Volvo Cars

Topics: Ford Motor Company, Volvo Cars, Automotive industry Pages: 6 (2192 words) Published: June 8, 2013
1) Why had Volvo lost its way in the years leading up to the takeover? Volvo started to manufacture and export cars to foreign countries since the mid-1950s. The company set up plants in Torslanda, Sweden, in 1964, followed by plants in Belgium and the Netherlands. Before Volvo was sold to Ford Motor Company in 1999, they had a joint-venture partnership with Pininfarina SpA of Italy. (Volvo Car: 2007 company profile edition 2, 2007, pp. 9-11) Volvo is a premium brand; with market shares of 1.5% and 0.6% in the EU and US respectively (Wang 2011). Volvo faces competition and threat from Premium brands like Mercedes Benz, BMW and Audi, who have increased product offerings. While the competing premium brands increase their product offering, Volvo markets 10 models under Brand categories S, XC, C and V. This gives the competing premium brand an advantage over Volvo, therefore enabling them to grasp a bigger market share then compared to Volvo. The company’s market shares are further threatened by the growing invasion of the Asian car manufacturers. (Volvo Car: 2007 company profile edition 3: SWOT analysis, 2007, pp. 12-13). During the recent years, a rise in cars manufactured by the Asian market has been affecting the automobile industry. Asian car manufacturers have the advantage of producing cars at the cheaper cost compared to cars from the US and EU regions. This enable them to export cars to foreign market at a cheaper rate. Thus, apart from competing premium brands, Volvo faces increasing competition from emerging Asian car manufacturers. One of Volvo’s major competitor, Daimler’s Mercedes-Benz car division have implemented a strategic initiatives to run the cost down and revenues up by reduction in costs of materials, fixed cost, improved efficiencies and overall improvement (Volvo Car: 2007 company profile edition 3: Competitor analysis, 2007, pp. 6-8). In comparison, Volvo’s high cost of premium cars is a result of cars being made in Sweden and then imported. “This makes the Volvo brand cars expensive when compared to the others, which enjoy strong regional production and distribution operations.” (Volvo Car: 2007 company profile edition 3: SWOT analysis, 2007, pp. 12-13). Volvo is also affected by the increasing prices of steel, and other raw materials which eventually threatens the company’s margin and profitability (Volvo Car Corporation: 2006 company profile edition 2, 2006, pp. 12-13). When compared to Asian car manufacturers, the competition enjoys cheaper labor costs and plant facilities that have been set up in the developing countries. Apart from export costs and increasing prices of raw materials, Volvo also has to take account for their higher labor cost when compared to the Asian Market. Volvo did not show growth in the market share, making it a small player. Volvo’s markets were generally focused on the US and the Swedish markets. However, other EU countries have shown growth. The recent years have also shown growth in the Chinese market. Volvo have less market exposure compared to the other premium brands as well as the Asian brands. “Volvo has been losing money for a continuous period of 4 years” (Wang, 2011, p. 24).The reduction in sales is the major reason for Volvo’s financial problems. Volvo was hit financial crisis in second quarter of 2006 making a loss in the global operations. After the losses, Volvo decided to cut costs in all areas, this was the reason behind the reduction in employees. “Tough currency exchange rates and an aged product line have hammered Volvo revenues, forcing a second round of employee cutbacks” (Rechtin, 2006, p. 3). After the financial problems, Ford decided to sell Volvo. Volvo have been affected by the growth of its competitors and their market expansion, eventually leading to its fall.

2) What are the risks for Geely in trying to turn around a premium brand such as Volvo? This acquisition has been the subject of heavy speculation by the media, as it went against...

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