Friday, April 11, 2008

AB Volvo

Address:
S-405 08
Göteborg
Sweden

Telephone: (31) 66 00 00
Fax: (31) 54 57 72
http://www.volvo.com

Statistics:
Public Company
Incorporated: 1915 as a subsidiary of AB Svenska Kullagerfabriken (SKF)
Employees: 75,740
Sales: EUR 19.15 billion ($24.12 billion) (2003)
Stock Exchanges: Stockholm NASDAQ
Ticker Symbol: VOLV; VOLVY
NAIC: 336120 Heavy Duty Truck Manufacturing; 333120 Construction Machinery Manufacturing; 333618 Other Engine Equipment Manufacturing; 336412 Aircraft Engine and Engine Parts Manufacturing


Company Perspectives:
Volvo Group Mission Statement: By creating value for our customers, we create value for our shareholders.
We use our expertise to create transport-related products and services of superior quality, safety and environmental care for demanding customers in selected segments.
We work with energy, passion, and respect for the individual.


Key Dates:
1915: The Swedish firm Svenska Kullagerfabriken (SKF) forms a subsidiary called AB Volvo to investigate the manufacturing of cars.
1927: Production of Volvo cars begins at a factory in Göteborg.
1928: First Volvo truck model rolls off the assembly line.
1935: Company gains full independence from SKF, and its stock is listed on the Stockholm exchange.
1964: New assembly plants open: for cars in Torslanda; for trucks near Brussels, Belgium.
1965: New auto assembly plant opens in Ghent, Belgium.
1990: Complex alliance is entered into with Renault.
1994: Following an aborted merger, the alliance with Renault is dissolved.
1995: Volvo Construction Equipment is created after Volvo buys out former joint venture partner.
1997: Company gains full control of a former joint venture in heavy trucks with GM, which is renamed Volvo Trucks North America, Inc.
1999: Volvo sells its automobile business to Ford Motor Company for $6.45 billion in order to concentrate on commercial vehicles; company reaches agreement to acquire rival truckmaker Scania AB for EUR 7 billion ($7.53 billion).
2000: European Commission blocks the Scania takeover on anticompetitive grounds.
2001: Volvo acquires Renault S.A.'s heavy-truck business, including Mack Trucks, in exchange for a 15 percent stake in Volvo.


Company History:

The largest company in Sweden in revenue terms and the biggest employer in that nation's private sector, AB Volvo is one of the world's largest manufacturers of heavy-duty trucks and buses. The firm's truck operations, which include Volvo Trucks, Renault Trucks, and Mack Trucks, produced nearly 156,000 trucks during 2003. In buses, where Volvo holds the number two position worldwide, production topped 7,800. In addition, Volvo is the world's largest manufacturer of heavy diesel engines and the fourth largest producer of construction equipment, produces engines for leisure boats and power generating equipment, and makes components for aircraft and rocket engines. The company sold its Volvo automaking business to Ford Motor Company in March 1999 in order to focus on commercial vehicles.

Early History

Volvo began as a subsidiary of AB Svenska Kullagerfabriken (SKF), a large Swedish industrial company. In 1914 Scania Vabis ceased production of what had been Sweden's only domestically built automobile to concentrate on more profitable trucks. A year later, with the encouragement of the Swedish Association of Engineers and Architects, SKF began a confidential study of the feasibility of manufacturing its own car. Assar Gabrielsson and Gustav Larson started the project. Gabrielsson, who had represented SKF in France and the United States, was a ball bearing salesperson who had closely studied American automobiles. Larson was an engineer with substantial experience in Britain, having worked for the English company White & Poppe.

SKF named the secret project Volvo--Latin for "I roll"--a dormant product name the company had introduced in 1915 for a line of ball bearings. Independently incorporated in 1915, hence the title aktiebolaget, or "AB," the venture itself was only informally associated with SKF. The primary owners were Larson and Gabrielsson.

After agonizing over dozens of designs, the two partners settled on a simple model that would negotiate Swedish roads, with their snow, mud, steep hills, and millions of potholes, especially well. The original design, a car called the GL, or "Larson," was assembled at an abandoned SKF ball bearing factory at Hisingen, near Göteborg, from parts ordered out of various supplier catalogs from throughout Europe and the United States.

