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If Volvo’s plan for a $500 million U.S. factory that can build 100,000 vehicles a year sounds ambitious, that is exactly the point.
Volvo sold 56,366 vehicles in the United States last year — just more than half of its proposed new American factory capacity. But Volvo executives say that, five years after being sold to Chinese investors by Ford Motor Co., Volvo Car Corp. is rolling out its comeback plan.
That includes a radical new powertrain and vehicle architecture strategy and the South Carolina plant Volvo announced last week. Volvo believes that a big investment in U.S. manufacturing will ignite growth.
“We have reinvented ourselves,” declares Lex Kerssemakers, CEO of Volvo Cars of North America, “and we believe it now makes sense to go on the attack again in the United States.”
Volvo’s comeback plan might sound like a stretch to industry skeptics. But building an oversized U.S. factory in anticipation of future sales growth — as well as exports — is a strategy that worked brilliantly for BMW and Mercedes-Benz two decades ago. Both European luxury competitors transformed themselves from low-volume importers to new levels by investing in U.S. manufacturing in the 1990s.
Kerssemakers, the former head of product development who was named to North America’s top spot in January, assures the world that he and his U.S. dealers will soon need the extra muscle to handle a stream of new models and technologies that will drive the brand for the coming decade.
“I want to get to 100,000 sales as quickly as possible,” he said last week from Newport, R.I., where Volvo executives attended the posh Volvo Ocean Race.
“In the past five years, we have invested $11 billion in new products and infrastructure,” he said. “My former job was head of product, so I know exactly what’s coming. We will have 14 new nameplates in the next four years. And they are tailor-made for the U.S. market.”
This month, the company is rolling out its redesigned full-size XC90 crossover, the first model of a new global design approach it calls Scalable Product Architecture. Volvo will use shared component systems and chassis platforms to develop vehicles faster and less expensively.
Volvo also has launched a new global engine strategy dubbed Drive-E that will replace eight engine families of four-, six- and eight-cylinder engines with a single platform of turbocharged, high-output four-cylinder engines for all models on the new architecture.
Among future products: an executive-class S90 sedan to compete against the Mercedes-Benz E class and a V90 wagon to go with it. A replacement for the compact V40 also is coming with a three-cylinder engine that is now in development for other as-yet unidentified small cars. Volvo says all its models will be available in a hybrid option.
Kerssemakers says the automaker has not decided which of the new products will be built in South Carolina, but there will be more than one. The plant will begin output in late 2018.
Volvo’s strategy is familiar. BMW sold fewer than 66,000 cars in the U.S. in 1992, when it surprised the industry by saying it would build a South Carolina plant capable of turning out 78,000 vehicles a year. Last year, BMW sold 339,738 vehicles here, and its modest plant has been expanded several times to become the biggest in BMW’s manufacturing arsenal.
Mercedes took a similar tack with an oversized factory in Vance, Ala., and then watched its U.S. sales soar from fewer than 62,000 in 1993 to 356,136 last year.
Former sales leader
Volvo, once the U.S. sales leader among European premium brands, has stood by as new North American assembly lines were built in recent years by Lexus, Acura, Infiniti and Audi, with additional plants now going up for BMW and Mercedes.
Now Volvo leaders hope their turn has come.
“All the planets are aligning for Volvo right now,” says Michael Robinet, managing director of IHS Automotive. “They have wanted a bigger U.S. manufacturing presence for a long time. Now they have the investment and the future product lineup, and the U.S. market is expanding to support it.”
Volvo is trying to reverse a tough sales trend in the past decade. Volvo’s U.S. sales have declined every year except two since they peaked at 139,000 in 2004. Luxury car sales are up more than 4.7 percent for the first four months of this year, but Volvo sales rose just one-tenth of 1 percent for the period.
Last week, Volvo said it will construct the assembly plant in Ridgeville, S.C., near the port of Charleston. The venture will give Volvo 100,000 vehicles a year, or almost twice the company’s U.S. sales volume last year. The statement further revealed plans for a second plant phase that will apparently double that volume in the coming decade — meaning U.S. output of up to 200,000 vehicles a year.
Global export base
Details are sparse. Volvo executives did not attend the plant announcement last week by South Carolina Gov. Nikki Haley. But Kerssemakers says Volvo intends to make the plant a global export base — much as BMW and Mercedes did with theirs — supplying North American dealers as well as European and other markets.
The project considered seaport sites in four states: Georgia, North Carolina, South Carolina and Virginia.
A source involved in the plant project says Volvo executives benchmarked and visited the BMW and Mercedes-Benz plants. They based their final selection of South Carolina on its proximity to the German automakers’ existing U.S. parts supply base in that region.
Last month, Volvo gathered its U.S. dealers in Vail, Colo., to lay out the details of its bold five-year U.S. market plan.
“Our retailers went through a very difficult time over the past six years,” Kerssemakers says. “We have to make clear to them that we are back. They deserve to know this.”
The executive says Volvo has spent the past several years creating this strategy and developing the products for it. Some industry observers have perceived Volvo to be on the ropes as the industry struggled back from the 2008 market crash. Kerssemakers says the Swedish company has been simply “ticking off the boxes” of its multistage, multiproduct plan now that the Ford-era pipeline is empty, preparing for this moment.
Ford bought Volvo in January 1999, then divested it in 2010, selling the company for $1.8 billion to the fast-growing Chinese automaker Zhejiang Geely Holding Group. Geely has enabled Volvo to expand since then — particularly into China.
But Volvo maintains an independent management group and board in Sweden, and Geely has vowed to keep Volvo independent.
Sources familiar with the new U.S. plant say Geely was not involved in the search. Volvo conducted the project internally from Sweden, they say — even without involving outside U.S. site search consultants, as is customary on such large investments.
“We now have what we need to move forward,” Kerssemakers says. “We will have the U.S. factory to support it. Our dealers have the infrastructure in place. We just need to reactivate everybody to make this jump into the future.”
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