UPDATE 1-Geely and Volvo to set up R&D centre in Sweden

Wed Feb 20, 2013 6:43am EST

* To develop technology for both companies

* Will keep brands separate

* Volvo biggest Chinese overseas auto investment

BEIJING/STOCKHOLM, Feb 20 (Reuters) - Chinese car group Geely and its Swedish brand Volvo will set up a joint research and development centre in Sweden to produce technology for new cars.

Geely chairman Li Shufu said the centre, based in Volvo's western Swedish hometown of Gothenburg, would help Geely improve the quality of its cars.

"However, the sharing of knowledge and technology has to be done without jeopardising brand integrity and individual product development," Li said.

Geely, whose investment in Volvo is the biggest Chinese overseas auto investment, is stronger in the mass segment in China, while the Volvo brand is aimed at the premium market.

Volvo has a had patchy record since Geely bought it from Ford Motor Co in 2012. Sales rose in 2011, but a recession in Europe and slowing sales in China pushed it into a loss for the first half of last year.

Internal disagreements also led to the ouster of the chief executive last year and to the appointment of Hakan Samuelsson as chief.

The new R&D centre will employ about 200 full-time engineers from Sweden and China and develop a new modular architecture and components for new cars in the compact car class.

The companies said the new centre would bring cost savings in terms of development and economies of scale.

The head of the centre, Mats Fagerhag, did not go into detail on a conference call, other than to say most of the savings would likely come "on the material side", meaning Geely and Volvo can share components and use Geely's supply chain in China, where costs are cheaper.

Fagerhag said it was too early to say which components are going to be shared.

Peter Mertens, senior vice president of R&D at Volvo Cars, said on the call that the technology resulting from the joint effort would yield differentiated platforms, with no compromise in Volvo's higher safety requirements.

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