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Volvo and Geely to merge internal combustion engine operations

FRANKFURT (Reuters) – Volvo Cars combine the engine of development and production assets with those of its parent company, Geely, in the creation of a department for the supply of the Lotus, LEVC, Lynk, and Mystery, and also the potential competitors of the next-generation, combustion and hybrid engines. It marks the latest example of consolidation in the motor manufacturing industry, more stringent emission rules, hike to the evolution of costs at a time when the expansion of the electric car raises questions about the long-term demand for gas-guzzlers.

FILE PHOTO: A long exposure photo shows a car from the Swedish automobile manufacturer Volvo will be shown in the front view of a display of Stierli Automobile AG is a company in California. Erhard, Switzerland, April 11, 2019. REUTERS/Arnd Wiegmann/File Photo

Rival Volkswagen VOWG_p.DE), which is in the midst of ramping up production of electric cars, however, have warned that its own suppliers to create structures and to consolidate the internal combustion engine and equipment.

Volvo is currently building the 600,000 internal combustion engines, a number that will rise to about 2 million, and when combined with Geely’s current assets, thus saving money on the parts and the cost of the development, the Volvo Chief Executive Hakan Samuelsson told Reuters.

It will be a Gothenburg, Sweden-based brand is to more clearly focus its resources on the design and development of a range of fully-electrified with premium cars.

“As a global business, an internal combustion engine, it is most likely to be growing. It is important to consolidate and to look for synergies. It is one more step in the transformation of our business in the direction of the power,” Samuelsson said in a telephone interview.

In the mid-term, Volvo will drop the diesel engines altogether in favor of a focus on hybrid-and electric-powered motors, and that further investment in the fuel-injection, turbo-charging and brake repair technologies.

The combination of its operations with those of its Chinese partner, Geely, and will help to achieve cost savings, Samuelsson said.

“At a component level, I can see a significant cost savings. The most important is the development of the area. The engineers are given the resources to take the steps to develop a top-notch hybrid engines,” Samuelsson said.

Geely in August and has reported a 40% drop in net profit, citing a slowdown in the demand for cars, while the company has rejigged its global production plans in an effort to reduce the impact of the rates.

Geely bought Volvo Cars in 2010 from Ford Motor Co., which the Swedish brand to work on an arm’s-length basis. However, in recent years, for increased co-operation between the two brands.

Volvo will be the engines of some of the Geely-branded vehicles, and the parts of the technology for Geely’s Lynk brand products. The two companies will share and develop common vehicle platforms.

With global prices, exacerbated by a trade war between China and the United States of america, as well as the higher capital costs of electric and autonomous vehicles, forcing automakers to look for new ways to cut and share costs.

Volvo in 2018, delayed plans to set up a separate stock exchange listing for the Swedish car maker, and the allegations of market stress.

The tightening of emission requirements in Europe and China, the strengthening of the industrial logic of the combination of Volvo and Geely, the activities of the Swedish executive said.

“The emissions standards are getting tougher everywhere. China is catching up very fast. The days when China had to wait weeks to have gone,” Samuelsson said.

The new engines business and to combine it with 3000 employees at Volvo Cars, with 5,000 people from Geely, the internal combustion engine operations, which include research and development, procurement, production, IT and finance functions, Volvo said.

FILE PHOTO: The logo of Chinese car manufacturer Geely Automobile will be displayed on the second media day of the Shanghai auto show in Shanghai, China-April 17, 2019 at the latest. (REUTERS photo/Aly Song, File/Photo

The formation of the self-employed, it will result in no job losses, Volvo said.

The new stand-alone provider you can also rest outside of rivals, is struggling to keep up with stricter rules and regulations.

“It could be an interesting alternative to third party customers in,” Samuelsson said.

Reporting by Edward Taylor; Editing by Peter Cooney

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