Volvo Car Corporation is experiencing challenging times. Sales are down this year and it recently announced further job cuts in Sweden as a result of deteriorating market conditions. The CEO position in the company recently passed from a Swede, Fredrik Arp, to Ford journeyman Stephen Odell. Some have even questioned whether it is being readied for sale like its former Ford PAG partners. Dave Leggett recently met up with the COO who reports to Odell, Steven Armstrong.
It’s early days for Volvo Cars’ recently appointed president and CEO Stephen Odell, but one thing he has consistently said is that his brief is to get Volvo back to sustainable profitability. That will almost certainly mean further cost cutbacks, but the view in the industry is that Odell’s appointment signals a degree of commitment from Ford to fix what many believe is an undervalued brand.
Go deeper with GlobalData
Discover B2B Marketing That Performs
Combine business intelligence and editorial excellence to reach engaged professionals across 36 leading media platforms.
If the task is not an easy one, he can at least rely on a lieutenant that he is familiar with. Volvo Car’s chief operating officer Steven Armstrong has worked with Odell before at Jaguar and Mazda, though he’s now been at Volvo since 2001. Does he sense there will be a change in style with the new guy at the top?
“It’s very early days, but when you get a new man in at the helm, he’ll spend a little time assessing what he’s inherited and I guess we will see some changes start to rollout over the next month or so.”
What does Armstrong see as the immediate challenges?
“We have to rightsize the manufacturing footprint that we have and we have already announced some layoffs and taken a shift out of Torslanda. So we have to make sure our costs better balance with a lower revenue stream – for the whole industry, not just us.
US Tariffs are shifting - will you react or anticipate?
Don’t let policy changes catch you off guard. Stay proactive with real-time data and expert analysis.
By GlobalData“In the near term, trying to make sure we are as cost-efficient as we can be is taking up a lot of my team’s energy.
“In the broader picture of course, the challenge is also to continue to invest in environmental technologies. The market in Europe, particularly, is becoming very driven by the CO2 challenge.
“And from an industrial perspective, that means getting everybody from the design team that are working on next generation products, to get everything from the right vehicle aerodynamics through to a manufacturing system that can handle new technologies from an assembly perspective – such as hybrids and other systems that we are not used to assembling in cars. We have to find an optimal quality and cost way to drive that.”
So product development is about coordinating a process, top to bottom?
“Yes, the core of that is getting product development to embrace the new technologies fast enough and find ways of getting them to market quicker than we would have done traditionally.”
Armstrong believes there is a tendency for manufacturers to hype their new technology capabilities well beyond what they can deliver.
“It’s a very noisy market out there in terms of information at the moment. You have to have things to talk about but you also have to have things that you actually follow-up and deliver. A lot of manufacturers talk a lot about a lot of things, but there aren’t so many of them that are physically delivering.”
And Volvo, well, it’s an understated brand…
“We have tended to be a little less noisy on the talking front and just get on with delivering,” says Armstrong.
“Getting the product development system to crank fast enough with the new technologies is the challenge.”
Another challenge for any car company is getting a profitable distribution of sales worldwide. Volvo hasn’t been helped by adverse currency trends. Volvo announced some time ago that it would ease back on sales in its biggest market – the US – simply because it was making a loss on each vehicle sold due to the weak dollar. It also restructured its US dealer body to match the resultant reduced volume.
“Although the exchange rate has moved the other way a little lately, our strategy is still to reduce our exposure in the US.”
What about circumventing currency problems by assembling Volvos in the US?
“We don’t have any plans at the moment to do that. We are continually looking at the potential opportunity, but we don’t have a concrete plan, going forward, to assemble in the US. It’s a very long payback time and you have to have a vehicle that matches and, from a volume perspective, is worth assembling in the US.
“If you assemble in the US and then try to ship back to Europe, it’s more expensive than doing it the other way around, so we’re not planning it at all.”
And how is that US market, for Volvo?
“It’s tough and I wouldn’t expect to see much improvement in the first half of 2009. We do have an opportunity in a market in which people are downsizing – with models like the S80 that are fantastically well positioned for the US because people come out of the biggest sedans into an S80 and it’s a very competent product with a good engine range.
“I think there is some upside for us and as we get down to the smaller cars, the S40 and C30 are benefiting from that [trend] as well.”
The small car C30 is potentially hitting the market at the right time, but Armstrong acknowledges the exchange rate problem means limited shipments.
“It’s doing very well. All the cars we’ve sent over there we have sold, but we have limited shipments due to the exchange rate issue. It’s been extremely well received and we are very pleased with the market response.”
And there are other Volvo products suited to those who want to downsize, Armstrong believes. Even SUV customers in the US could be driven to Volvo products.
“If you think of the XC90, that’s a relatively small SUV compared with some of the vehicles on sale in the US. And with XC60 on sale in the first quarter in the US, that’s a fantastic product for the US in terms of the size of the vehicle, it’s a real crossover, it’s built off a car platform – we are very optimistic about the XC60.”
How many XC60s will Volvo aim for in the US? Other markets where Volvo can make money have priority.
“The global volume we are shooting for on that vehicle is something in excess of 50,000 units. We’ll see how many we want to push to the US; it depends partly on demand in other markets which, to be quite honest, are more profitable for us with the currency issues.”
