Chinese market. There have long been rumors that domestically produced cars apply lower standards and customers can always find examples showing that domestic cars are inferior to imported ones under the same luxury brand, from materials and workmanship to configuration. Some patriots call it “discrimination against domestically produced cars”.

As a matter of fact with international giant auto parts suppliers entering China, local suppliers making progress, and OEMs improving their manufacturing techniques, process management and employee quality, for over a decade domestically produced luxury cars have indeed been getting better and better. But are they really as good as the imported version? Every manufacturer will lay claim to this, but no third party authority has ever confirmed it.

On the one hand, the Chinese get annoyed about foreigners discriminating against “Made in China”. On the other hand, they themselves are the first to belittle “domestically-produced” cars and arbitrarily write them off as inferior to imported vehicles. This kind of double-think really is an archetypal “Chinese characteristic”.

Q: Did Yuan Xiaolin want to challenge others by talking about the difference between these two concepts? Did he mean that only Volvo offers “Made in China” cars that apply consistent global standards, while all its rivals make “domestically-produced” cars geared to Chinese standards?

A: I think his primary aim was to emphasize one of Volvo’s unique qualities. According to Yuan, among luxury brands, only Volvo intends to export its models produced in China to other markets, and in order to export them, it has to manufacture them according to consistent global standards; if Volvo applies a separate set of “Chinese standards” in producing models to be sold in China, it will have to use different auto parts, materials and manufacturing techniques, at the expense of economies of scale, which will ultimately impact on its profits. This is Volvo’s business logic, and it makes sense.

Q: Actually it is supposed to be the business logic of every luxury brand. But why don’t they do like Volvo?

A: Because domestic cars under other luxury brands are produced by joint ventures established by foreign and Chinese auto makers with a 50:50 shareholding. If these cars are exported, half of the revenues will go to the Chinese shareholder. In other words, they will be competing for profit with 100% foreign manufacturers in the international market. Clearly the foreign shareholders are not going to agree to that. This is a different business logic.

Volvo is different. Although Volvo Cars (Asia-Pacific) is a joint venture, it is in fact a wholly-owned subsidiary of Volvo, and Volvo is also a wholly-owned subsidiary of China Geely Group. So wherever in the world its products are sold, any profit or loss will stay within the group. And that’s why Volvo can deploy its production bases and product lines globally, in the most rational and efficient manner.

Not long ago, Håkan Samuelsson, President and CEO of Volvo Car Group, said that Volvo would also move production of the regular-wheelbase version of the S90 from Europe to Daqing, China in the next few months, and announced that the Chinese auto industry had entered a new era of global production and export opened by Volvo. However, for other international luxury car brands, it is almost impossible to follow Volvo’s steps. Cars produced in China will still be sold in China, unless someday the Chinese shareholders can gain absolute equity control over their joint ventures.

Q: Does this mean that the Volvo Cars (Asia Pacific) can achieve better economies of scale than their competitors, by producing cars for both domestic and export sales according to consistent global standards?

A: Not really. Their German rivals have already achieved sales of 300,000-500,000 vehicles in terms of domestic cars alone, while in 2015 Volvo’s global sales were just 500,000 vehicles of which 80,000 were sold in China. This makes it all the more necessary for Volvo Cars (Asia Pacific) to achieve economies of scale by producing cars for both domestic sales and export according to consistent global standards.

This time round, the Volvo S90 long-wheelbase sedan is being launched at a starting price of RMB 369,800 Yuan, RMB 50,000 Yuan lower than its German rivals. The whole series features Pilot Assist technology that can steer automatically at speeds up to 130km/h, raising the benchmark for executive sedans. Volvo cannot make this happen without a rational product configuration that will help achieve economies of scale

Therefore, Volvo really has strong internal and commercial motives to delivery consistent global quality, and to export Made-in-China Volvo cars to the international market. The former will please Chinese consumers, while the latter will appeal to the Chinese government, which is really not a bad thing.

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