Volvo Trucks:

Entry and Penetration in the US market

Group 4
Bharath R.
Srilekha B.
Neha S.
Abinash K.
Ankita P.
Harsh N.
Agenda

Introduction to Volvo
World of Heavy Truck Industry
Products
Customers and Markets
Manufacturing
Competitors
Volvo Truck Group
History in the US Market
Case Analysis

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History of Volvo

Becomes a Total sales:$27

conglomerate billion One of the
with assets in Cars: 48% leading
disparate Trucks: 28% manufacturers
industries like of heavy trucks,
Volvo founded
financial serving 180
services and markets
processed food

1925-1980s 1990s 1999

1925 1980s 1998 2000

Car business
sold to Ford.
Diversified Volvo becomes
industrial group, Conglomerate
a manufacturer
with products strategy
for transport
spanning from reversed-
solutions
trucks to marine refocused on
and jet engines vehicles and
heavy
equipment

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Products

Three types- Light, medium and heavy trucks based on weight

Heavy Trucks

Cab-Over Trucks Conventional trucks

• Better Visibility • Greater driver comfort

• Better Handling • Easy to service
• Lesser driver comfort • Perceived as safer
• Harder to service

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American v. European Trucks

American European
Length of tractor not included Length of tractor included in
in truck length truck length
Lower maximum allowed Higher maximum allowed
weights weights
Unsynchronised gearboxes Synchronised gearboxes

Conventional truck preferred Cab over trucks preferred

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Customers and Markets
Markets
• Western Europe and North America account
for one-third of world’s truck market
• Export of heavy trucks tended to occur
within Europe, North America, Latin
America and Asia- rarely across continents
• Truck sales were cyclical and demand fell
sharply during downturns
• China and India were expected to grow at
11%

Customers

Truck Buyers • Truck chassis sold to independent

Trucking Companies specialized builders of tanker trucks, fire
trucks and other specialty vehicles
Distribution Companies • Trucks mostly sold with service contracts
Construction Companies • The engine required most service and
substantial revenues came from after-
Waste Management Firms
market engine parts
Companies operating their own trucks

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Customers and Markets - Differences
US Europe
Distribution
• Distributors are independent companies • Distributors are exclusive and often owned
by manufacturer

Leasing
• Deregulation led to customers becoming • Leasing companies less prevalent
increasingly cost and quality conscious
• Leasing companies emerged, later
becoming full service maintenance
companies
Buyers
• Large purchasers dominated buying • Large fleet operators less common
• Buyers favored US built products and • Truckers tended to own and drive their
customization vehicle

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Manufacturing

• Engine manufacturing involves plants with annual output of over 40,000 units which is not
uncommon
• In the US, most manufacturers were assemblers and made their own cabs, by using
components from outside supplier
• Buyers would typically specify a combination of drive-train components, especially the
engine
Assemblers Drive-train mfg Diesel Engines Gearboxes Rear Axles

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Competitors in the U.S
US Heavy Truck Market Share Freightliner
• Consolidated Freightways and five other western
truckers
• Agreement with White Motor Corporation – “White-
Freightliner” label, ended in 1975
• Purchased by Daimler Benz in 1981, though
continued to operate independently

Paccar
• Highly profitable pure assembler concentrated on
the premium segment
• Several alliances and acquisitions over the years
Mack • 2001, agreement with Cumin Engines for supply of
Engines to Paccar USA and the DAF subsidiary
• Reputation for durability, innovative firm and
industry leader Navistar
• Built first motorized passenger bus with cab-
over design in 1905, first heavy-duty truck and • Undergone major restructuring in trucks, retained
first US heavy-duty diesel-engine truck strong position in engines
• First to use power brakes and air suspended • Focussed on NAFTA region
cabs on heavy duty truck • Plant in Mexico
• From 1979 to 1990 SOGC sold Mack shares to • Manufactured commercial trucks, school buses and
RVI diesel engines for International brand
Competitors in Europe
Competitors Origin % of Major Acquisition Strength Weakness
Worldwide
production

