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EXCLUSIVE - Boardroom tension mounts at China-owned Volvo - sources

By Norihiko Shirouzu

DETROIT (Reuters) - The strategic path Volvo Car Corp plans to follow is in question because of discord at the board level between new Chinese ownership and traditional European ways, according to two sources familiar with the situation.

The 87-year-old Swedish carmaker, acquired by China's Zhejiang Geely Holding Group Co Ltd (GEELY.UL) in 2010, is torn between a desire to hang on to its roots - a focus on safety and Scandinavian understatement in car design - and a desire to turn the cars into large, flashy, high-end vehicles prized by affluent Chinese customers and which would compete head-on with BMW (GER:BMW.DE - News), Mercedes-Benz (GER:DAI.DE - News) and Audi (GER:VOW3.DE - News), said the sources.

Chinese tycoon Li Shufu, founding owner and chairman of Geely and chairman of Volvo since the takeover, is growing increasingly frustrated with Volvo's management team, many of whom are Swedish and other Europeans, according to a Volvo board member and another person close to the automaker, both of whom spoke to Reuters in the last two weeks. Both persons declined to be identified because they are not authorized to speak to the media.

Volvo executives in Gothenburg, Sweden, believe that Li's strategy poses a huge risk.

The long-simmering discord appears poised to cause further turmoil inside the board of directors, which replaced Volvo's chief executive in October 2012, the sources said.

As the tussle over Volvo's identity drags on, Li and his close advisers are now asking, "Who is Volvo's real boss?" according to the Volvo board member.

The source said Li has been diplomatic in his dealings with management but that he might resort to "more forceful ways" in achieving his goals. Those methods could include installing people more sympathetic to his vision on Volvo's management team and board, the source said.

A Volvo spokesman denied there is any high-level disagreement within the automaker. "Volvo Cars does not recognize the claims being made by these unnamed sources," said David Ibison, Volvo's head of media relations.

"There is no disagreement between the board and executive management of Volvo Cars over which models we should produce. Instead, we see a company that is demonstrably performing well under Chinese ownership. Volvo Cars is profitable and sales are growing. Allegations of supposed frustration are pure speculation."


Hakan Samuelsson, Volvo's second CEO since the change to Chinese ownership, said Li is getting the car he is asking for in the next-generation S80 sedan, which is being redesigned. "There is no difference in opinion between Chairman Li and me," he said on the sidelines of the Detroit auto show on Monday.

Asked to comment on perceptions that Li's frustrations are reaching a boiling point and that he and his advisers are now questioning who is the real boss, Samuelsson said: "I don't have a comment on that. He is of course chairman of the board and knows exactly our plans and is fully supporting that."

The two sources, however, disagree that Li is fully supportive. A Geely spokesman declined to comment.

To be sure, Li, an entrepreneur who built automaker Geely from the ground up, is happy with the progress Geely and Volvo have made: the new styling and technologies now being packed into the redesigned XC90 crossover utility vehicle and other key vehicles Volvo will unveil starting this year.

Li, in fact, considers the new direction reflected in those cars a great step forward in making the sober Swedish brand fancier by injecting a BMW-like flair. That direction was reflected in a "concept" or demonstration vehicle unveiled at the Detroit auto show on Monday - a three-door hatchback called the Volvo Coupe XC Concept.

Still, that does not mean Li is completely happy. He thinks Volvo management is meeting his desire for a big plush sedan only halfway, according to the knowledgeable individuals.

Particularly resistant to Li's vision are Samuelsson and Vice Chairman Hans-Olov Olsson, the sources said. Samuelsson, 62, runs the company day-to-day, while Olsson, 72, runs its board as vice chairman on Li's behalf.

"Both Hakan and Hans-Olov, they're both very good at manipulating Chairman Li in order not to follow his ideas," the board member said.

Samuelsson insists Li should be happy with Volvo's upcoming S80 sedan. It is not clear when the redesigned S80 will hit the market, but Samuelsson said on Monday that Volvo has been working to make the current version, the biggest car in Volvo's lineup, bigger and more upscale, and to come up with an even bigger, longer-wheelbase version just for China.

Samuelsson, who replaced Stefan Jacoby as Volvo's global chief in 2012, admits that the new S80 is not as big as the BMW 7-Series, but thinks that it should be the car that Li is able to live with.

"Volvo has to be focused on its core value and we should not be a copycat," Samuelsson told Reuters. "We will never have cars with (V-8 or V-12) engines like the BMW 7-Series and so on. It would not be in line with our brand reputation."

Samuelsson said Li has expressed that he is "fully on board" with Volvo's plans for the S80 sedan. "I think (Li) is self-confident enough to tell me if he is not happy. He knows exactly what's coming and he is full in support of that."


According to the sources, Li has chosen to be diplomatic so far and has advocated his vision gingerly with Volvo management because he and Hangzhou-based Geely are new to the game of acquiring and operating an established global entity like Volvo.

Geely's acquisition of Volvo is one of the rare high-profile acquisitions of global consumer brands by a Chinese company and has been under close public scrutiny in China.

According to the sources, Li feels the long-wheelbase version of the redesigned S80 sedan is not big or flashy enough to give Volvo the BMW-like cache he desires. They said Li is continuing to press Volvo managers to fulfill his vision.

"Volvo management doesn't seem to know who the boss is at Volvo Car," the Volvo board member said.

The person said it is possible that Li could assert himself more, including by appointing people who agree with his vision to senior executive roles. If Li takes this path, he may wish to tap Carl-Peter Forster, the source said. Forster is a seasoned auto executive who headed General Motors Co's (GM.N) European operations from 2004 to 2009, joined Tata Motors Ltd (NSI:TATAMOTORS) as group CEO in 2010 and then became chief adviser to Geely in 2012.

Li's persistence stems in part from the view that being able to tap burgeoning demand for luxury cars in China, where more than 1.2 million premium cars were sold in 2012, is critical to Volvo. The market is likely to displace the United States as the world's biggest market for premium cars by 2020.

Premium or luxury cars generally refer to vehicles priced above $50,000.

Volvo is aiming to use some of this growth momentum in China to help achieve a target of doubling its annual global sales to 800,000 vehicles by 2020. In 2013, Volvo sold 427,840 vehicles globally, up 1.4 percent. Volvo's year-on-year China sales rose 45.6 percent to 61,146 vehicles.

Li is "looking for the right timing to put pressure on Volvo management," one of the sources said.

(Editing by Matthew Lewis)