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. Last Updated: 07/27/2016

Chinese to Make Their Own Volvos

BEIJING -- Ford's Volvo said Monday that it would begin making cars in China this year, a step into the world's third-largest car market that other upmarket automakers took years ago.

Chief executive Fredrik Arp said Volvo would build its S40 sedan at a plant owned by Changan Ford, a Ford joint venture in the southwestern city of Chongqing.

While Volvo conceded it was late in entering a increasingly difficult market where profit margins were shrinking, the company was confident Chinese manufacturing operations would be profitable as early as next year.

Volvo said it could reach its Chinese manufacturing target of 10,000 cars per year in 2007, and was working with a number of Changan Ford's local suppliers to meet the government's local content requirements and the company's quality standards.

"We are, after working with [Changan Ford] on this project for over a year, convinced that their factory, working together with our own experts, can produce the quality Volvo requires," Arp told reporters.

"At 10,000 units, we will be making money," said Alexander Klose, head of Volvo's Asia Pacific operations.

Changan Ford is a joint venture between the second-largest U.S. carmaker and Changan Automobile.

Even with the recent strong growth in China sales, Volvo still lags behind its global rivals, such as Volkswagen's Audi, which has been making expensive cars for years for an increasingly cash-rich and style-conscious Chinese middle class.

Volvo's unit sales in China almost doubled in 2005 to over 4,800 units, and could more than double this year to 10,000. The company also sees significant growth for the foreseeable future.

"There is as good possibility it could double again next year," Klose said.

BMW set up its China factory in 2003, and DaimlerChrysler is building a plant in Beijing that will be able to build 25,000 Mercedes-Benz cars annually.

Chinese car sales grew 15 percent in 2004, after almost doubling in 2003, and analysts expect growth of 10 percent to 15 percent this year.

Even as overall growth slows, global manufacturers are confident China's dynamic economy will continue to produce more customers for higher-end cars.

"China will probably be the most important car market within five to 10 years in the world," Arp said. "To be an importer only is not a long-term strategy."

Rising competition is also eating into profits, turning a once lucrative market into one where high volume replaces high profits.

"The profit margins in this market are not outstanding in any direction," Klose said. "China is becoming a regular market."

After reviewing the China manufacturing operations at the end of next year, Volvo will reassess the market and determine if expanding output -- which could include other models besides the S40 -- is justified.

"We will manufacture this car. We'll see how it works. We'll see how we are doing next year," Klose said.