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Volvo Finds Smooth Sailing by Going Offshore

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Volvo
Volvo's Olney says manufacturer is benefiting from investments to expand global capacity, research and development and strategic alliances.
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Instead of cutting costs during the economic downturn, Volvo’s construction equipment unit has invested heavily in its global manufacturing and distribution networks and plowed money into research and development in the past few years. The expenditures are starting to pay off, says Pat Olney, chief executive and president of Volvo Construction Equipment North America. First quarter revenues were a record for the Shippensburg, Pa.-based arm of the Swedish conglomerate—up 111% over the same period for 2011. Globally, Volvo CE showed a 17% year-over-year gain, reporting an 11.8% operating margin on $2.5 billion in revenue.

The company is also capturing market share, after expanding capacity in Russia, China, India and Brazil, Olney told journalists at a May 16-18 event the company sponsored during a stopover in Miami by the six sailboats competing in the Volvo Ocean Race, a round-the-world competition that began in Alicante, Spain, in November and will conclude in July in Galway, Ireland.

Volvo broke ground in April on a $50-million excavator plant in Kaluga, Russia, about 150 kilometers southwest of Moscow. The facility will produce six models, ranging in capacity from 20- to 40-tonne machines. Distribution will be handled through a partnership with Ferronordic Machines LLC. The Russia-based company is midway through a five-year, $100 million investment plan to build a sales distribution network throughout the country, Olney says. “They started with less than 20 dealerships, they’re at 50 now, on their way to 100,” he says. Staff will track in similar fashion, he adds, moving from fewer than 100 employees a year ago, to 1,000 now and eventually more than 5,000.

Other investments in capacity expansion include about $165 million since 2003, including $40 million each in Shanghai and Jinan and $85 million in Lingong. Volvo is pursuing a dual-brand approach with the Chinese, cooperatively pushing the high-end Swedish-engineered Volvo construction equipment and the low-priced domestic producer SDLG-brand machines. So far the strategy is working, Olney says. “China has become the world’s overall construction equipment leader, representing about 50% of the market overall,“ he says. Even though the Chinese market is down 26% this year, “because of the strength of our brand and the SDLG brand, our revenues remained flat, so we gained market share,” he adds.

The Chinese connection is also serving Volvo well in Brazil. “We’ve developed the SDLG brand,” Olney says. In the past three years the combo has moved market share from 10% to 40%, he says, without cannibalizing the Volvo brand, since “90% of the SDLG customers were not known to Volvo.” The company is now concentrating on crawler-excavator sales, since the first  rolled off the line from a new plant last year. Volvo also is putting $20 million in an excavator plant in India, with full production expected to begin with a year. In core markets, the company has committed $200 million to updating a component plant is Eskilstuna, Sweden, and is in the midst of a $100-million program to integrate sales, research and technology for North America in Shippensburg.

On the R&D front, the company continues to push innovation that will lead to improved efficiency from engine and systems design and operator training, says Dave Hahn, Volvo powertrain coordinator. Volvo is working on seven different fuel mixtures—from improved diesel fuel injection to liquidifed natural gas and propane to ethanol-methanol and biodiesel combinations. The current shale gas boomlet in North America will roll through construction equipment engine research in the near term, he believes. “LNG/LPG technology is just starting to be developed for larger engines, “ he says.

Other gains will come from training operators how to operate equipment more efficiently.  In-house lab test sessions in Europe have yielded up to in 25% fuel savings, during repetitive operations, such as earthmoving, Hahn says.

In the field savings were more modest, but still significant. In Sweden, Skanska's asphalt and concrete western region division sent equipment operators to driving school. After relearning how to operate equipmet to maximize fuel efficiency, Skanska Sweden AB's fleet operators were able to cut fuel consumption by 5% and eliminate 500 tons of CO2 emissions, a savings of $325,000, Hahn says.

Olney was asked how the gritty world of heavy construction equipment operation meshes with the high-brow image of multimillion-dollar blue water sailboat racing. He answered: “round-the-world boat racing ties in very well with what we’re doing. These sailors are a special breed. They have the same values that we have at Volvo—the energy, passion, teamwork and commitment.”

In addition to promoting and elevating the Volvo brand, he says, there’s a practical benefit as well. The Volvo Ocean Race “is a global event. It goes through our major markets around the world and gives us a chance to connect with our customers.”

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