Business - Q&A CEO Volvo Group

Leif Johansson has been president of AB Volvo and chief executive officer of the Volvo Group since 1997. Known for his aggressive emerging market focus, he thinks his group’s Asian footprint will help save the day now that both Europe and North America are in slowdown mode. That’s why he tied up with Dongfeng in China and Eicher in India for joint ventures that will not only spawn market-specific local products but also offer sourcing and low-cost production possibilities to the group globally. In a chat with ET, Johansson explains his India-China game and why it’s crucial for the company.

What made you tie up with Eicher, which is a small and niche player in the Indian truck and bus market?

The Indian market is becoming more sophisticated and more like some of the Asian and European markets. Volvo has a global architecture of products in terms of drive-train, chassis and cabs. What Eicher brings to the table is a nation-wide network, market knowledge and a decent footprint in the light commercial vehicle market. They had aspirations to get into the heavies segment. We already have a good presence in the pricey heavy creamy layer and wanted to go beyond that upscale niche to medium range CVs. So it’s a reasonable fit.

So it’s just a quest for lower cost production and bigger volumes from India?

Bigger volumes in India, yes. But it’s not just that. The JV with Eichder is also about a strategically greater role in the medium product range. We have Renault-Volvo in Europe and Nissan Diesel in Japan which also services China and parts of Africa. But we had nothing in India. That’s where Eicher comes in. That’s an interesting product range to be in. Together with Eicher and Dongfeng (Chinese JV partner) we will have a sizeable medium duty module across India and China.

To what extent will the Indian JV be integrated into your global product development plans?

We have some basic global architectures that can be tweaked to suit specific markets. So if you’re asking whether the Eicher JV will spawn India-specific platforms or architectures, then no. We see the JV as being part of our global architecture strategy from which we can make unique products suitable for India. The Indian JV will be part of providing the global architecture, especially in medium duty products. We want to bring Eicher into an architecture that would serve big parts of the world apart from India. It would not only give the Indian joint venture a stable of interesting products but also allow it to be a sourcing base for our global operations.

Will you bring your other brands like Mack into India?

We are pleased with the performance of the Volvo brand and there’s no reason to bring in others.

The bulk of the Indian market is serviced by medium and heavy commercial vehicles which are priced much below the Volvo range. Will your JV with Eic
her help you tap that market?

Volvo is in the business of sophisticated and hi-tech products with clear environmental footprint. The bulk of the Indian market has so far not been reachable by that range. But the way the Indian transportation industry is developing, there’s a need for more sophisticated and greener products today. Take our truck and bus business. Despite what sceptics told us ten years ago that our products were too hi-tech and too expensive for India, we’ve managed to get some traction there. I believe the Indian market will be ready for a skill jump towards cleaner and greener technology.

How badly has the slowdown in America and Europe hurt you?

There has been little impact on us. In the second quarter of this year, we crossed an important milestone when our Asian business overtook the North American business in terms of turnover share. Asia right now comprises 20% while North America is 18%. We put in big investments in Asia and now they are bearing fruit. Our Asian footprint will help us get over the American and European downturn.

America has been negative for two years and the slowdown is now hitting Europe. At some point it will also hit Asia but it won’t be as dramatic as in Europe and America. What saves us is our balance sheet. We have no problems there, unlike the Detroit Three. Yes, the financial crisis is hitting our demand, particularly in Europe.

Customer liquidity is drying up in markets like Spain, Baltic states and UK because 90% of our vehicles are financed. Many customers can’t take delivery of the vehicles because the bank loans aren’t coming. But the European and American governments are taking powerful measures so liquidity should ease up. Commercial vehicles is in any case a cyclical business. The trouble is, this year the bad liquidity problem has come on top of a cyclical downturn.

Will this impact your capex plans particularly in emerging markets like India?

No there will be no change in capex plans. What we may do is push back some European expansion by a couple of quarters. We don’t need any fresh capacity right now and we won’t add any. But the current crisis does not change our product development investments. We don’t see the world strategically any different than before. It’s more about adjusting to the cycle, only this time the downturn cycle is a bit more complicated that’s all.