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Volvo plans $10 billion China investment in next 5 years

By Jo Ling Kent, CNN
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Volvo's global expansion
STORY HIGHLIGHTS
  • Volvo announced over $10 billion in investments over the next 5 years
  • Follows automaker's acquisition by Zhejiang Geely Holding Group last year
  • Volvo hopes to sell about 200,000 cars in China by 2015, compared to 39,000 last year
  • Volvo also unveiled plans to expand dealerships in China to 220 from 106
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Beijing, China (CNN) -- Volvo announced over $10 billion in investments over the next 5 years as a part of its new strategy in China, following its acquisition by Zhejiang Geely Holding Group last year.

The Swedish car brand will open a new manufacturing plant in the southwest city of Chengdu in 2013, the company said on Friday. The Chinese-owned car maker also may build another factory in Daqing in northeast China. The company said that the new production centers will not affect operations and employment in Europe.

Volvo now has little presence in China. The company hopes to sell about 200,000 vehicles in China by 2015, compared to 39,000 sold last year. Volvo also unveiled plans to expand the number of dealerships in China to 220 from 106 by 2015.

Volvo selected the city of Chengdu in part because Geely has an established factory there. Volvo's new factory will be situated directly next to Geely; the two brands will share some manufacturing services, including infrastructure and logistics.

"That's one of the benefits which we have here being a Chinese company and enjoying most of the benefits of labor," Volvo CEO Stefan Jacoby told CNN in an interview.

Volvo's CEO said the two brands will otherwise have very little in common, with Geely and Volvo targeting distinctly different demographics. Volvo intends to compete with other luxury brands including BMW, Audi and Mercedes in the mainland.

"We continue to uphold our principle of Geely is Geely and Volvo is Volvo," Geely board chairman Li Shufu, said on Friday.

"Geely is a manufacturer offering cars for the lower-end of the auto industry and Volvo is definitely a premium and a luxury brand at the upscale segment of the auto industry," Jacoby, former president of Volkswagen Group of America, told CNN. "We have no intention to bundle this or to combine this."

At the same time, Volvo leadership hopes the pairing of a well-known European company and a relatively young upstart Chinese brand will help Volvo play catch-up in a lucrative market.

"I think we missed the opportunity to come into the market as a so-called early bird. We are a late comer, we are aware of this," Jacoby said.

In 2009, China surpassed the United States as the biggest auto market according to number of vehicles sold in the mainland. Just one year later, total car sales increased by 33 percent over the previous year to approximately 13.7 million vehicles, a massive increase many credit to tax cuts and incentives to purchase cars during the global financial crisis.

"We have to put much effort in, of course, exploring our business here. Local manufacturing means also to be more competitive at our products," Jacoby told CNN.