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Volvo to build $500 million U.S. Factory to revive sales

Monday, Mar 30, 2015

Volvo Car Group plans to build its first auto factory in the U.S. in a $500 million investment to revive sales following a plunge in demand over the past decade.

The plant will start production in 2018 with targeted capacity of 100,000 to 120,000 autos that will use underpinnings of the company’s new XC90 sport-utility vehicle, Lars Wrebo, head of manufacturing and purchasing, said in a phone interview. The Gothenburg, Sweden-based automaker is in talks with three U.S. states on a possible location.

The site will be chosen “within the next two months,” and local government collaboration on workforce training will a key factor in the decision, Wrebo said.

The Swedish carmaker, which was bought by Chinese billionaire Li Shufu’s Zhejiang Geely Holding Group Co. in 2010, is seeking to revive prospects in the U.S., where sales last year totaled about 56,000 vehicles, less than half the brand’s peak in 2004. The plant will give Volvo a local presence, putting it on a similar footing as BMW AG and Mercedes-Benz, and also help reduce risks related to currency fluctuations.

“The U.S. is an absolutely crucial part of our global transformation,” Chief Executive Officer Hakan Samuelsson said in a statement. “Today’s announcement makes it perfectly clear that Volvo is in the U.S. to stay.”

Cost Offset

Volvo also evaluated building the plant in the Mexico, where BMW, the world’s biggest maker of luxury vehicles, announced a $1 billion production facility, joining German competitors Audi AG and Mercedes-Benz. Volvo narrowed its selection to U.S. sites because lower transportation costs compared to Mexico offset higher labor expenses, Wrebo said. Spending on distributing vehicles to dealers from a plant would be “almost identical” in either of the countries, he said.

BMW’s plant in Spartanburg, South Carolina, makes almost all of the Munich-based carmaker’s SUVs, and the factory is the biggest exporter of U.S.-made cars to markets outside North America. Stuttgart, Germany-based Mercedes, which ranks third against BMW and Audi AG in global premium-auto sales, has its main SUV production site in Tuscaloosa, Alabama.

Underpinned by the revamped XC90 SUV, Volvo is targeting worldwide sales this year of about 500,000 cars. The XC90 is Volvo’s first vehicle developed completely under Geely’s ownership and will serve as the basis of future models, part of a five-year, $11 billion investment program that includes overhauling the brand’s product range.

Volvo’s U.S. factory would be its fifth worldwide, adding to two in Europe and two in China. The plant would build vehicles for the U.S., where Volvo has a medium-term target of selling 100,000 autos a year, and may supply other markets. The facility will also give Volvo enough capacity to exceed its target of building 800,000 cars annually by the end of the decade from a record 466,000 last year, Wrebo said.

 

bloomberg.com

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