Daimler- Germany 28% Freightliner (US) in One of the Not sold in North
Benz 1980 technological leaders America
Ford Trucks (US) in
1997
Renault(RVI) France 11% Mack (US) in 1980 Innovative and Even after acquiring
Industry leader, sold Mack they were
all over Europe, managed separately
Middle East and
Africa
Scania Sweden 8% None Differentiated by its However it was
advanced successful in Far East
technology, brand and South America,
image and having but very less
highest profit margin presence in US

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Competitors in Asia

Most of the Asian heavy truck market captured by Japanese manufacturer such as
Hino, Nissan Diesel and Mitsubishi

Hino is leading manufacturer and mostly targeting the Asian market with some
presence in Europe and US

Nissan Diesel has presence in US market in medium cab over trucks

None of the Asian competitor is considered as a important competitor of World heavy

truck market.

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Volvo Truck Group

Volvo’s Global Operations in 2000 • One of the leading manufacturers

of heavy trucks
• Serving 180 markets and delivering

Company
81,000 medium and heavy trucks
• Held 14.9% of European market
and 10.6% of North American
market

• Three types of trucks

Products
• Standardized parts reduced cost
• Suppliers reduced from 1600 to 400
• No. of components reduced from
41,000 to 25,000

• Major centers in Sweden, Belgium,

Manufacturing
Brazil and United States
• Drive-train components producing
plants in Sweden and Brazil
Volvo Trucks

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 History in the US Market

Volvo acquired Volvo invested

the White $500 Mn for the
Motor launch of the VN
First Volvo car
Corporation series Volvo aims to
exported to the
US Volvo White break the 12%
Teamed up with market share
Freightliner for market share at
8-9 % barrier
distribution

1975 1979 1983 1988 1997

1955 1978 1980 1987 1995 2000

Volvo Introduced a
introduced the new VN model,
Volvo Truck ‘slash’ on Volvo the 770
entered the US White truck
market using fronts
existing car
dealership Volvo acquired
Freightliner GM’s heavy
acquired by truck business
Daimler-Benz

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 White Motor Corporation: Acquisition and Integration

• WMC was one of the oldest and best • Volvo White Truck Corporation formed
•
Company

Company
known US truck manufacturers Sought to establish close dealer and
• Market share had sunk to 8.6% in 1974 customer relations
• Consolidation measures to improve • Decided to move into the premium end
earnings were futile of the market

• Three types of trucks • White’s ‘New Family’ program

Products

Products
• Standardized parts reduced inventory improvements
• Autocar line with a model for off-road • Integral sleeper introduced
transport • White/Autocar nameplates preserved

Manufacturing
Manufacturing

• Modern assembly plants in Utah and • Signs of the old White company
Virginia removed
• Cab production in need of upgrade • Utah assemble plant closed
• Other locations in Detroit, Cleveland, • All assembly moved to Virginia
Chicago

In 1987, Volvo White had only managed an 8-9% overall market share,
comparable to that of WMC in 1981

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Volvo GM acquisition to present day status
1988 Volvo acquired GM’s heavy truck business
1 Headquarters were consolidated at Greensboro, NC
2 Brigadier, the highest volume truck, dropped and replaced by a White model – WHITEGMC
created
3 Objective was to become the customer’s business partner
4 Dealer network consolidated, and new dealers added
5 Michigan plant closed, production shifted to VWTC, Virginia and Ohio plants expanded

1995 WHITEGMC, Autocar and Volvo unified

1 Launched a $ 500 Mn investment program for the VN 770 series
2 Adapted to US customer demands
3 Objective was to raise the number of Volvo engines and other in-house components sold (40%
goal)
4 15% decline in industry volume, sales dropped by 38% : $ 240 Mn loss
5 Cab production and truck assembly consolidated in Virginia, Ohio plant closed
6 Dealer network consolidated, three regions created, focus on upgrading services

1998 Industry demand rebounded, margins stayed low for all players
2000 How to increase market share and profitability?
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Case Analysis

1. Describe Volvo's strategy in the USA and its global strategy?

2. Why is the heavy truck industry very slow in globalizing?
3. Which are time points when Volvo could have exited the USA market? Why didn't Volvo exit?
4. What should Volvo do with respect to North American market as on 2000?