The first production model, an öV4, later called the "Jakob," rolled out of the factory on April 14, 1927. To the horror of all involved, it was discovered that the differential had been misconnected, resulting in a car that had three gears in reverse and only one gear for forward motion. The mistake took only ten minutes to correct and Volvo survived the comical episode.

With 60 workers turning out five cars a week, the company proceeded with plans to manufacture a truck. The first truck model, introduced in 1928, was, in fact, from a design that predated the GL by four months. Volvo trucks, equipped with in-line six-cylinder engines, became extremely popular. Whereas auto sales remained slow and their profits only marginal, the truck models consistently sold out. Profits from truck sales financed the operation for the next 20 years.

Volvo's cars and trucks were extremely sturdy and, by many measures, better assembled than American and other European models. In what was the most effective advertising of the day, Volvo models won several speed and endurance tests, racing across Sweden and speeding from Moscow to Leningrad, and later winning contests in Monte Carlo and Argentina. Because both Larson and Gabrielsson detested automobile contests, however, Volvo refused to sponsor racers.

Volvo introduced a six-cylinder model, the PV651, in 1929, which proved highly successful with the lucrative taxicab market, and a larger version was soon planned. The following year, with the introduction of several new models and strong sales, Volvo purchased a controlling interest in its engine manufacturer, Pentaverken, located in Skövde. The company also purchased the Hisingen plant from SKF.

Challenges During the Great Depression and World War II

As the economy ground to a halt from the effects of the Great Depression, car sales slumped. General Motors Corporation (GM), which had a Chevrolet plant in Stockholm at the time, attacked Volvo for being, in effect, "kit made." The company conducted a quick study that revealed that its cars were about 90 percent domestic content. Thus, it hit back at GM, advertising its products as "the Swedish cars."

Such competition kept Volvo on the alert, constantly studying other manufacturers. In 1935 it brought out a revolutionary new design: the PV36 Carioca, a streamlined art deco model, named for a popular South American dance. Later that year, the company took full control of Pentaverken and, achieving its full independence from SKF, its stock was floated on the Stockholm exchange.

While the company was introducing variations on the PV36, growing hostilities in Europe began to interrupt fuel supplies. In response, Volvo developed a means of manufacturing a combustible gas from charcoal in 1939. By this time, however, the government was prohibiting the operation of private cars. Despite the lack of crucial foreign components, Volvo continued production of cars and trucks, though mostly for military use. The company pressed on with new civilian designs in anticipation of the end of the war. Meanwhile, in 1942, Volvo took control of Svenska Flygmotor AB, a precision engineering company, and Köpings Mekaniska Verkstad AB, a gear and gearbox manufacturer.

In 1944 Volvo began taking orders for its long-awaited new model, the PV444--priced at SEK 4800, the same as the 1927 öV4--although actual production had to wait until the end of the war the following summer. By then, however, an engineering strike crippled production, and gasoline was still under strict ration. Plans to introduce another model, the PV60, were similarly delayed in 1946 when a sheet metal supplier could not be lined up.

By 1947 these problems were alleviated, and production began, albeit slowly. Volvo now had a domestic competitor, Scania, which resumed automobile manufacturing after the war as a unit of Svenska Aeroplan Aktiebolaget (SAAB), an aircraft manufacturer. By 1948 car sales exceeded truck and bus sales for the first time, and by 1950, Volvo employed 6,000 people and had turned out more than 100,000 vehicles, including 20,000 for export.

The 1950s and 1960s: New Models and Markets

Gustav Larson retired from active involvement with Volvo in 1952 but continued to serve the company as an advisor. The following year, the company introduced the Duett, the first of many family estate cars designed for work and leisure. In 1954 Volvo had built a new truck factory in Göteborg, increasing annual production capacity to 15,000 vehicles, and had introduced fuel injection systems and turbochargers on its diesel engines.

In 1955 Volvo rolled out a small convertible with a plastic body and puncture proof tires called the Sport. Sales languished, however, and production was halted after only 67 had been produced. Volvo had better luck the next year with the Amazon, a welded frame sedan that borrowed heavily from other European models of the day. Later that year, Assar Gabrielsson also retired. He was succeeded by Gunnar Engellau, the head of Volvo Flygmotor.

