Volvo’s Decision to Build U.S. Plant a Head-Scratcher

Volvo’s announcement it will invest $500 million to build a new assembly plant in the U.S. caught many off guard, and on the surface makes little sense.  

For one, the Swedish automaker remains a tiny player in the global automotive industry, selling only 465,866 units worldwide last year and just 59,366 in the U.S.

Even with plans to expand its U.S. sales to 100,000 units over the next few years, it’s still not enough to justify a new plant, especially with facilities already operating in Sweden and China.

Jaguar Land Rover just weeks ago reportedly was looking at potential U.S.-manufacturing sites, but quickly scrapped those plans. If JLR decided it wasn’t a feasible strategy, with global sales of 434,311 last year, then why does it make sense for Volvo?

Sam Fiorani, vice president, Global Vehicle Forecasting-AutoForecast Solutions, agrees Volvo’s U.S. volume doesn’t warrant the construction of a new plant, citing history as proof.

“Bigger companies (Volkswagen, Mitsubishi) have tried and struggled,” he says. “When Volvo approached 100,000 units in the 1970s, they considered a car plant, but sales never reached their intended levels.”

Volvo CEO Hakan Samuelsson says the company can’t become a true global automaker without an industrial presence in the U.S.

“The U.S. is an absolutely crucial part of our global transformation and (the) announcement makes it perfectly clear that Volvo is in the U.S. to stay,” he says.

The truth might be somewhere in-between. While having a domestic assembly plant may make the brand more appealing to American consumers, it also could serve as a gateway for vehicles from parent Geely Automobile in the future.

China-based Geely purchased Volvo from Ford in 2010 and immediately boosted its global presence. Some Volvos will be built in China for export to the U.S. in what may be the first step in familiarizing U.S. consumers with Chinese-made cars.

The second step could be selling low-priced Geely cars built in the U.S., relying on patriotism to move the metal. One obstacle would be engineering the vehicles to meet U.S. crash standards, but with Volvo’s help that should be achievable, as the two automakers already are working on developing small cars in conjunction.

Samuelsson in an interview with The Wall Street Journal says there currently are no plans to share the plant with Geely, but he says the facility in the future could be used to distribute cars for the automaker.

Should Volvo forge ahead with its plan to build a U.S. plant, it will mark its second attempt at North American production, following semi-knocked-down assembly in Halifax, Nova Scotia, Canada, from 1963-1998.

The automaker has yet to name a location for the plant site, but numerous media reports indicate the Southeast is a likely spot so that Volvo can harness the supplier base established for Mercedes-Benz, BMW, and Volkswagen, as well as the largely non-union labor force. North Carolina is one possibility, while Charleston, SC, is another.

But the UAW hasn’t given up hope Volvo will embrace unionized labor and help boost the union’s membership ranks.

“Companies like Volvo, that respect the rights of their employees to be represented, understand the positive impact on their product quality and their productivity,” UAW President Dennis Williams tells WardsAuto in an email. “When Volvo employees choose to be represented, UAW members will be glad to assist them in their efforts.”

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