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Describe Volvo's strategy in the USA and its global strategy?

Export Acquisition Integration

• Capitalized on existing car • Seeking to establish closer • Consolidated manufacturing
dealership ties, acquired struggling WMC and dealership network
• Focused on larger markets – • Acquired GM’s heavy truck • Unified all brands under Volvo
13 states business to meet increasing • Decided to introduce the new
• However, growth was slow demand in the low price VN series to meet US
• Partnered with Freightliner for segment customer demands
distribution and service • Promoted Volvo engines due
• Market declined sharply to greater profitability

Product Strategy Operations Strategy Markets

• 90% production was in the • Fully integrated, developing
heavy truck segment and producing all major

Sales
• EU cab-over trucks, EU and US components
conventional trucks • Modular concept with
• FH series based on modular standardized components 1996 1998 2000
concept introduced • Adopted by American
assemblers and leading

Production
manufacturers
• Reduced costs of product
development and logistics
• More responsive

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Why is the heavy truck industry very slow in globalizing?
Market drivers • Customer needs are not homogenous
• Heterogeneity in concentration and manner of distribution
• Widely fluctuating growth rates amongst regions
Cost drivers • High potential for economies of scale
• Opportunities to reduce product development costs
Government/political drivers • Differences in regulation across countries
Competitor drivers • Companies were slow to take a global outlook due to fluctuations in
local markets that left them in a sensitive position

Are the
capabilities If deployed in
Localising forces a foreign
• Differences in desirable developed in Are the
the home market, would
features capabilities
market these
• Distribution model transferable
relevant to capabilities be
differences
consumers appropriable?
• Regulatory differences
Capabilities Capabilities Capabilities are
include across industry transferable
Globalising forces
manufacturing are not different
• Conversion of European
and American engine and assembling enough to
technology heavy trucks develop a RAT Model
• Industry consolidation Relevant in profitable
global markets market position

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Which are time points when Volvo could have exited the USA
market? Why didn't Volvo exit?
Event Event
• De-regulation of the trucking market in • Volvo suffers a record loss of $240
1981 million in the market slowdown

Situation Situation
• Pricing restrictions abolished • 15% decline in industry volume in 1995-
• Dramatic fall in profitability due to influx 96
of competition • Volvo performed even worse with a 38%
• Leasing companies emerged, which drop in sales and unprecedented loss
threatened the existing business model

Reasons for not exiting Reasons for not exiting

• Market was growing and industry was • $500 million had been invested for the
consolidating launch of the new VN series
• Fleet operators were placing massive • Management believed that increasing
orders the proportion of Volvo engines in Volvo
• USA was the biggest market for heavy trucks would improve profitability
trucks in the world • Management was reshuffled and
company was restructured

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What should Volvo do for North America as of 2000?

• The Profitable Growth Paradox: Most growth investment will at first reduce the
profitability, cost reduction efforts to boost the bottom line usually have a negative
impact on future growth

• As of 2000, due to the cyclical nature of the industry, the market growth rate is low,
and is expected to rise in the next couple of years

Global Transnational

• So far, Volvo has been following a global strategy

Cost Reduction Pressure

• However, the ideal strategy is a transnational

strategy, which Daimler-Benz has adopted

International Multidomestic
Local Responsiveness

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 What should Volvo do for North America as of 2000?
Option 1 Option 2

• No cost benefits from the integration • Industry trend towards closer co-
• Full integration is not the industry operation between OEMs and engine
norm suppliers
Challenges

• It has made Volvo inflexible and • Increasing the proportion of engines

reduced margins would significantly improve
• No existing relationship with suppliers profitability
or dealers

• Reduce integration to fit into the • Focus on being an exclusive supplier

American business model of engines
Actions

• Develop ties with external suppliers • Engine value was 25% of the total
and dealers truck and high after-sale service and
spare parts revenue

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 Thank You

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 1975 Volvo

1981 Volvo White Autocar

Volvo Volvo - White Autocar

1988 Volvo WHITEGMC Autocar GMC

1996 Volvo

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