Crossing the Atlantic, the European market is also a difficult one for Volvo, but the brand is stressing its environmental credentials there.
“From August onwards Europe’s really been a significant struggle. We were down about 10% on last year but from August onwards, for all manufacturers, there’s been almost a stop in the marketplace, so it’s been very difficult. The last quarter is going to be a struggle. We are seeing a lot of consumer confidence issues and also the market’s being changed with CO2 issues across countries.”
And the regulatory environment in Europe is also increasingly coaxing consumers toward more fuel efficient, lower emission and smaller vehicles. Armstrong cites Spain as an example.
“In Spain, if you’re not selling cars at under 120g/km then you are in trouble. We have launched C30, S40 and V50 all at sub-120g/km. I think that’s going to be very significant for us in markets like Spain that are after the smaller cars now.”
While Volvo has already announced Torslanda production cuts due to market conditions, is there room to go further if necessary?
“ We think we have rightsized production for where we believe 2009 production will be. If we have to do more, of course we can always do more. I don’t want to have to do more because I think some of the cuts we have already made are very significant to the company and to the employees. I am hoping that we have made the cuts early enough and quickly enough so that we don’t have to do more.”
Moving east, a bright spot for many manufacturers has been the Russian car market where Volvo has built a sizeable presence. Is the next step an assembly operation of some sort, to avoid import duties? Armstrong’s response suggests the idea is under consideration, at least.
“We are the largest premium brand in Russia (heading for a little under 30,000 units in Russia this year, depending on how the final quarter goes) and growing about 25% year-on-year, so it’s become a major market for us. As we have deliberately softened in the US, we have been able to grow in Russia – and again, XC60 is an excellent product for that market.
“ We are looking at what might be the right footprint as we move forward and how we protect our leadership position in Russia.
“We are looking at different options, though there are no firm plans at this point in time.”
In China, Volvo already has local assembly of the S40 via the Ford Chang’an CFMA operation. The current focus is on the launch of a stretched LWB version of the S80, developed specifically for China, which goes into production in the first quarter. A small engineering team in Chang’an helped to develop the vehicle, which will be produced and sold in China only to start.
“They like their room in the rear of large sedans in China, and that’s primarily why we have developed this car. Other players in the Chinese large sedan segment have gone the same way – there’s a LWB version of the BMW 5 Series and Audi A6, for example. But we’ll monitor whether we think it’s feasible to export cars from China to selected markets.”
In India, Volvo has only a small presence and Armstrong admits that Volvo is still feeling its way, preferring to focus energies elsewhere.
“We have three or four dealers in India, but it’s a small market for us at the moment. We’re in the process of trying to understand what the right products are for India. We don’t have any manufacturing facility there – Ford of course do and we have looked at whether we could share any of that, but we have other priorities at the moment and we’ll come back to India later on.
“We don’t want to spread ourselves too thinly in emerging markets – Russia and China are the two that are really pushing it.”
Turning to the intra-Ford corporate landscape, a landscape that has altered dramatically with the recent exit of the Jaguar and Land Rover brands, many question whether Volvo has a long-term future within FMC. A consideration for Ford management, even if it wanted to sell the brand/unit, would be the level of integration that Volvo Car has inside Ford and possible issues of disentanglement.
To take the area of procurement, how far is Volvo activity a part of Ford Group? Armstrong indicates that Volvo has become more independent, partly as a result of the new circumstances that mean former partners are gone.
“The purchasing organisation at Volvo is a standalone group, within Volvo. However, it has a common set of processes with the purchasing group within Ford. Since JLR left the fold, we have become a little bit more standalone. We are wholly-owned but we have a little bit more of a standalone strategy since PAG disappeared.
“Prior to that the purchasing group was fairly heavily integrated into the Ford organisation. But as Ford has moved towards ‘one Ford’ globally, we have stepped out of that a little bit.
“ However, because we have been fairly closely integrated with Ford in Europe, the relationship in Europe between the Ford and Volvo purchasing teams is extremely strong. My senior VP for purchasing sits on the operating committee still with the Ford purchasing people – so he’s seen as a part of that team.
“We have a number of common suppliers where we share common technologies and we still do joint negotiations with the Ford team and we still negotiate on their behalf. That helps us to maintain that volume approach.
“We also have a ‘commodities business plan’ where we set strategies for different commodities on vehicles, and we do that with Ford.
“So we have joint strategies in some areas and where our products are significantly different then we have our own strategy, where that’s necessary.”
Armstrong stresses that there is still a lot of synergy between the two purchasing groups.
“Raw materials are an example. Ford buys raw materials on our behalf – it has a bigger spend so it makes sense to do that.”
Volvo Cars then, is in a sense performing a delicate balancing act. It’s very much a part of the Ford family, but needs to act with a degree of independence. It has seen siblings leave the fold and Ford’s public commitment to Volvo won’t be taken as a sure-fire guarantee. In these uncertain and troubled times, Dearborn politics is not a given.
“We have a standalone production capability, of course. We are able to design, develop and manufacture cars ourselves. We are still a true car company rather than a division of a car company.
“But we are happy being a part of the Ford organisation and don’t have any issues with that.”
Dave Leggett
