GOTHENBURG: Geely's Volvo Car Group expects the Chinese roll-out of its new XC90 and, next year, the S90, to drive sales through a slowdown in demand in the world's biggest auto market, its top executive said.
Chief executive Hakan Samuelsson said Volvo would not join in any price war to prop up volumes as the company tries to make inroads into a high-end car market dominated by German rivals, although some analysts said he may be tempted to cut prices.
Samuelsson said Volvo's second model on its new platform, the S90 sedan, which targets a bigger segment of the Chinese market than the XC90 sports utility vehicle, would be launched at the Detroit auto show early 2016.
Car sales in China have tumbled in recent months, hit by a slowing economy and slumping equities, highlighting the need among automakers of a fresh model line-up to remain winners in a market unaccustomed to decline.
Samuelsson said sales in China would grow in line with a market he expected to be flat or grow only a couple of percent this year. But he said the Swedish carmaker would not participate in increasingly aggressive price competition.
"There is a lot of capacity and there will be a lot of people who are tempted to use that capacity and keep their volumes growing," said Samuelsson, who also said he had extended his contract as CEO by three years.
"We don't want to take market share just using the price as a weapon ... That will of course also influence exactly what growth rate we will see."
Chinese sales of Volvos fell 4.1 percent in the year through August. But the XC90 has only now begun reaching dealers there, leaving the carmaker anticipating a boost in its biggest market.
"I think you will still see them grow volumes there significantly, but just at a lower price point," Exane-BNP Paribas analyst Stuart Pearson said. "There are still healthy margins on offer in China, especially relative to what Volvo has been making."
Volvo expects its global sales to hit a fresh record of close to 500,000 cars this year and reach 800,000 in 2020 in a premium market dominated by Daimler's, Mercedes-Benz and BMW.
But Volvo needs to balance growing sales with boosting profitability. Its operating margin in the first half of 2015 was 2.2 percent versus roughly four times that at its chief German competitors.
"If one lays claim to being a premium manufacturer, they need to boost that profit margin. Look at BMW, that in the 1980s was roughly the size of Volvo but which has expanded hugely since then," said Patrik Strom, associate professor at the University of Gothenburg.
Samuelsson said he expected profitability at Volvo, bought by Zhejiang Geely Holding Group Co from Ford Motor Co. in 2010, to reach the level of its German rivals in the medium term as up to nine new higher-margin models, of which XC90 was the first, are launched by 2020.
