Geely Buys Volvo as Tata's Nano Goes up in Smoke

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Tata invested some $440 million in designing the car, moving (following local objections at the original site) and then building the production facilities for the Nano according to this report. How accurate this figure is remains debatable. A significant portion of the R&D cost was pushed onto suppliers but let’s take the number at face value. Nanos have been selling like hot cakes and Tata appears to be facing only two significant challenges. The first is the cars have an unfortunate propensity to burst into flames. Four have gone up in smoke over the last six months with varying displays of pyrotechnics from a gentle smoking to outright bonfire. Fortunately nobody has been injured. The first three Tata say were due to a faulty electrics switch under the steering wheel. The last one appears as if it may be more serious as it started at the rear of the car where the engine is housed – the company is still investigating. The second challenge is the cost of raw materials has risen sharply since the car was launched as a concept in 2003 with the target price of $2,500 equivalent. The dollar equivalence has dropped in recent years as the Rupee has strengthened putting the target under pressure but nevertheless the concept of a drier safer but not much more expensive equivalent to a scooter still holds.  Tata’s logic was easy to follow. India is a developing country with a rising and highly aspirational middle class for whom a cheap car is high on the list of must haves. Tata’s purchase of Britain’s Land Rover-Jaguar in 2008 for US$2.3bn according to this BBC report is harder to understand. Tata has made some efforts to market the Land Rover 4×4’s in India but the price tag will prove prohibitive after import taxes. Although 4×4’s should be hugely popular on Indian roads, the reality is the market for gas guzzling western technology is very limited.

Geely’s recent purchase of Volvo however has much more to commend it. Geely is understood to have $2.7bn of funding to invest in Volvo including the sale price of about US$1.8bn according to a Telegraph article. Geely’s chairman Li Shufu said the company would maintain its Swedish heritage with its own management and headquarters in Gothenburg. However, Volvo will develop manufacturing capability in China while maintaining the firm’s manufacturing centers in Sweden and Belgium. China is rapidly developing its engineering skill base through such deals, having bought MG Rover and IBM’s personal computing arm. Airbus is also building planes in China.

Although Europe and the US are currently Volvo’s two main markets, Geely has said it wants to develop the firm’s Chinese business to be of equal size to its non-Chinese business. Geely is the 12th largest automaker in China but the second largest that is not at least part state owned. Buying Volvo gives the firm access to technology and an international footprint that would otherwise takes years to develop. As the Boston Globe puts it this is Geely’s bid to break out of the basement.

Are emerging market manufacturers purchases of established western rivals an act of egotism or good long-term investments? Often it looks like the former. You have to wonder what Tata is really going to do with Jaguar Land Rover or with Corus Steel, but Geely’s purchase of Volvo does have much to commend it.  Ford-Volvo’s technology is world class and it was apparently security of that technology that was more of a sticking point in the company sale than the price. Geely is looking to build substantial manufacturing facilities and a supply chain in China to make the Volvo line up for the local market. Quite how Geely is going to improve Volvo’s European operations economics to get them making money though remains uncertain. Expect to see component manufacture move to Geely’s China supply chain over the coming years as the new owners struggle to bring the European operations back into the black.

–Stuart Burns

Comments (13)

  1. ALittleBiased says:

    “… The first is the cars have an unfortunate propensity to burst into flames. ”

    Thats shameful writing. You make it seem like a fact, when one incident has occurred where a car -“CAUGHT” fire and is still under investigation.

    This article helps spread the fire of sensationalism for a car manufacturer like TATAs who has been building vehicles for over 50 years and is a top grade company.

    Keep up your disdainful journalism.

  2. Jason Busch says:

    Disdainful journalism. Please …

    This brings back memories of burning Pintos!

    http://en.wikipedia.org/wiki/Ford_Pinto

    Make mine red and order the marshmallow toasting option …

  3. Andy Stimpson says:

    Indeed, it is quite laughable that the Nano is even mentioned as a car. It is more like a motorcycle with an Indian-ramshackle-style cover with no A/C – gotta be killer in an unbearably hot and humid India.

    As for Geely – they have a great brand in Volvo but I think we can be sure there will be huge issues with returning the brand to black. It would have been interesting to see what Ford could have done with it if they had not wracked up so much debt.

  4. MV says:

    Biased article in my opinion. I would advice author to read about TATA group on wikipedia before making derogatory blames.

