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Friday, June 22, 2018, 10:18
Wheeling and dealing — a hot game
By Edith Lu in Hong Kong
Friday, June 22, 2018, 10:18 By Edith Lu in Hong Kong

To Chinese auto giant Geely, asset buying has become its brand strategy. Executive Gui Shengyue tells Edith Lu the group’s taste for value brands has dictated their phenomenal growth over the years.

Gui Shengyue, chief executive officer of Geely Automobile Holdings, says learning the world’s latest technology through mergers and acquisitions is key to keeping Geely’s continued growth. (PARKER ZHENG / CHINA DAILY)

Geely Auto — a household name in China’s four-wheeled business — is seldom seen punching above its weight in taking on rivals whenever an acquisition target appears.

Its prescience, foresight and a striving spirit have been instrumental in the group’s eye-catching thrust around the globe, says Gui Shengyue, who heads the auto giant’s Hong Kong-listed unit, Geely Automobile Holdings.

The automaker made headlines earlier this year when Li Shufu — chairman of parent company Hangzhou-based Zhejiang Geely Holding Group — sealed a nearly 10-percent interest in Germany’s Mercedes-Benz maker Daimler to the tune of US$9 billion, making him Daimler’s largest single shareholder.

“The blend of Geely’s electric vehicles, Volvo’s intelligent driving, plus Daimler’s scale, will have an inestimable impact. Years later, we’ll see the significance behind Li’s purchase, just like eight years ago when Geely bought Volvo,” predicts Gui.

After all, products are stronger than words

Gui Shengyue, chief executive officer of Geely Automobile Holdings

Taking into account the automobile industry’s future trend, such as electric vehicles and intelligent driving, Geely believes traditional automakers should fight through strategic and vertical cooperation to brush off the threat from new players in the internet industry.

Geely embarked on its path of mergers and acquisitions after its parent company took over crisis-strapped Swedish carmaker AB Volvo from US auto titan Ford Motor for nearly US$2 billion in 2010 — the first time an automobile enterprise from the Chinese mainland had completely acquired an international marque.

The automaker followed it up with an aggressive expansion trail on the world stage. Besides Daimler and Volvo, Geely now owns British taxi manufacturer The London Taxi Company, UK sports carmaker Lotus and Malaysian automaker Proton Holdings as part of its drive for a slice of the lucrative Southeast Asian market.

Just a few weeks ago, Geely acquired a 49-percent stake in a mainland State-owned company which provides Wi-Fi internet services on bullet trains with internet giant Tencent Holdings.

Gui maintains Geely is always improving and learning the world’s latest leading technology through mergers and acquisitions, while respecting the independence of these hot label brands.

“The experience we’ve gained from the London Taxi Company deal had enabled us to do better in the Volvo takeover. Also, we’ve helped to extend these old brand names and, from them, we’ve learned advanced automobile technology systematically and built up our reputation in the industry.”

Founded by Li more than three decades ago in Taizhou, Zhejiang province, Zhejiang Geely Holding Group had started off as a refrigerator parts supplier. It changed its production line several times and finally entered the automobile manufacturing sector in 1997, becoming the country’s first privately-owned automaker.

Growing reputation

“No foreign experts cared about us at that time”, Gui recalls. The situation, however, changed after Geely secured its stake in Volvo. It subsequently burst onto the scene, with its growing reputation attracting talents from all over the world to work at its research institute. Currently, most of Geely’s new car models are the work of eminent international designers.

Gui believes their brands’ development has benefited much from the brain gain, especially Volvo. The Swedish carmaker has sprung back to life and recorded brisk sales in recent years.

According to a Bloomberg report, Volvo is mulling a dual listing in Hong Kong and Sweden this year, with investment banks seeking a valuation of between US$15 billion and US$30 billion for it.

Gui says this is what Volvo should consider at this stage. He strongly denies that Li plans to use the funds raised to lengthen his growing list of transactions.

“It’s for sure that Li is not allowed to fund other businesses through the listing under Hong Kong’s listing rules, as the capital raised should only be for the benefit of Volvo. There’s no obvious relation between the IPO and M&As.”

