By Dow Jones Business News,
January 24, 2014, 10:37:00 AM EDT
By Christina Zander and John D. Stoll
GOTHENBURG, Sweden--China'sGeely Automobile Holdings Ltd. is expanding a joint venture with its sister Volvo Car
Corp. to design a subcompact car that meets safety and quality standards in mature, Western markets, where Chinese
brands have so far struggled to gain a foothold.
The early stages of the development of the new subcompact car is taking place in Sweden, allowing Chinese engineers
closer access to markets in Europe and the U.S., according to executives overseeing it. Emerging-market auto makers,
including the Chinese, have had a tough time meeting complex and tough vehicle safety and emissions standards in the
West, and face reputational questions about quality.
Chinese firms have looked for a variety of ways to better meet European and U.S. standards. For example, China'sQoros Automotive Co.--a joint venture including Chery Automobile Co.--has hired 200 foreigners to help design and make
its cars. Last year, the move paid off, as it revived a five-star score from Euro NCAP, a prominent European crash test.
Geely's new subcompact is likely several years from completion and will follow the first product to come from the
joint venture that was announced last year: a family of small vehicles shared by Volvo and Geely. Zhejiang Geely Holding
Group Co. bought Volvo in 2010.
Unlike that project, Geely's new subcompact program is intended to produce a product exclusively used by the
Chinese brand that can compete in a segment that includes the Ford Fiesta, Honda Fit, Toyota Yaris and Volkswagen Polo.
The development work is being done at China Euro Vehicle Technology, a product-development operation owned by the
Geely holding company and intended to supply both Geely and Volvo with technology. Opened in 2013 and located on
Sweden's snowy west coast, it currently has a staff of 200 engineers, including many from China.
The joint venture in Sweden represents an important step in Geely's ownership of Volvo. In 2013, three years after
buying the company from Ford Motor Co., Geely decided to start joint development programs between the Swedish auto maker
and its Chinese brand, with initial efforts focused on creating small cars from the ground up that can compete on the
"Geely's ambition is to raise its technological level, and you don't do that by taking ready made products and
putting them in your car," Håkan Samuelsson, chief executive of Volvo Car, said in an interview Wednesday.
While many of China's indigenous auto makers have access to Western technology due to joint ventures that major
global auto makers have set up to enter the Chinese market, few have the direct ownership link that Geely shares with
Volvo. Now that Volvo's financial position has stabilized and it is about to launch its first fully redesigned vehicle
in several years, the focus is shifting to a more focused collaboration with its Chinese partner, executives have said.
"Our joint venture has gradually expanded, and it's now about three times as big as when we started," Mats
Fägerhag, chief executive of CEVT, said in an interview. The goal is to create "modular architectures" that meet
global standards and allow for different levels of vehicle performance depending on market and brand.
Mr. Fägerhag said the first car models built on the new C-segment modular platform will hit the market in
three to four years. He said that even though the technology developed by CEVT will meet global standards, Geely's focus
is initially on the Chinese home market as well as on some export markets in Latin America and the Middle East.
It is unclear when the subcompact car will launch.
While much of Geely's product development will continue to be done in China, Mr. Fägerhag said CEVT will
cooperate with the auto maker on design and the development of complete cars. The arrangement is a positive development
for Sweden, which still has vibrant automotive supply chain and contracts with many global auto makers.
Write to Christina Zander at firstname.lastname@example.org and John D. Stoll at email@example.com
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