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With help from Chinese auto plants, Volvo hopes to thrive

Chairman of Zhejiang Geely Holding Group Li Shufu poses for a photo at an assembly line of the new Volvo automobile manufacturing plant in Chengdu, Si...
Chairman of Zhejiang Geely Holding Group Li Shufu poses for a photo at an assembly line of the new Volvo automobile manufacturing plant in Chengdu, Sichuan province.JASON LEE / Reuters

CHENGDU, CHINA -- The assembly line crept along at a glacial pace. For the next few months, the workers at the sprawling plant on the outskirts of the Sichuanese capital of Chengdu will be carefully trained before the first cars roll into Chinese showrooms.

If all goes according to plan, the factory will be running at a frantic rate. Long viewed as an after-thought in the global luxury market, Volvo Cars aims to challenge more established brands like Audi, BMW and Mercedes-Benz.

At least, that’s the goal set by Geely, which purchased the Swedish maker from Ford Motor Co., three years ago. The ambitious Chinese conglomerate plans to invest at least $6 billion to rebuild Volvo, completely updating its product line-up and adding new plants to produce them, starting with the factory in Chengdu and another in China’s Northeast industrial belt.

“Volvo is a dream brand for me,” explains Chinese tycoon Li Shufu, who began life on a subsistence farm and eventually wound up creating Geely, now one of the Asian nation’s most successful domestic auto brands. Li had been stymied in his efforts to turn Geely into a global brand, prompting his decision to buy Volvo in 2010.

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With its traditional focus on Scandinavian design and advanced safety technology, Volvo is one of the auto industry’s most familiar brand names, but sales have lagged behind its name recognition. When Ford decided it no longer wanted to prop up the struggling Swedish maker, more than a few analysts wondered whether it would follow the path of cross-country rival, Saab, which was declared insolvent in December 2011.

Certainly, Volvo had its problems. Sales have sharply declined in recent years, plunging 6 percent in 2012 to just 421,951. In its key market, the United States, volume dipped by nearly a third from its prior peak of around 100,000. As a result, the maker has been bleeding cash even as it has begun a $6 billion capital investment campaign.

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Li insists he will stick with that ambitious program and boost global sales to 800,000 before the end of the decade. The big opportunity – some would say challenge – will be China, where Volvo wants to achieve 200,000 sales, which would make the Asian nation its biggest market.

That would still fall short of Mercedes and BMW, acknowledged Hakan Samuelsson, the Swedish maker’s CEO, as he walked the floor of the new Chengdu plant.

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“But you don’t need to be the biggest in the world to be the most profitable,” he said.

While the two new Chinese plants will likely help Volvo meet its sales goals, the real challenge will be coming up with products for consumers, whether in China, the U.S. or Europe.

The first model to roll out of the Chengdu facility will be a stretch version of the current S60 line, dubbed the S60L and targeting a new generation of upscale Chinese who prefer to be chauffeured rather than fight the endemic traffic in cities like Shanghai and Beijing.

At the Frankfurt Motor Show later this year, Volvo will offer a more revealing glimpse of its future, an all-new model that will be the first to use a flexible architecture that will eventually be used for a wide range of sedans, wagons and crossovers and possibly for future coupes and convertibles.

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Meanwhile, the maker is also gearing up to introduce an all-new engine. In a risky diversion from standard luxury practice, Volvo will abandon its current V-6 and V-8 powertrains; instead, it plans to power all future models with a high-mileage four-cylinder engine. For higher-performance models it will use turbos or even hybrid-electric technology that, Samuelsson explained, could be tuned to deliver fuel economy and power as needed.

Volvo recently launched its first hybrid model, a diesel plug-in, in Europe. It hopes to offer a gasoline version in the critical American market in the next few years.

While China is soon likely to overtake the U.S. in terms of sales, the American market could ultimately regain its lead. Samuelsson said he would still like to add a North American plant, possibly in the South or the Southeast where other European makers have set up assembly lines.

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Can Geely help Volvo pull off its revival plan?

“The awareness of the Volvo brand is high,” in China, says Michael Dunne, a long-time automotive analyst based in Asia. And there’s a growing interest in safety in a market that now has as many highway fatalities as the U.S.

Analyst Dave Sullivan of AutoPacific, Inc., is more skeptical. He cautions that most of Volvo’s competitors now also emphasize safety. The new 2014 Mercedes-Benz E-Class, for example, has a dizzying array of technology that all but allows the vehicle to drive itself.

Nonetheless, Sullivan says, “There’s a lot of potential in the brand, and if anyone has the money to fund Volvo’s turnaround, it’s Geely.”

The test will come as production ramps up on the Chengdu assembly line.

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