Volvo Cars Focuses on Driving Growth Not Sale Rumours, CEO Tells Global Insight

In an exclusive interview with Global Insight during the Automotive News Europe Congress in Prague (Czech Republic), Fredrik Arp, president and chief executive of Volvo Car Corporation, would not comment on sale speculations surrounding his company and the rest of the Premier Automotive Group (PAG). Instead he explained that the company was focusing on growing further, stressed the importance of safety and environmentally friendly technologies as core values of the brand, and for that matter, he noted that he was expecting greater collaboration within the industry on future fuel-efficiency technologies.  

Arp would logically not be drawn on the rumours surrounding the possible sale of Volvo as Ford admitted that it was reviewing "all options" with regard to its portfolio of premium brands under the umbrella of PAG. When asked if Volvo had a long-term future with Ford, he replied "you should ask Ford about that. I am not dealing with hypothesis, I am focusing on operating and running Volvo Cars and we are doing very fine this year". In fact Volvo is in the middle of an important dual model launch with the imminent introduction of the new V70 and XC70, defined as the backbone of the Volvo line. Although Volvo does not own the segment as Arp puts it, sales of station wagons represented over one-third of the brand's global sales in 2006 and Volvo aims to maintain its leadership in this market with these two new models. 

Arp was surprised to hear that General Motors (GM) was planning to improve Saab's profitability by lowering output and focusing on cost reduction. From his standpoint, he explained that Volvo was in the lucky situation of driving growth, global sales grew 8% year-on-year (y/y) in the first five months of 2007 and the company is using its current installed capacity more efficiently, meaning that there was no need to expand production in Europe or anywhere else in the medium term. The carmaker has a total annual production capacity of around 580,000 units worldwide, of which it produces about 450,000 units per annum and wants to focus on making further efficiency gains to support its growth ambitions. Volvo aims to sell 600,000 units worldwide by 2010. To this end, Volvo Cars is not presently preparing to set up production in India as it has just entered the small Indian premium market, but "has great hopes that the brand will drive excellent sales in India over the next couple of years even though we are talking about very thin volumes because it is a very small market currently".   

On the biofuels question, Arp regretted that there was a larger trend towards ethanol over the whole of Europe as he sees both biofuel blends and E85 as very powerful ways to reduce overall carbon dioxide (CO2) impact. He noted that the lack of coordinated action at the European level, on these issues combined with inadequate infrastructure, was slowing down the growth of this technology, but as with safety, Volvo would continue to use environmentally friendly technology as a way to differentiate its products and supplement its lead on design. Volvo's CEO sees further sharing of fuel efficient technologies going forward too. "Not only because of the economic logic of sharing development costs and related investments but also because, even though companies compete on the basis of their proprietary knowledge, if one actually develops something that is very good for the world and good for the environment, then I think the pressure on those companies to share will be pretty heavy" he said.

Outlook and Implications

Arp may not want to discuss the potential sales of his company but presented a strong case for this brand that has flourished over the past few years in the highly competitive premium market and is growing globally, with the exception of North America where Volvo has adopted a more selective approach. Arp explained that "Adverse currency effect and the limited opportunities to compensate for a marked rise in raw material costs have significantly reduced margins and make this market increasingly difficult for a brand the size of Volvo to navigate in". For these reasons, Volvo also has no plans to begin manufacturing in North America.

Volvo confirmed to Global Insight that the all-new XC60 crossover will come out during the second half of 2008 and development was according to plan, meaning that the production version will be very close to the concept presented in January at the Detroit Auto Show. Arp explained that defining vehicle segments was not easy and boundaries are increasingly being stretched by manufacturers looking to secure new opportunities in the marketplace with completely new cars. He concluded by saying "Beyond the XC60 we have not any firm thoughts and I will not comment on speculation around the possible consolidation of the S40 and S60 into one model. We think about all sorts of model developments and we see the segment created by the Mercedes B-class as very interesting, at the same time we are thinking whether the XC60 will have a little brother that could be categorised as a Multi-Activity Vehicle (MAV)."