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Geely

BHP Euro5 DieselBy now, most Malaysians will have heard of the Zhejiang Geely Holding Group (Geely) acquiring a 49.9% share of Proton, hopefully to give it more strength to return to a course of growth and to achieve its aspiration of becoming a global player. Just a year ago, most Malaysians would not have known about Geely although it had tried to enter the market 10 years ago. However, its vehicles are already being sold in Europe, the Middle East, South America, Africa and some countries in Asia. Yet Geely is actually a younger company than Proton, having begun automobile manufacturing only in 1998 and beginning exports in 2003.

The man behind Geely is Li Shufu, a 54-year old businessman who established the company in 1986 – but not to make cars. When it started business, Geely (the name in Chinese means ‘lucky’) made refrigerators, one of the home appliances that were in growing demand as the economy in China was quickly expanding. Like many entrepreneurs, Li started small and as bank loans were not available, he had to borrow money from relatives.

Before making cars, Geely produced scooters and motorcycles
Before making cars, Geely produced scooters and motorcycles

His first efforts were only to make some components for refrigerators which he saw much potential in. Within 4 years of starting business, Li, then only 26 years old, had learnt enough about the industry to make complete refrigerators. He seemed to have gained a good start when Geely refrigerators were sold beyond the region where they were made, helping the business grow. However, a change in regulations to streamline industries saw Geely facing difficulties in getting the relevant permits and the company was forced to cease operations.

Having enjoyed the fruits of success with his refrigerators, Li decided to try another industry in 1994. This time it was small motorcycles, including scooters, which were quickly replacing bicycles. In fact, Geely scooters were the first of this type of 2-wheelers made in China..

Li Shufu, the man who started Geely in 1986 at the age of 22

Its motorcycle business continues today with over 130 models/variants ranging from 50 cc to 250 cc. The annual production is 600,000 units and Geely exports its motorcycles to over 22 countries and regions.

Not content with being the largest motorcycle manufacturer in China, Li also wanted to make cars. This too was an industry destined to see rapid growth with more of the Chinese population able to afford cars as the economy mushroomed. However, as in Malaysia, it wasn’t just a matter of setting up a factory and making cars. China too has industrial policies formulated by the central government and in the 1990s, the policy was that no new passenger car manufacturers would be allowed in order to allow the existing ones to develop further without being distracted by additional domestic competition.

The existing car manufacturers (some joint-ventures with foreign companies) had government shareholding and Li was not well ‘connected’ to the government leadership so he was unable to get approval to build cars. His position as an independent entrepreneur was also not viewed positively by the government which felt that car-manufacturing should be done by only government-owned companies. The government understood that the automobile business requires a lot of investment – and huge ones – and the private sector was thought to be unable to make such levels of investment.

Determined to get into the car business, Li thought of other approaches instead of the conventional way that had proven unsuccessful. As in Malaysia, the government had issued manufacturing permits to certain companies to make vehicles and it was possible to retain such permits even if the company was bought over by someone else. Searching around, he found a factory (owned by a government agency) which was not doing well and offered to buy it over. Having done so, he gained possession of the valuable Vehicle Production Permit. Although the permit was for the manufacture of light commercial vehicles and buses – but not passenger cars – it was a start and marked Geely’s entry into the automobile sector in 1997.

The first cars made by Geely at a roll-out ceremony in February 1998. The first model was called the HQ and used a Daihatsu Charade platform under licence.

Somehow, after gaining the support of the local government in Zhejiang (his home region), Li managed to get permission to make passenger cars. The first unit of the hatchback model known as the ‘HQ’ (Haoqing) rolled out of the factory in 1998, marking the beginning of Geely’s ascent as a carmaker. Given the fact that Geely had no government involvement, it could be considered the first private carmaker in China.

Within the first few years, which were the beginning of the 21st century, Geely quickly introduced many new models and increased its presence in the domestic market. By 2003, it was ready to start exporting. Although commercial vehicles were already being exported from China, passenger car products were still limited and although it was a new and ‘unknown’ brand, Geely gained acceptance from consumers in many countries who were willing to try something new and affordable.

Part of Geely's model range today
Part of Geely’s model range today
Geely began exporting its cars in 2003 and made its first appearance in the Malaysian market at the 2006 KL International Motorshow with the CK sedan.

Geely was also keen to sell in America, one of the largest car markets, and displayed a model at the North American International Autoshow in Detroit in 2006. However, unlike most other countries, selling a car in America is not easy due to safety and emission regulations and other issues. Even Proton had tried in the late 1980s and decided it was not viable. So Geely deferred its plans for that market while concentrating on its growing number of export markets.

Geely production sites in China at the end of 2016, 18 years after it started making cars. The total capacity available is just over 1 million units with all factories running on 2 shifts.

Although the acquisition of Volvo by Geely put the carmaker in the spotlight, it actually began making foreign acquisitions earlier. In 2006, it acquired Manganese Bronze Holdings (MBH), an engineering company in England with a history going back to the early 1960s. MBH then formed a joint-venture with Geely to establish The London Taxi Company which makes the iconic black cabs. In 2009, the carmaker also bought over a transmission manufacturing company in Australia which helped Geely gain valuable technology for developing and producing its own automatic transmissions.

The Volvo acquisition in 2009 is a highlight in the company’s history and though not widely known, Li Shifu had been eyeing the company years earlier. Ford did not think much of Geely then but as Geely’s business grew, it was clear that it was a suitable candidate. So by 2010, Li Shufu finally got Volvo, a global brand that certainly raised his stature in the car industry.

Just a year after acquiring Volvo, this concept car was displayed at the Shanghai Motorshow. It suggested that Volvo would start competing with the Mercedes-Benz S-Class and BMW 7-Series, which was probably Li Shufu's ambition. However, the Volvo management disagreed with the idea although making the brand more premium was being pursued.
Just a year after acquiring Volvo, this concept car (hinted as being the next S80) was displayed at the Shanghai Motorshow. It suggested that Volvo would start competing with the Mercedes-Benz S-Class and BMW 7-Series, which was probably Li Shufu’s ambition. However, the Volvo management disagreed with the idea although making the brand more premium was pursued.
Though under Geely ownership, Volvo has thrived and moved to a new level in product development and positioning. And it still retains its Swedish identity rather than being regarded as a 'Chinese company'. There are Malaysians who believe that Proton will lose its Malaysian identity now that Geely has taken over a large stake.
Under Geely ownership, Volvo has had the autonomy to thrive and move to a new level in product development and positioning. And it still retains its Swedish identity rather than being regarded as a ‘Chinese company’ (there are Malaysians who fear Proton’s loss of Malaysian identity now that Geely will manage it)

Under the ownership of Geely, Volvo has thrived and advanced significantly with new powertrains, platforms and models. It is apparent that although owning the company, Li Shufu has also given it a lot of autonomy (and financing) to develop its business. This has not been the case with some other brands that have been acquired by Chinese companies earlier. More importantly, he has not disturbed the character of the Swedish brand which has gained a more premium positioning in recent years.

Besides having a company that makes the iconic London taxis, Geely has also created a new car brand called Lynk & Co which will share engineering elements with Volvo
Proton is now the latest company in the Geely constellation with the acquisition of a 49.9% share in the Malaysian carmaker

Now that Proton and Lotus are also in the group, it would appear that Geely has covered a lot of the market. It also has a new brand known as Lynk & Co which will be positioned below Volvo and above Proton and Geely, with Lotus remaining a specialist niche brand as it has always been.

[Chips Yap]

Proto Malaysia

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