April 13, 2016 / 11:28 PM / a year ago

Operation "L": China's Geely to launch new car brand - sources

Staff members sit in front of a Geely signage at Auto China 2014 in Beijing in this April 20, 2014 file picture. REUTERS/Jason Lee/Files

BEIJING (Reuters) - Chinese automaker Geely will launch a new brand next year, codenamed “L”, with cars based on joint architecture developed with Volvo, three people with knowledge of the matter told Reuters.

The brand will launch with a sport-utility vehicle - the first model based on the Compact Modular Architecture (CMA) platform developed by Zhejiang Geely Holding Group (0175.HK) and Volvo, the Swedish automaker it bought from Ford (F.N) in 2010. A sedan is also under development for the new brand.

Spokesmen for both Geely and Volvo declined to comment.

Launching a new car brand when China’s economic growth is at its slowest in a quarter of a century may seem ambitious, but Geely, under chairman Li Shufu, beat the industry growth rate last year and has turned around Volvo’s fortunes.

Geely sales rose 22 percent to around 510,000 cars last year, and Volvo earnings tripled, with the Swedish automaker predicting record sales for 2016.

Car sales in China, the world’s biggest market, are forecast to grow by around 6 percent this year, according to the China Association of Automobile Manufacturers.

The aim is for L-brand cars to compete with Chinese-foreign venture brands, such as those produced jointly by General Motors (GM.N) and SAIC Motor Corp (600104.SS). That would leave Volvo to focus on the luxury market, and Geely to go up against domestic Chinese brands, two of the people said.

The new brand would launch into an already crowded Chinese market where at least a dozen foreign automakers and more than 20 local passenger car manufacturers, many with multiple brands of their own, compete.

“The last thing the Chinese automotive world needs is another brand,” said James Chao, Asia-Pacific chief of consultancy IHS Automotive. “The elimination of more brands in China should be the route.”

Launching a new brand can cost hundreds of millions of dollars, if not billions, require years of patience and even then would need to be a truly groundbreaking product to succeed, Chao said.

But the potential return could be substantial if Geely can pull it off.

SAIC GM’s budget Baojun cars, launched in China in 2011, sold nearly half a million vehicles last year. But other new brands, including Toyota Motor’s (7203.T) Scion sub-brand aimed at younger buyers in the United States, have failed to gain traction. Scion was axed as a standalone brand earlier this year.

Qoros Automotive, backed by Kenon Holdings (KEN.N) and China’s Chery Automobile [CHERY.UL], was founded in 2007 and sold just 14,250 cars last year.

STRATEGY U-TURN?

The new L-brand is something of a U-turn for Geely, which said only two years ago it would eliminate three sub-brands and only sell under the Geely logo, consolidating its sales network in the process.

L-brand cars will be sold through Geely’s existing dealership network, said one individual with direct knowledge of the plan, unlike previous Geely sub-brands that were sold through separate exclusive dealerships.

New factories will be set up to make cars for the new brand, codenamed after the marque’s first initial, and once it is established in China it will export to other markets, the person said.

China Euro Vehicle Technology AB, a Geely subsidiary that coordinates research and development with Volvo, is leading the work on the CMA platform from its headquarters in Sweden, with some operations in China.

Developing the CMA platform is part of Geely’s preparations for a push into European and U.S. markets, sources previously told Reuters.

The platform will allow all three brands - Volvo, Geely and L-brand - to design new models from a common base.

Reporting by Jake Spring; Editing by Ian Geoghegan

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