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“Value” truck at heart of Volvo’s new global strategy

Sept. 25, 2012

There’s an awful lot of change going on among the world’s truck makers as OEMs continue to put in place a variety of strategies designed to both contain and shrink costs, but hopefully boost profitability as well.

The Volvo Group – the division of Sweden’s manufacturing giant AB Volvo that builds commercial vehicles, construction equipment, and other such machinery – is the latest to engage in a broad strategic shift as it fine tunes its truck offerings for the world’s many different markets; an effort that will include building a new low-cost truck platform for markets outside of the U.S. and Europe.

[Indeed, the company just unveiled the next generation of its FH Series for the European market a scant few weeks ago – and you can take a look at it via the video below.]

For starters, the Volvo Group is taking a 600 million SEK restructuring charge (equivalent to 91.8 million in U.S. dollars) in the third quarter this year to fund an effort to reduce truck production costs by 10% for its UD Trucks subsidiary in Japan as well as to stop building medium-duty cabover trucks that are exported to the U.S. market.

Next is an effort to slash 11.5 billion SEK – some 1.75 billion in U.S. dollars – from Volvo Group’s annual research and development (R&D) budget; a clear sign the OEM is trying to narrow its focus on future truck designs and technologies to those it thinks will reap the biggest dividends.

Here are some other big strategic initiatives the Swedish truck maker is launching, detailed by Olof Persson (at right), Volvo Group’s president and CEO, during the company’s yearly “Capital Market Day” meeting:

  • Increase vehicle gross profit margin per region by three percentage points
  • “Optimize” brand assets to become the number 1 or 2 in combined heavy duty truck market share.
  • Reduce actual standard cost of sales on total cost for current offer by 10%
  • Establish the “required commercial presence” to support revenue growth by 50% across Asia-Pacific and 25% in Africa
  • Decrease wholesale expenses by 5%
  • Reduce information technology (IT) expenses by 2%

Those are just a few of the 20 or more strategic points Persson discussed in his presentation, and while some of that may seem to be impenetrable “corporate speak,” he went on to describe what those “points” will translate into on the front lines of Volvo’s truck making business:

  • Optimize truck pricing strategies
  • Exit unprofitable products and markets
  • Further optimize sourcing
  • Optimize production processes
  • Streamline internal sales and marketing functions
  • Improve deal efficiency
  • Introduce more “soft” products (i.e. service related) for dealers to sell

The big one, though, is centered on what Persson called Volvo’s “heavy duty value trucks,” aimed specifically at emerging and growing markets such as Asia, South America and Africa. This is a brand new truck line Volvo plans to introduce in the next few years and expects to build in its India and Thailand factories.

He added that Volvo’s intention is to produce those “value” trucks in the Volvo’s DND Chinese joint-venture as well.

[A focus on driver comfort and more function cab interiors, like what Volvo developed for its revamped FH Series line, might form one focus for these new “value” trucks.]

Of course, this new focus on “value” is just another way of saying “low cost” – and that strategic initiative has only been gaining speed across the truck making world for some time now.

Indeed, truck makers increasing seem to be focusing on how to deliver better interior packages that appeal to drivers and customers that are very different from competitors – and expense offset by building for more uniform global truck platforms that share the same base components.

We’ll just have to wait and see it Volvo’s big “value” bet pays off in the next few years. 

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