Rather than compete with Chinese manufacturers in North America, Volvo has decided to join them.
Shandong Lingong Construction Machinery Co. Ltd. (SDLG), a China-based unit of Volvo Construction Equipment, has started importing wheel loaders into North America. The company plans to put them on sale the first week of September.
Until now, SDLG has been focused on emerging markets, such as Brazil, whose buyers place less of a value on premium features, such as high-end electronics. The Chinese-made discount machines will be offered in 2.4- and 4.0-cu-yd bucket capacities and priced 25% to 30% below a comparable premium-grade machine, such as a Volvo, Caterpillar or Deere model of the same size.
"It's a proven design," says Al Quinn, who is heading the domestic SDLG brand at Volvo's American headquarters in Shippensburg, Pa. "It's slightly older technology that may not be as efficient, but it's reliable." Initial orders can be placed through selected Volvo dealers listed at SDLGNA.com.
The SDLG factory in Shandong, which Quinn says is the largest wheel-loader producer in China, can build up to 100 machines a day. The Chinese wheel-loader market is about 200,000 machines a year—10 times larger than what North America consumes. SDLG is set to open a factory in Brazil to produce crawler excavators.
Risks and Rewards
The idea of offering premium and discount lines of machines is tempting to manufacturers looking to turn up the heat on sales, but the result is often lukewarm, experts say.
"In the past, dual branding has been problematic for manufacturers because it confuses customers," says Frank Manfredi, a machinery analyst in Mundelein, Ill. He recalls that Komatsu once tried to import lower-cost Dressta machines, but Komatsu dealers declined to push the machines on their customers. Rather, dealers preferred to sell higher-priced Komatsu machines at higher profit margins.
"The big risk with any dual branding is sucking business out of your core customer base," Manfredi adds.
Volvo acknowledges these risks, but Quinn says the SDLG brand will have a dedicated sales force targeting a different type of customer: small contractors and farmers that own five machines or less. In Brazil and Australia, where Volvo is actively selling the SDLG brand, "less than 5% of customers had ever bought a Volvo," Quinn says, adding that he sees SDLG competing against premium-quality used equipment.
The threat that other Chinese producers pose to developed markets is also a catalyst for Volvo, but Quinn says SDLG is moving cautiously.
"We're in no hurry to sell thousands of these," he says. "We just want to offer the customer an alternative."
The rental category may also like the appeal of a simple machine that lacks bells and whistles, Quinn adds. However, rental buyers look for residual value, too. With no secondary market for used Chinese equipment in North America, rental companies may not be ready to bite.
"We don't have a track record yet," Quinn explains. "It's going to be a challenge for us, but, in the long term, we think it's a great fit for rental."