AB Volvo - Company Profile, Information, Business Description, History, Background Information on AB Volvo



S-405 08
Göteborg
Sweden

Company Perspectives:

Core Values: An automobile is made by and for people. The basic principle for all manufacturing is and must remain: Safety. Safety research is expensive. Human life is priceless.

History of AB Volvo

AB Volvo is Sweden's largest industrial company and its last independent automobile manufacturer. Renowned for its practical, high-quality trucks and automobiles, Volvo was trying in the late 1990s to shift its image from "safe but boring" to "safe and exciting." The company was also struggling in its efforts to remain independent in face of widespread consolidation in the industry.

Early History

Volvo began as a subsidiary of Svenska Kullagerfabriken (SKF), a large Swedish industrial company. In 1924, 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, 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 √ĖV4, 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. However, because both Larson and Gabrielsson detested automobile contests, 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 fell into a slump. General Motors (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 floated its first share issue 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. However, by this time 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, a precision engineering company, and Köpings Mekaniska Verkstad, a gear and gearbox manufacturer.

In 1944 Volvo began taking orders for its long-awaited new model, the PV444&mdash′iced at SEK4800, the same as the 1927 √ĖV4--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 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. However, the Swedish government's decision not to join the European Economic Community stood to lock out Volvo sales on the continent due to 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 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'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. 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 four and five 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. While the combination would produce 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.

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 car maker 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 testbed vehicles, found their way into new variations of the 300 and 700 series cars.

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.

The Early 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 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. 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 costcutting 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 Soren Gyll took over as chief executive officer.

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 ventures with Clark and General Motors.

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 who felt Volvo needed the new racier image to compete and others who claimed consumers were confused by the apparent contradiction between "safety" and "excitement."

In 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 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. Although Volvo had maintained its independence while numerous other small automakers were being swallowed by larger rivals, analysts were skeptical that Volvo could last on its own. In fact, rumors were circulating in 1998 of a merger between Volvo and Volkswagen.

Principal Subsidiaries: BCP Group; Forsakringsaktiebolaget Volvia; AB O Annerstedt; Volvo Aero Support Corporation; Volvo Bus Corporation; Volvo Car Corporation; Volvo Truck Corporation; Volvo Cars Intercontinental AB; Volvo Data Corporation; Volvo Aero Corporation; Volvo Group Finance Sweden AB; Volvo Group Insurance Forsakring; Volvo Parts Corp.; AB Volvo Penta; Volvo Transport Corporation; AB Volvo Technological Development; Volvo Cars of North America, Inc. (U.S.A.); Volvo Penta of the Americas, Inc. (U.S.A.); VL Bus Asia (Pte) Ltd. (Singapore); Steyr Bus Gesmbh (Austria); Volvo Australia Pty. Ltd.; Oy Volvo-Auto Ab (Finland); Volvo Automobiles France S.A.; Volvo Bus Limited (U.K.).

Principal Divisions: Volvo Car; Volvo Truck; Volvo Bus; Volvo Marine and Industrial Engines; Volvo Aircraft Engines; Volvo Construction Equipment.

Additional Details

Further Reference

Berman, Phyllis, "Stretching the Platform," Forbes, December 19, 1994, pp. 197-200.Holstein, William J., "Volvo Can't Play It Safe," U.S. News & World Report, July 27, 1998, pp. 40-42.Lindh, Björn-Eric, Volvo: Cars from the '20s to the '90s, (commissioned by Volvo), Förlagshuset Norden AB, 1990.Olsson, Christer, Volvo: Sixty Years of Truckmaking, (commissioned by Volvo), Förlagshuset Norden AB, 1990.Osterland, Andrew, "Volvo: Swedish for Undervalued," Financial World, January 2, 1996, p. 20.Taylor, Alex, "Too Slow for the Fast Lane? Volvo and Saab," Fortune, July 21, 1997, pp. 68-73."Volvo Searching Hard for Relief," New York Times, June 12, 1991."Volvo's U.S. Chief Quits in Response to Reorganization," Wall Street Journal, October 1, 1990.

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