Engellau took Volvo's helm at the height of the Suez Canal Crisis when all shipping, including oil, was refused passage. The resulting oil shortage in Sweden caused a severe drop in automobile sales. Engellau gambled that the crisis would be resolved within months, and he began laying plans for a major expansion, deciding to boldly go after export markets, especially the huge American market. Engellau was correct, and when the crisis subsided, Volvo was ready to meet the demand for new cars.

By 1959, with more than 15,000 employees, Volvo broke ground on a massive new production facility at Torslanda, near Hisingen. The following year, the company introduced a new sports car, the P1800. The car was prominently featured in the British television series The Saint. In fact, the car was even driven in private life by the star of the series, Roger Moore.

As other models in the product line were improved with ergonomically designed seats and new safety features--including the introduction of three-point safety belts as standard equipment in 1959--Volvo offered a revolutionary five-year engine guarantee that included coverage for damage resulting from accidents. The Swedish insurance industry, with government backing, sued Volvo for infringing on its business but, after four years of litigation, lost.

In 1963 Volvo opened a plant in Halifax, Nova Scotia, for the assembly of cars for the North American market. The initial 1956 introduction of the PV444 in the United States had been met with indifference, as most Americans still favored large, stylish vehicles such as the Buick Roadmaster. But despite its plain appearance, the PV444 was extremely well built. Subsequent models, such as the PV544, featured larger engines and windows and many new accessories. Furthermore, the company began sponsoring auto races.

The Torslanda plant, with an annual production capacity of 200,000 vehicles, opened in 1964. But the Swedish government's decision not to join the European Economic Community stood to lock out Volvo sales on the continent because of import duties. In response, the company established an assembly plant at Ghent, Belgium, where Volvo cars would be exempt from import taxes. During this time, Volvo continued to improve its truck lines, rolling out its most powerful rig, the L495 Titan. This was followed by the tilt-cab L4571 Raske-Tiptop. In addition, a truck production plant opened in Alsemberg, near Brussels, Belgium, in 1964.

In 1966, the year before Sweden switched to right-lane driving, Volvo hit the market with a highly practical new sedan, the Volvo 144. Fitted with state-of-the-art safety features, including new safety belts and a new braking system, the 144 won Sweden's Car of the Year award. This model and its variations were especially popular in the United States, where--despite strong competition from Ford Motor Company's new Mustang--the car sold for $2,995. As sales jumped by 70 percent in Britain, Volvo established another assembly plant in 1968, this one in Malaysia. Truck assembly operations began in Australia that same year. Meanwhile, in Sweden, Volvo's new Amazon model was leading sales. In 1969 Volvo purchased Svenska Stålpressnings AB, which had supplied car bodies to Volvo since 1927. The following year, plans were laid for a new research and development division, the Volvo Technical Centre, which Volvo funded with between 4 and 5 percent of its sales. The VTC, as it was called, began testing hundreds of new safety features that quickly established Volvo as the world leader in automobile safety.

Joint Ventures and Merger Talks in the 1970s

In 1971 Gunnar Engellau retired and was succeeded by Pehr G. Gyllenhammar. Also that year, Volvo employees gained board representation. As part of a ten-year plan to maintain its feverish growth rates of the 1960s, Volvo attempted several industrial associations. The first of these occurred in 1972, when the company acquired a 33 percent interest in the Dutch auto manufacturer DAF. The company then forged links with Renault and Peugeot. While this substantially increased Volvo's production capacity within the European community, the company still regarded the United States as its largest market, bigger even than Sweden.

While auto sales were hurt severely by the oil crisis of 1973-74, its inflationary effects quickly tied up consumers' funds. This only hastened Volvo's need to find new growth markets. During this time, Volvo introduced two new models: the 265 and the DAF-built 66. In 1975 Volvo assumed greater control of DAF's auto business and changed the name of the company to Volvo Car B.V.

