An undoubted star of the Paris Motor Show was Volvo’s C30, the car that marks the company’s return to the C segment a decade and a half after it killed off the drab 340. But as well as developing sharp new products, Volvo’s strategy for emerging markets is also taking shape, writes Mark Bursa.
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The C30’s dramatic looks and stylish paint schemes – solid pale greys highlighted with dark metallic detailing – showed just how far Volvo has come in the past few years. The transition from a maker of drab-but-safe boxy estate cars to a highly fashionable European near-luxury brand, the star of Ford’s Premier Auto Group, is all but complete.
The timing couldn’t be better as well, with Audi, previously the brand of choice for those seeking understated style, adding copious amounts of bling to its product range with the likes of the huge Q7 SUV and the new TT and R8 sports cars, both Paris debutants.
In fact, the only thing wrong with this picture for Volvo is the numbers. For years, Volvo executives have spoken of attaining sales of 600,000 units a year, a level where the brand will be taken seriously as a rival to BMW, Mercedes and Audi. But it’s never got there. Despite topping 400,000 in the old 3-series’ mid-80s heyday, 2004’s 456,000 global sales remains the record, falling to 443,000 last year – roughly half BMW brand sales.
But finally there are signs that Volvo has its ducks lined up. As well as an expanding range of hit products, including the XC90 SUV, S80 sedan and the C70 coupe-cabrio, Volvo is casting its sales net wider, looking to hitch a ride on the sales boom in the emerging markets. Production has started in China this year, while the brand has re-entered the Indian market. Rumours persist about Russian production. While the numbers are still relatively small, this is a sound strategy and one that should pay dividends.
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By GlobalDataIn July, the first Chinese-built Volvo S40 models went on sale. The cars are built at Changan Ford Mazda (CFMA), Ford’s joint-venture plant in Chongqing. Two S40 models are being made – the Volvo S40 2.4i and the Volvo S40 T5 turbo. The 2006 sales target in China for the Volvo S40 is 4,000 units, rising to 10,000 in 2007.
S40 shares its platform with the Ford Focus, which is already built at CFMA, so adding it to the production range is relatively straightforward. The V50 wagon and the new S30 also share the same basic architecture, and could also be added to the China line. The CFMA-produced Volvos hit local content requirements, and Volvo built a safety testing centre in China to ensure they met its stringent safety standards.
Volvo Cars President Fredrik Arp said the decision to build locally was designed to maintain competitiveness with rivals such as BMW, Audi and Mercedes: “Local production is the key to remain competitive in China. We are facing a scenario where the import duty is levelling out on 25% and our main competitors are already producing their volume models locally.”
Volvo has been present in China as an importer since 1994 and has dealerships in 45 cities. Volvo now exports the S80, S60, XC70, C70 and XC90 vehicles to China.
“Our sold volume increased by 84% last year to 4,800 units. Local production will make our position even stronger since we can offer our main volume model to a very competitive price,” said Arp.
Over the long term, Volvo has big ambitions for China. The luxury market is expected to grow from around 100,000 units last year to around 350,000 in five years’ time, and Volvo wants a market share of around 15% of that – which would equate to around 50,000 units. And the capacity is there – as well as the existing 100,000-unit plant in Chongqing, a second Ford plant is being built in Nanjing.
In India, a lower-key approach is being taken. A new subsidiary, Volvo Car India, based in New Delhi, will start selling imported S80 and XC90 models before the end of 2006. Initially this will be through just three big-city dealerships in Delhi, Mumbai and Chandigarh, but with more to follow. Between five and eight more dealers will open in 2007.
“India is showing considerable growth in the passenger car market,” said Arp. “Moreover, we believe that the timing is right in comparison with our closest competitors.”
It’s a good time to enter the Indian market – low inflation and a stable currency are prompting significant growth. Analysts believe the market will grow from one million cars a year at present to 1.6m by 2010. Volvo may not be present as a car brand – its only local sales are 30-40 tax-free cars a year to diplomats and the like – but its trucks are built there, so the brand is trusted locally. The initial sales forecast is modest – fewer than 1,000 vehicles in year one.
The vehicles will be imported from Sweden – there are no immediate plans for production in India. Nevertheless, Volvo Car India will use Ford’s Indian infrastructure to handle activities such as human resources, customs clearance, shipping, dealer transportation, financial services, accountancy and IT. Production is less likely as Ford’s local assembly involves Fiesta-based vehicles rather than Focus.
This is not the case in Russia. Ford’s Vsevolozhsk factory, near St Petersburg, has a 200,000-vehicle capacity, but is only likely to build 100,000 or so Focuses this year and could easily add Focus-based Volvo models to its line-up.
Indeed, last year the vice governor of the Leningrad region, Grigory Dvas, hinted that such a deal was an option being considered. “I do not dismiss the possibility of production facilities expansion due to local assembling of Volvo and Land Rover cars,” he was reported as saying by local media. “Ford’s training centre is already teaching specialists to produce those vehicle brands,” he reportedly added.
Volvo officials at the Paris Salon didn’t deny that the plan was being considered – indeed it makes a lot of sense, as there is a large Volvo car parc in Russia (estimated at more that 100,000 units). The cars’ durability has made them popular secondhand imports over the years – a used Volvo was a much better option than a new Volga!
Volvo sold around 5,700 new cars in Russia last year though a 39-strong dealer network. It outsold Audi and was less than 1,000 units behind BMW in the market. Sales would have to reach 15,000 in order to justify local manufacture, though the arrival of S40, V50 and C30 will push these levels upwards this year and next.
So in five years’ time, just the three major emerging markets of China, India and Russia could be contributing as much as 10% of Volvo’s global car sales. Factor in other markets in central Europe, Asia and the Americas and it’s clear that an emerging markets strategy could be as important as excellent new products like C30 in Volvo’s bid to reach its 600,000-unit goal.
Mark Bursa
See also: Q&A with Fredrik Arp, Volvo Car CEO and President