  5. SM says:

    An ignorant author writing what borders on libel. Four faults out of 50,000 (that’s all the faults there seems to be for Nanos given the frenzy there is about any reason for which the Nano can be labelled shoddy) is a superb record compared to any of the Western car manufacturers, or for that matter Toyota. The three electric switch shorts just caused a burning smell, no fire. The recent fire was probably faulty fuel injection line, and the car in question was reportedly a two year old pre-production model used as a static display model, which should not have been sold. The fault is probably due to faulty maintenance on the car in preparation for its illegal sale as new leading to a cracked high pressure line or loose injector line coupling. These incidents are quite common. A friend of mine has a Vauxhall car go up in flames after a service for that very reason a year back, but we didn’t have Vauxhalls splashed over the Internet as cheap dodgy cars with a propensity to burst into flames even though unlike the Nano, it was a legally sold production car.

  6. SM says:

    [QUOTE]
    Andy Stimpson March 31, 2010 at 3:14 pm
    Indeed, it is quite laughable that the Nano is even mentioned as a car. It is more like a motorcycle with an Indian-ramshackle-style cover with no A/C †gotta be killer in an unbearably hot and humid India.
    [/QUOTE]

    The Nano has got A/C and it has got rave reviews from Autocar and pretty well every other other reviewers who have actually test driven it. All of then have said that it is a proper car which drives like a proper car. It is the loud mouth ranters and ravers who have never driven it and don’t know which end they are talking out of, who come up with comments like yours.

  7. stuart says:

    Several comments are anonymous which is curious, its a pity the contributors don’t have the courage of their obvious convictions and state who they are. However that said nowhere does the article call Tata’s Nano shoddy, in fact the piece was intended to be rather supportive of the product and the reference to bursting into flames was a joke, if you missed it then sorry, it’s called irony. It is unfortunate that early examples have had these electrical faults and indeed no harm was done by the first three but the comment from SM is more disturbing – “…the car in question was reportedly a two year old pre-production model used as a static display model, which should not have been sold. The fault is probably due to faulty maintenance on the car in preparation for its illegal sale as new leading to a cracked high pressure line or loose injector line coupling. These incidents are quite common”!! What is a pre-production car doing being sold to the public. I think SM you have shot yourself in the foot with that one, if you are correct, Tata should never have allowed a pre-production car to be sold to the general public – what kind of controls do they have in place? “These incidents are quite common”?? Not with Renault or Honda or Ford they are not, come on SM a car catching fire is not unheard of and not necessarily an indication of a design fault if its a one off but if pre-production cars are commonly sold illegally to the public then something is amiss at Tata.
    On the plus side the article – like it or hate it – has generated some comment, its just a shame most readers missed our point that as a strategic product development the Nano is a brave and logical endeavor that has moved the global automotive needle in producing low cost cars for the masses. A more visionary move than Chinese manufacturers have taken so far.
    Ed.

  8. Jayanta says:

    To answer Stuart, if the car was a display model rather than one ready for sale, it was probably sold by the dealer without Tata’s permission. Yes, India does have people looking to make a fast buck, like pretty much everywhere else.

    The dramatic picture of the Nano in flames has got wide publicity. That is not surprising as the Nano does make a lot of manufacturers and other people in the developed world insecure. The news about the Nano has mostly been positive, so when something negative comes along it is lapped up.

    GM has high hopes for the Chevy Volt, which it hopes to sell for what? About $42,000 after a government rebate of $7,500. With the Nano EV priced at $10,000 after a similar rebate it would be $2,500. It is easy to think why GM and its workers feel threatened. I am not saying we should not be sympathetic to the workers, I am just noting a source of negative sentiments about the Nano.

    As for Tata’s acquisition of Jaguar, the reasons can be various. Ego? Possibly… after all it may be claimed that all drive for commercial success comes down to ego. More materialistic reasons would simply be that Tata thought that it could make money with Jaguar, or that it could learn from Jaguar. They seem to be doing a pretty good job of managing Jaguar, with great sales over the past quarter.

  9. Jayanta says:

    Also note that there are about 42,000 deaths in the US every year from car accidents, with 57 deaths now being blamed on Toyata’s unintended acceleration. Dramatic as the picture of Nano in flames may be, at least no one has died due to a defective Nano. Media in the US responds to commercial pressure, you won’t see many pictures of crashed Toyotas with mangled bodies. For example, Toyota dealers in the southwest withdrew advertising from a network due to its Toyota stories. Tata in comparison has no influence on US media as it does sell cars here (yet).

  10. Mike OR says:

    This author is so much biased in his opinion. or he is probably mentally retarded who is not able to understand the revolution Nano brings to automotive world. Either way, I pity him.

  11. SM says:

    (quote)“These incidents are quite common”?? Not with Renault or Honda or Ford they are not,(unquote)

    Stuart, I can’t really make out if it is pig ignorance or bias in your case, but your statements are really way off the mark.