In 1977 Volvo proposed a merger with its Swedish rival Saab-Scania AB. While the combination would have produced one of Europe's largest industrial operations, effectively locking up the domestic market, Saab did not share Volvo's enthusiasm for the deal and allowed the matter to be dropped entirely. Volvo next turned to Norway, where it had hoped to establish a relationship with the state oil industry and therefore tie Volvo sales to the rising fortunes of the North Sea oil business. But Volvo shareholders rejected the ill-conceived proposal even before the Norwegians had a chance to say no. Volvo nevertheless managed to move into the oil industry another way, acquiring Beijerinvest Group, a Swedish company with interests in oil, food, finance, and trading, in 1978.

Meanwhile, Volvo restructured its operations, converting the car operation into a separate subsidiary. In 1979, with production at an all-time peak, Volvo turned out its four millionth car. It also established a closer relationship with Renault, combining research and product development and selling the French carmaker a 9.9 percent interest in Volvo Car Corporation. Volvo's sales began to rise at this point, causing an increase in share values that sustained a new share issue, followed by two more in 1981 and 1982.

Stronger Sales in the 1980s

Volvo owed much of its strength to its reputation for quality, its 1980 introduction of the first turbocharged auto, the 240, and modifications to the popular 340. Furthermore, in 1982, a top-of-the-line sedan known as the Volvo 760 was introduced and became a symbol for Volvo quality and safety. The 240, the 340, and the 760 designs represented the ideal range for the market.

In 1981 the Dutch government exercised its option to repurchase a majority in Volvo Car B.V., increasing its interest to 70 percent and thereby reducing Volvo's to 30 percent. During this time, Volvo continued its elaborate and expensive experiments with light components and new safety options. Many of these, tried on a series of test-bed vehicles, found their way into new variations of the 300 and 700 series cars. Also in 1981, U.S. truckmaker White Motor Corporation was acquired.

By 1985, Roger Holtback was promoted to head of the Volvo Car Corporation, and Håkan Frisinger was named president of AB Volvo. Under Frisinger's leadership, the company began planning a new production facility in Uddevalla, 80 kilometers northwest of Göteborg. In addition, the Dutch subsidiary introduced a new 400 series compact car.

Catalytic converters, which the company began installing in 1976, became standard on most European models in 1986. New child safety options were also incorporated into Volvo designs as were a variety of electronic sensors and controls.

Volvo's sales were extremely strong during the mid-1980s, due primarily to a devaluation in the Swedish krona. Output continued to rise until 1988, when production targets were ruined by a three-week strike. A few months later, the Uddevalla plant went on line, allowing the company to renovate the Torslanda facility, but too late to make up for lost time.

In the meantime, several acquisitions were completed during the second half of the decade. In 1986 Volvo acquired GM Heavy Truck Corp., which had an extensive dealer network in the United States and a strong presence in Canada as well. Also that year, the company bought a little more than 25 percent of the shares of two pharmaceutical companies, Pharmacia and Sonesson. The U.K. busmaker Leyland Bus Group Ltd. was acquired two years later.

The Early to Mid-1990s: Struggling to Survive

By 1990, Sweden's currency had rebounded, causing export sales to slow. The squeeze was too much for many Swedish companies to bear. In fact, in an effort to stay alive, Saab concluded a deal with General Motors in which GM gained effective control of the company. Volvo responded by entering into a complex agreement with Renault--based on a cross-ownership structure--to share the increasingly high costs of research and product development. As part of a wider reorganization, marketing responsibilities were transferred from regional sales offices back to Göteborg. Volvo's food and pharmaceutical interests were consolidated into Procordia AB, a government-controlled holding company, in exchange for a stake in Procordia. Dissatisfied with these events, Holtback resigned in protest and was replaced by Björn Ahlström, head of North American operations.

Volvo concluded a deal with Mitsubishi in 1991 in which the Japanese manufacturer would take a one-third interest in the Dutch facility, allowing Mitsubishi to manufacture parts for cars it intended to assemble in Europe. The deal outraged many, including some at Renault, which resented Mitsubishi's attempts to enter the French market. The alliances also indicated that Volvo management believed it could not survive on its own.

