Volvo Strategy Built Around Flexible Platform, Chinese Sourcing

DETROIT – Volvo is looking to hold ground in 2013 in what is expected to be a challenging global market as it continues working to redefine its brand and refine its business model.

Market pressure in Europe, where industry sales are expected to decline again this year, has the Swedish auto maker searching for new ways to cut costs, but new President and CEO Hakan Samuelsson is vowing to leave product-development budgets largely intact.

Also on the agenda is a closer tie to Geely Automobile and greater reliance on China for component sourcing, which he says is the primary strategy for reducing material costs and making Volvo’s vehicles more competitive in key markets such as the U.S.

“We are scrutinizing every item: travel, IT, consultants – we have to be very tough,” Samuelsson tells WardsAuto in an interview here at the North American International Auto Show.

“(But) our top priority is strategic product development,” he says. “There are some things in that area you could discuss and delay, but not anything that would change the strategy (to) roll out new vehicles by the end of next year.”

Although Volvo plans to refresh its 60-, 70- and 80-Series models this year, its big product play comes in 2014 when it begins building the first vehicles off its new modular SPA (Scalable Product Architecture) platform now under development.

SPA initially will underpin the next-generation XC90 cross/utility but ultimately will form the basis for all 60- through 90-Series vehicles – covering about 80% of Volvo’s global volume.

“The 3-row SUV is a core Volvo segment,” Samuelsson says of the upcoming model’s importance to the auto maker’s U.S. comeback effort, noting at its U.S. sales zenith, the company sold a lot of XC90s. “We will have a very attractive program presented at the end of next year (that) will be (of great interest) for Volvo customers.”

Volvo sold 421,951 cars worldwide last year, down 6.1% from 2011. Samuelsson believes volume can be maintained this year if the auto maker can keep pace with overall market growth in the U.S. and China. It is targeting a 5% gain in U.S. sales and a 7%-8% increase in China, where it sold 41,989 vehicles in 2012.

The U.S. and China both will be tough environments this year, Samuelsson believes, because global competitors will be turning more attention to the two growth markets to compensate for a slumping Europe.

“Our target is not to involve ourselves in rebate wars or whatever, but work with new products that will come out,” he says. With the new V40 that bowed last year and the tweaks to most of the rest of the lineup on tap, eight of Volvo’s models will be less than a year old at the end of 2013.

Last year, the company sold 68,117 vehicles in the U.S., a 1.3% gain on 2011. That fell well short of the 13.4% jump in industry volume and was a far cry from a peak of 139,067 in 2004, however.

But Samuelsson believes the auto maker has hit bottom and, with the new products coming and the addition of a new captive-finance arm established in December in a partnership with Bank of America, is positioned to begin its comeback.

“I see no reason why we shouldn’t be back to the levels we were,” he says. “We’ll see how many years it takes, (but) it is very difficult to see why not. The potential is there.”

Closer ties to sibling Geely Automobile, the Chinese car manufacturer also owned by Volvo parent Zhejiang Geely, is a cost-reduction imperative and will come in two phases, Samuelsson says.

“Right now, using Geely components in Volvos is not realistic,” he says. “They have to upgrade (their product line) – that’s the first phase, to support a transfer (of) technology.”

That already is under way, with Volvo providing know-how on vehicle safety and other advanced systems, he says. The second step is to share development of a small car, which would give Volvo an economical replacement for its 40-Series and allow Geely to begin its move upmarket.

“I think it would be an absolute advantage for us – higher volumes, lower cost,” Samuelsson says of a potential joint car program. “We can get into real component sharing. I don’t know if we’re talking access to gearboxes and engines, but we’re open.”

Even before that happens Volvo is looking to mine China for low-cost parts. Although it hasn’t revealed the specific model, it plans to launch vehicle assembly there in November, a move that will pave the way for component sourcing.

That in turn is expected to help the auto maker compete in the U.S. with higher-volume German luxury-car makers that are adding assembly capacity in North America to offset unfavorable currency-exchange rates.

“The more material we buy in China for European production, the less problems we will have with currency exposure,” Samuelsson says, adding that the threat of having a parts pipeline from China could force European suppliers to cut prices, as well.

“Either European suppliers will have to go down (in price) or you start shipping from China. Both will happen, (and) it could be substantial money (saved).”

Volvo won’t need partnerships with other auto makers other than Geely to survive and prosper, Samuelsson contends.

“We have been through that process,” he says, pointing to a previous tie-up for small cars with Mitsubishi and ownership under Ford.  “There is a lot of complexity and maybe not as much of that cost savings as you think and as (there) ought to be. It’s smarter to work with internal sharing: smart design, modularity, common parts (across vehicle lines).

“I think that will bring more. The other things, we’ve tried.”

Samuelsson, who moved from the board of directors into the CEO’s chair in October after former top executive Stefan Jacoby was eased out the door, says he wants Volvo to continue to stand for safety while putting new emphasis on environmental responsibility (a new line of fuel-efficient 4-cyl. engines is planned for 2014) and user-friendly functionality. That philosophy is punctuated by Volvo’s brand-strategy slogan “Designed Around You.”

“There is a lot to do,” Samuelsson admits. “To really have the functionality, you need (technology that is) user-friendly, simple and intuitive. (It’s) a huge challenge, but that would be Volvo and would differentiate us.”

And, with the auto maker’s stated target of nearly doubling sales to 800,000 units by 2020, “far more attractive” design would help, he adds.

“Scandinavian design is world-famous. Why don’t our cars look like that?” Samuelsson says, pointing to a picture on the wall of a room furnished in a Scandinavian motif. “That’s what we’re going to do.”

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