    Ford has recently recalled 16 million vehicles because of a state of car fires, 550 vehicles burned to a crisp and at least 27 deaths attributed to Ford fires.
    http://www.switchfires.com/
    http://www.allbusiness.com/legal/torts-wrongful-death/13302333-1.html

    Basically the Nano isn’t even in the same ballpark as Ford when it comes to poorly built and unsafe cars.

    Honda recalled 600,000 cars due to fire defects
    http://news.bbc.co.uk/1/hi/business/8487475.stm

    Toyota recalls 600,000 due to fire defects
    http://www.dailymail.co.uk/news/article-1248932/Toyotas-attempt-calm-safety-fears-backfires-boss-says-problems-characteristic.html

    VW fires
    http://www.consumeraffairs.com/automotive/vw_smoke.html

    Mercedes fire
    http://www.youtube.com/watch?v=59INJ6mXVaI

    BMW fires
    http://www.topix.com/forum/autos/bmw-x5/TRUVJJA2Q79QUHKB8

    These are all common production car fires. These fires happen all the time. I understand people seem to expect much higher quality from Tata than the above manufacturers, and statistically they do seem to be getting it, but why fixate on the Nano and ignore all the above which is happening on an altogether grander scale?

  12. stuart says:

    Well i must say i am delighted, if somewhat surprised, to see such ferocious language being used as being called pig ignorant, comments like that have the ring of road rage about them, the author would never say that to your face but is happy to put them down on paper because they feel insulated at a distance much as we do when driving a car. My comment about “is this common” was not to do with cars catching alight it was to do with pre production models being sold to the unwitting public, two completely different points. But OK i hold my hands up may be i was a little hard on poor old Tata, they are breaking the mould and and a few smoking cars is not so surprising for a auto maker, it has indeed happened to the best of them at some time or other. Some of the examples you reference though SM are a bit old, Ford’s are from the ’90’s. Anyway i stand by my earlier comment “its just a shame most readers missed our point that as a strategic product development the Nano is a brave and logical endeavor that has moved the global automotive needle in producing low cost cars for the masses. A more visionary move than Chinese manufacturers have taken so far.” but if you want to keep harking on about smoking Nano’s be our guest. It makes me wonder, do you own a Nano or just work for Tata? Ed

  13. SM says:

    It makes me wonder, do you own a Nano or just work for Tata? Ed

    I don’t work for Tata, nor do I own a Nano, although I would certainly buy one and try to coax it into catching fire if I could get a Mercedes for it as some of the victims have been demanding. I am just a car enthusiast griping about bad journalism – basically people writing about something when they don’t know anything about what they are writing about, and simply copying stuff that others who are as ignorant are writing. And OK the pig ignorant remark was a little over the top.

    When the Nano was first announced, the Nano’s competitors wrote that the Nano couldn’t be done at 1 lakh Rupees, that it would be unsafe, made of cardboard with shower curtains for doors etc. Well that was proven wrong. The Nano is a perfectly normal car, is safer than most of the cars being sold today (the Indian version has exceeded all Indian crash test standards which ). The Maruti 800 at twice the price does not comply with these and folds up like a matchbox in a crash as the Rover Metro did in the UK, and the Maruti will have to be withdrawn from sale soon when crash test compliance become mandatory in India. The slightly modified European version has passed the latest EuroNCAP crash tests with flying colours, and is expected to gain a 4 star EuroNCAP rating with one (driver) airbag fitted. That is as good as most cars being sold in Europe today and with only one airbag.

    Then we had the Nano’s competitors and some hypocrites western greens claiming that the Nano was going to cause massive pollution and greenhouse warming. This despite the fact that the Nano uses far less materials, and has a far lower carbon emissions, and is far less polluting (being BSIII emissions compliant) than any other vehicle in India or indeed most of the world short of a bicycle. Indeed it is a lot less polluting than than the smoky two stroke two wheelers and auto rickshaws it is replacing.

    Despite facts having completely disproven the above fictitious characteristics of the Nano, these completely false claims continue to be repeated about the Nano, which seems to have become a focus for a hate fest by an unsavory assortment of people. You have ignorant journalists who don’t know what they are writing about but simply copy older (and usually outdated) articles written by other equally ignorant journalists and Tata’s competitor’s PR staff. You have bigots and racists who can’t accept that any decent product can be made, let alone conceived and developed, in a country with brown skinned inhabitants. You have green hypocrites who want to prevent Indians who pollute much less from driving around in the lowest carbon emitting vehicle available so that they can keep on driving their SUVs to their carbon emission protests. In short, a car which was intended to do nothing but good – lower cost, reduce pollution and resource usage, attracts some of the worst sides of human nature. That is what riles me up.

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