In 1990 and 1991, Volvo introduced two new models, the 940/960 and the five-cylinder 850, which had taken more than seven years to develop. The company had spent $2 billion to modernize its plants and develop the new models. The company once again swept a series of quality and safety awards for its automobiles, and the high marks it received from automotive critics and government agencies had a considerable effect on sales. Those able to purchase one chose a Volvo because they believed it to be the safest car available. This fact was not lost upon Volvo's marketing department. In the United States, where there were millions of young, upwardly mobile families, Volvo's reputation for safety was made the primary message of ad campaigns. As a result, the boxy Volvo gained an almost unshakable reputation for being the car of choice among America's "yuppies."

As economic downturns plagued Sweden, the government was faced with the precariousness of several of the country's lines of business and the possible loss of its automobile industry. To bolster the position of Swedish enterprises, the government introduced reforms to labor policies that had previously prevented Volvo and other companies from enforcing stricter absenteeism policies. This, combined with cost-cutting measures and the rationalization of the product line--dropping such models as the 760--helped to shore up Volvo's position. Nevertheless, the company faced difficult times.

In 1992 Volvo reported a loss of $469 million. Although sales rose by more than $1.6 billion the following year, the company still suffered a loss of $416 million. Hoping to strengthen itself by increasing its connections with Renault, the company worked on a merger in 1993. At the last minute, Volvo board members voted down the deal when they realized their CEO Pehr Gyllenhammar had agreed to a provision giving the French government the right to increase their ownership of the merged company beyond the 65 percent already in the contract. Gyllenhammar resigned, and Sören Gyll took over as chief executive officer. The alliance with Renault was subsequently dissolved in February 1994.

Gyll pointed Volvo in a new direction: The company would go it alone and refocus on its vehicle and engine manufacturing. The Swedish government had divested Procordia in 1993, and BCP, the consumer products group, became a subsidiary of the Volvo Group. By the end of 1994 Volvo had sold this subsidiary and within a couple years had sold its pharmaceutical interests, a financial brokerage, and its food and brewing businesses. Proceeds from these sales returned Volvo to profitability, reduced the company's debt from $2 billion to $100 million, and enabled the company to buy out its joint venture with Clark Company, the VME Group, which was subsequently renamed Volvo Construction Equipment.

Part of Gyll's plan for Volvo was sculpting a new image and market niche. With baby boomers aging, the demographics did not favor the safe, reliable cars bought by families with children. In 1986, at the height of its appeal in the United States, Volvo had sold more than 111,000 cars. By 1995, the company was selling fewer than 88,000 cars in the United States. Volvo decided to move into a more upscale market, with sporty and luxury models that would appeal to empty-nest boomers. The strategy met with a mixed response from analysts, some of whom felt Volvo needed the new racier image to compete and others who claimed consumers were confused by the apparent contradiction between "safety" and "excitement."

From Cars to Commercial Vehicles Under New Leader: Late 1990s and Early 2000s

In early 1997 Gyll suddenly stepped down from the CEO position and was replaced by Leif Johansson. A veteran of the Swedish appliance manufacturer Electrolux, Johansson continued Volvo on its course toward selling more upscale cars. Although Volvo had already introduced more stylish sedans and wagons redesigned from the old 850s, in 1997 it began selling the C70 coupe and convertible. Its price placed it in direct competition with other luxury coupes, like Mercedes' CLK. To foster its new image, Volvo described the C70 in advertisements as the car that "will move you in ways Volvo never has."

Volvo brought in $95 million in 1997 with the sale of its 11 percent interest in Renault. The company also bolstered its construction equipment subsidiary by acquiring Champion Road Machinery Limited, a Canadian producer of graders and other road construction and maintenance machinery. In addition, it gained full control of the former joint venture with GM called Volvo GM Heavy Truck Corporation, which was then renamed Volvo Trucks North America, Inc. The following year the company divested its remaining shares in Pharmacia & Upjohn. Also in 1998 Volvo added to its racier fleet of cars with the S80, a luxury sedan. In July 1998 the company spent $500 million to acquire Samsung Heavy Industries' construction equipment business, whose main product line was excavators. The acquired operation became part of a newly formed South Korean subsidiary, Volvo Construction Equipment Korea Co. Ltd. Late in the year, after the Asian financial crisis crippled demand in that region, Volvo announced the layoff of 6,000 workers, or more than 7 percent of its global workforce.

