New Volvo Truck Division Chief Tasked With Revised Profitability Targets

The board of directors of heavy-truck and construction-equipment powerhouse Volvo tells incoming CEO Olof Persson that profitability, rather than growth, is the company's main priority.

Volvo Trucks CEO assigned profit goals.

“While growth will remain important in the future, the board is of the opinion that the prerequisites are now in place to also set new profitability targets for the company and its new CEO,” says Chairman Louis Schweitzer, the former chief of Renault.

Volvo had been operating with targets established in 2006. The new targets took effect Sept. 1.

Volvo will benchmark Persson's results against those of its competitors in its truck, bus and construction-equipment divisions, as well as Volvo Penta, which makes and sells marine engines. Persson has been told to focus on profitability in those ventures.

Aiming to place among the top three companies in each of the segments, the board also seeks a 12%-15% return on equity from its customer-finance operations, as well as an equity/assets ratio of more than 8%. Volvo Aero has a return-on-equity target of 15%-25% and the same equity/assets ratio as financial operations.

Volvo's main competitors in trucks and buses are Daimler, Iveco, MAN, Navistar, Paccar, Scania and Sinotruk. Its principal construction-equipment and Penta competitors are Brunswick, CAT, CNH, Cummins, Deere, Hitachi, Komatsu and Terex.

Volvo Group now garners half its sales from markets outside of Western Europe and North America. Its business is growing in Eastern Europe, South America and Asia. The new targets emphasize the board's view that Volvo is beginning a new phase after many years of acquisitions and consolidation. Previous targets were as easy and clear to measure, a spokeswoman says.

Persson and his management team will be responsible for deciding what actions need to be taken to achieve the targets, the spokeswoman says.