Volvo Car Corporation, a part of Ford’s PAG prestige brand grouping, is undergoing a challenging year in 2006. First half volume is down almost 7% on last year with the US proving a particularly tough market. But the company’s President and CEO Fredrik Arp sees 2006 as a year of transition with product-led growth from the new C30 and S80 models kicking in later this year. Dave Leggett interviewed him at the British International Motor Show in London.
How is Volvo Car Corporation performing at the moment?
Well, the volume side is actually not that good right now. And I would say that is not unexpected. We are 6.9% down globally, year-on-year, in the first half of the year and we anticipated that the first half of 2006 would be difficult because we are in a generation shift in terms of some of our volume cars.
Maybe we are slightly disappointed in North America where we have a particularly tough market to work towards, both in terms of quality and in terms of volume. There are some segment shifts in America too, towards smaller cars. With the exception of America, where we are more like 10-11% down in the first half of the year, most of the other markets are okay. In Europe we are flat and in some emerging markets we are even growing slightly.
Having said that, going forward in the third and fourth quarters we will start to see the effects of the launches that are ongoing and the volume cars that we are rolling out. The C70 is a niche car and that went on sale at the end of the first quarter, volumes at more like 16,000-18,000 on an annual basis – it’s niche volume. But the S80 is getting out there now and by the end of the third quarter it will be at full ramp-up, so I have good expectations on that in the second half and especially in the fourth quarter and beyond.
On top of that we have the C30 which starts production in September and goes on sale at the end of October and early November. We have a modest 4,000-unit volume target for this year, so it won’t be much, but into next year that’s also going to propel significant growth.
So, it’s a little bit of an intermediate situation in volume terms right now, for Volvo.
Are you introducing higher customer incentives in the US to help boost volume?
No, we are not doing anything in that direction. We have our residual values to protect and our customer experience is not only when they buy our cars, but it is also when they own them and when they sell them. It’s very important for us to monitor and act responsibly in that market, as well as in any other market.
But there are some segment shifts, of course, that we have to live with. We try to penetrate better within the segments, but right now it is a pretty tough market.
What about hybrid powertrain technology for the US?
The hybrid issue is a more general question. Volvo is a global brand with 450,000 sales [annually] and we have to hook on to trends that we think a) have the right characteristics for the Volvo brand and b) has the right business case in return terms. And let’s face it, for the time being, very few hybrids have achieved any decent return.
Of course, we are studying this and only a few weeks ago we announced that we will have a hybrid centre for Europe in Gothenburg where we will support our American colleagues, from a European base, in developing the building blocks – together with suppliers in Europe – required for good hybrid introductions to, not only our brand, but other sister brands in Europe.
But again, it’s only one way of many to improve fuel efficiency and reduce emissions. We put as much emphasis into alternative fuels, diesel engines, turbo engines, light weight and so on.
What about a Volvo diesel model in the US? There has been speculation…
We haven’t made anything official in that direction. It is another of the many building blocks that we study, but nothing more. When and if we do something we will let you know.
How important to Volvo are the big emerging markets, such as China and India?
They are growing in importance although we have ambitions to grow in Europe and North America. The growth ambitions in Europe and North America are more based on going into completely new segments with cars like the XC90 which we didn’t have before.
But in emerging markets we have a dual objective. We have to improve our penetration, as such, for all the vehicles and, on top of that, we have to get the new vehicles to take their position. There are five, six, seven countries that are important in this respect. I could mention China, Russia – and they are well known – but also Taiwan, Korea, Mexico, South Africa, certain parts of central Europe. So, we have many interesting geographical markets where we have significant growth opportunities ahead over several years.
What about making or assembling vehicles in some of those places?
Well, our footprint right now is very much focussed – in terms of assembly – on two main assembly plants in Europe, that’s Ghent in Belgium and Torslanda in Sweden. We have a continuous migration, though, of suppliers servicing these plants going to so-called low-cost countries.
I think the most beneficial way of dealing with our business, in terms of assembly and the near term – next couple of years – is to fill these two plants better. If we grow the way we anticipate over the next two to three years, that’s exactly what will happen.
However, we also have a Chinese venture which we began two years ago and just one week ago the first cars rolled out to the dealers and that will be maybe 10,000 cars [it is making the S40] in production next year. So, there’s the potential to increase output there and potentially for that to become a third significant [global production] entity over time. But that depends very much on the Asian markets and especially the Chinese market development.
In taking Volvo into new segments do you see a danger that the core Volvo brand values are being changed? What does ‘Volvo’ say to consumers and is it becoming less clear?
We want to lead in the ‘V’ and ‘XC’ segments; that’s our heritage and that’s where we are very strong. But we also have reasons to be in the ‘C’ segment – the C70 is a great car. It shows the Scandinavian design abilities and it helps people to understand that Volvo has, not only products for modern families, but it is also a very appealing product in terms of design language, interiors and so forth.