The following year proved to be one of the most momentous in Volvo history. In January 1999 the firm purchased a 13 percent stake in Scania AB as a first step in an attempted takeover aiming at merging the two firms' truck divisions (Scania and Saab had been split apart from the former Saab-Scania in 1995). Then, centering the company's future firmly in the commercial vehicle sector and bowing to the increasing forces for global consolidation, Johansson engineered the sale of the Volvo automobile business to Ford. In this historic deal, completed in March 1999, Ford paid $6.45 billion for the Volvo brand and plants in Sweden, Belgium, and the Netherlands. Volvo could continue to use the Volvo name on heavy-duty trucks but gave Ford the rights to use it on cars and light and medium trucks.

Johansson next set about completing the takeover of Scania. In April he increased Volvo's stake in its Swedish rival to 20 percent. After months of sometimes heated negotiations, Volvo reached an agreement in August 1999 to acquire Scania for EUR 7 billion ($7.53 billion) in cash and stock. By early 2000 Volvo had increased its Scania stake to 45.5 percent, but two months later was forced to abandon the takeover when the European Commission, the European Union's antitrust authority, blocked the deal, citing concerns that Volvo would control too great a share of the truck markets in Sweden, Norway, and Finland. The commission later ordered Volvo to divest its stake in Scania by April 23, 2004.

Even before the Scania deal was officially scuttled, Volvo was pursuing two other avenues for growth, only one of which would prove successful. In December 1999 the company entered into an alliance with Mitsubishi Motors Corporation of Japan to cooperate in the development, production, and marketing of trucks and buses. Volvo also acquired a 5 percent stake in the Japanese company. But just a few months later, DaimlerChrysler AG announced plans to buy a 34 percent stake in Mitsubishi, and this eventually led to the dissolution of the nascent alliance and the sale of Volvo's Mitsubishi stake.

In April 2000, meanwhile, Volvo reached an agreement to acquire Renault S.A.'s heavy-truck business, which included the France-based Renault Véhicules Industriels and the U.S.-based Mack Trucks, Inc. This deal was completed in January 2001 as a stock swap valued at EUR 1.7 billion ($1.59 billion) through which Renault acquired a 15 percent interest in Volvo. Renault also bought an additional 5 percent stake on the open market, making it Volvo's largest shareholder, and gained two seats on the Volvo board of directors. The deal made Volvo Europe's largest, North America's second largest, and the world's second largest manufacturer of heavy trucks. Despite finally being able to complete a significant acquisition, 2001 was a bleak year for Volvo overall. The global economic downturn hit the company's truck, bus, and construction equipment operations hard, leading to a net loss of EUR 159 million ($140 million) on revenues of EUR 19.33 billion ($18.06 billion).

As Volvo returned to modest profitability over the next two years, still weighed down by a far-from-robust global economy, it began realizing cost savings from integrating various aspects of its enlarged trucks business, which continued to produce models under three brands: Volvo, Renault, and Mack. In addition to introducing several new models, the Volvo Trucks unit began production at new plants in Russia and China in 2003. In March of the following year Volvo entered into an agreement with China National Heavy Truck Corporation and First Automotive Works Corporation to build a $200 billion heavy engine plant in eastern China. Volvo's revenues in China were expected to reach $800 million in 2004, double the total from the previous year. In addition to pursuing growth in the rapidly expanding markets of east Asia, Volvo was also aiming to significantly enlarge its construction equipment business, which ranked third worldwide, trailing only Caterpillar Inc. and Komatsu Ltd. The company hoped to increase the percentage of overall revenues generated by this business from 13 percent to about 20 percent and to eventually gain at least the number two global position. Another important development in 2004 was the divestment of the company's stake in Scania. Volvo first sold its Scania B shares to Deutsche Bank AG for about SEK 15 billion. Then the company's 27.3 million Scania A shares were transferred to a newly formed subsidiary, Ainax AB, and then Volvo spun off its shares in Ainax to shareholders. The proceeds from this divestment provided additional funds for Volvo to pursue further opportunities to bolster its operations through acquisitions.

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