People may be always wondering the source of Li’s capital and the risks involved in every deal. Gui reckons that all of Li’s acquisitions are great financial investments from a business perspective.

“Li will still be the controlling shareholder after Volvo goes public,” stresses Gui. “It’s impossible for Geely’s culture in Volvo to vanish in the short term.”

The first vehicle model of Geely and Volvo’s joint brand Lynk & Co, which was launched last November, saw some 9,000 vehicles sold last month, well beyond Geely’s expectations.

Better turnover seen

“The sales volume is not that big because of low capacity. But, with the completion of our new factory, the problem will be solved. I can promise that the turnover of Lynk & Co will be better and better,” says Gui.

Considering the group’s strong new products pipeline and the continued strong sales momentum of existing models, Geely has set a sales target for 2018 of 1.58 million units, representing an increase of about 27 percent over the previous year.

Sales reached 386,000 units in the first season, achieving 24 percent for the full-year goal. “As our first season’s sales were up 39 percent year-on-year, I’m confident the target will be met,” says Gui.

The market expects Geely to be hit to a certain degree by imported cars under the mainland’s new policy of cutting import duties. The Ministry of Finance said last month import duties on completed automobiles will be reduced to 15 percent from July 1 in order to further expand the country’s reform and opening-up.

Gui does not see it as a bad thing. “It may have an impact on domestic brands in general, but we’re all for the new policy. With fairer competition in the market, we’ll have more opportunities than State-owned automakers.”

“We are also more familiar with the domestic market than foreign rivals and have been fully prepared for international competition with a strategic correction in the export market.”

Export sales may be weak at present with it declining 46 percent last year, but Geely sees key export markets making a reasonable recovery in 2018. Gui expects export sales to return to growth in 2019, laying the foundation for the company going global.

Geely had begun trading with other countries, having started turning to export products and technology in 2016, as well as local manufacturing. It plans to take on the European market with high-end models produced by Lynk & Co at Volvo’s factory in Belgium.

“After all, products are stronger than words.”

A natural business duo on a common mission

Most people won’t dispute it’s the courage and aspirations of founder Li Shufu that have helped shape the group’s growth, while paying scant attention to the rigor and pragmatism of Gui Shengyue.  

Gui was named chief executive officer of Hong Kong-listed Geely Automobile Holdings in 2006 after having been tapped by Li in the 1990s well before Geely ventured into the auto industry.

Li and Gui, who are of the same age and natives of Zhejiang province in eastern China, struck up a solid relationship despite their different backgrounds. Li had started from scratch, while Gui was recommended by Beijing to work in State-owned China Resources (Holdings) Company in Hong Kong.

Gui reckons it’s China Resources’ standardized management and regulations that have shaped his business philosophy. “Discipline and legality are important in such a large corporation. This has influenced me a lot and made me more practical.”

He was a key witness to Geely’s Automobile’s development over the years, purchasing spare parts for the group and feeding it with global market information from Hong Kong. After having worked in Hong Kong for years, Gui has grown accustomed to the local business environment.

“I came to Hong Kong just after graduating from university in 1986. It enabled me to get some understanding of business rivalry in a regulated market in my early years,” says Gui.

Geely grew rapidly and became one of China’s top 500 enterprises in 2002. Its speedy expansion had put pressure on the company’s cash flow because of its huge sales target and high production investment. This accelerated Geely’s desire to seek opportunities by going public.

With Gui’s help in building the company’s structure, Geely was successfully listed on Hong Kong’s stock market through a back-door listing in 2005. The initial public offering eased Geely’s capital pressure and created the path for it to climb onto the world arena.

Having been appointed to the helm of the Hong Kong unit, Gui believes a successful leader has to be good at controlling the whole situation and capable of making critical decisions.

“Although critical decisions may involve risks, a leader has to conquer them, and adopting a conservative approach won’t bring the results,” he says.

“Thus, I believe, to a certain extent, all the M&As are linked to the existence of our listed company here in Hong Kong. We may not play a critical role but we do have some impact for sure.”

Geely’s shares had been on a roll since the unit’s flotation in Hong Kong and the company becoming a constituent of the Hang Seng Index early last year, ending 2017 with its share price tripled.

Contact the writer at edithlu@chinadailyhk.com


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