It generates a support to the dealer network in the world in terms of explaining the design features of Volvo as a whole. When you look at the C70 and compare it with a V50 you can see it’s the same kind of design language, but when you only see a V50 it is not so evident. The C70 has more of that plus it also has the ability to take in customers to the Volvo family and brand earlier, which we think is very wise.
Without mentioning some of our competitors and peers out there, some of them have that ability and it helps them. It helps them to develop loyalty and trust and understanding about what the brand stands for when they are about to get married, have kids and so on. It is easier to drive them into our experience when they have had one experience with us before.
Is C30 Volvo’s limit in terms of small cars or could there be a smaller Volvo car than that?
There are no plans to go smaller than that. You should note also, that C30 is probably going to be the safest car in its segment and it is also based on common architectures with the S40/V50. It also has some good economics in its development and manufacturing which helps us to provide the market with this particular car.
Are you happy, generally, with Volvo’s financial performance?
Volvo has its challenges. Like all other brands, we are not immune to currency movements, a weaker dollar and we are not immune to materials costs skyrocketing in the world, copper and so forth. And of course we have had a weakening volume in the first half of the year, but as I said, we have high ambitions to grow this business over the next two to three years and that’s our priority – to realise that, to make sure we have flawless launches, improve our quality.
In the product we already have excellent customer service and quality but the product needs to take one more notch north. I’m confident that if we do this in a very comprehensive and good way, we will be able to reach our overall target which is profitable growth.
Do you feel that there can be tensions concerning Volvo’s overall level of independence within Ford’s PAG grouping?
I think it is fairly clearly defined. Each brand has its own front towards the market and their own independence on how they want to develop their markets; we also have our own product planning. We decide how we want to feed the market with new products and when and how.
In the back-end we share a lot of building blocks and technologies. In order to save costs we share purchasing and there is consolidation of suppliers and that makes a lot of sense as well. Most companies out there do that.
So, I think it is very well defined and if you then, on top of that, take some examples in emerging countries. We actually have an excellent work stream in establishing combined dealers who seize the benefit of working with Jaguar and Land Rover and Volvo, and potentially some working with Ford – but mostly the PAG brands together. It develops more floor traffic and it generates an opportunity for back-end savings in admin, logistics and so forth.
Of course, between managers there are sometimes discussion points, but in general terms I think it works fine.
What gives you the greatest satisfaction in your job?
Easy – it is to meet with people and to have a number of opportunities, together with other people, to make things happen and support our overall targets and overall objectives and direction. We do have a lot of machines and fixed installations, but at the end of the day it is a very people oriented business.
FREDRIK ARP – CV AND BIOGRAPHY
Name: Fredrik Arp
Present position: President and CEO, Volvo Car Corporation, since 1 October 2005
Joined Volvo Cars: 2005
Education: 1973-1977: BA in economics, University of Lund
1999-2005 President and CEO, Trelleborg AB, Sweden
1996-1999 President and CEO, PLM AB, Sweden
1989-1996 President and CEO, Trelleborg Industrier, Sweden
1988-1989 President and CEO, Boliden Kemi AB, Sweden
1986-1988 Head of Tyre Division, Trelleborg AB, Sweden
1983-1986 Divisional Manager, Tarkett AB, Sweden
1980-1983 President and CEO, Tarkett France
1979-1980 Financial Controller, Tarkett Norden, Sweden
1977-1979 Sales and marketing, Tarkett France
Civil status: Married with three sons and a daughter
Hobbies: Sport, literature and music
Fredrik Arp has been actively involved in marketing and finance on the international business scene for 28 years. In the last 22 years, he has held a number of general management positions. During the last decade, he has served as president and chief executive officer of several publicly listed companies.
His areas of experience include consumer goods and durables, as well as industrial products.
He has worked internationally with global businesses for 22 years, spending seven of these outside Scandinavia.
He has worked in companies of various types, helping to reverse loss-making situations and restore profits, implementing major repositioning strategies, managing business disposals and furthering growth through acquisitions.
In addition to his operational roles, he has served on the boards of about ten companies in the industrial, media and medical technology sectors. At present, he is chairman of the board of Thule AB and a member of the board of Getinge AB.
Fredrik Arp is married with three sons and a daughter between the ages of 13 and 20. In addition to Swedish and English, he speaks French and some German,.
His reputation is that of a highly experienced manager with good analytical skills and an effective mission executor. This is illustrated by his tenure as president and CEO of Trelleborg AB from 1999 to 2005, a period in which the company generated an annual return to shareholders of 22% on invested capital, with an annual growth in turnover of 18% in its core business.