Chinese auto makers have expressed an interest in buying the Swedish brand Volvo

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Multiple Chinese auto makers have expressed an interest in buying the Swedish brand Volvo, recently put on the block by Ford Motor Co. (F).

Now as a group, Chinese car makers don't enjoy a reputation for high quality or safety. So would buying a brand with a reputation as one of the safest cars in the world buck up a Chinese buyer or tarnish Volvo?

Auto experts say car consumers, the ultimate proof, care only that 'the new Volvo keeps delivering what it promises,' says Paul McCarthy, automotive transaction services strategy leader at PricewaterhouseCoopers. 'That will be the biggest challenge for the Chinese buyers.'

Chinese automotive technology has advanced in recent years. Still, experts have doubts whether Chinese auto makers are yet at the level of the international benchmarks. 'Usually, the lower-quality acquirer would improve the overall quality by adopting new technologies from the acquired company, which is usually one key incentive for such mergers to happen,' McCarthy says.

One thing to watch is whether a Chinese buyer decides to keep Volvo's production team. The challenges exist in cross-hybridization, revenue synergy and how to make different cultures work, McCarthy said. 'It's like moving two oceans together trying to make them flow at the same time,' he said. Ford bought Volvo for $6.45 billion in 1990.

Any Chinese buyer would do well to study the marriage between Lenovo Group Ltd. (LNVGY) and International Business Machine Corp.'s (IBM) personal-computer division five years ago. Consumers had a hard time gaining confidence in the new ownership even after the Chinese acquirer decided to keep most of IBM's original sales and technical supports teams. While Lenovo-IBM PC sales are higher since the takeover, U.S. market share has declined.

Of course, the auto industry has been among the more globally competitive arenas. Daimler-Benz and Chrysler combined to form DaimlerChrysler in 1998, Nissan Motor Co. (NSANY) and Renault SA (RNO.FR) share a top executive, while Germany's Porsche (PAH3.XE) and Volkswagen AG (VOW.XE) are becoming one. Of late, bids have been coming in from China and India, among the only places were companies have relatively easy access to credit in today's down market. India's Tata Motors Ltd. (TTM), for instance, now owns Ford's Jaguar and Land Rover nameplates,

'One big incentive for emerging markets to acquire overseas brands is to gain credibility,' McCarthy said.

Still, the tougher task is how to move ahead after an acquisition. The Chinese have a saying: Be it a black cat or a white cat, a cat that can catch mice is a good cat. The Chinese will need to show the world that a Chinese-owned Volvo, if that ever happens, can catch the mice.

Jodi Xu

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