Tuve Johannesson, 55, was named president of Volvo Car Corp. in 1995 after a period running Volvo's Construction Equipment Division. He joined the group in 1988 after a long career at Tetra Pak, the Swedish food packaging giant. Johannesson has led the implementation of a two-platform strategy adopted by Volvo following the collapse of the company's merger with Renault in 1994. The strategy is intended to give Volvo the flexibility to develop new models and niche derivatives while remaining an independent producer. The new S80 is the first model derived from Volvo's large-car platform. At least three other variants are planned, including a station wagon and replacements for the V70 and S70. A multi-purpose vehicle with all-wheel-drive and sport-utility styling is being designed to appeal to Volvo's traditional station wagon customers.
Volvo is well-established in Europe and the USA. Does that insulate you from some of the problems in emerging markets?
Yes, but we have been affected by the Southeast Asia crisis and by developments in the Japanese car market. But overall we have kept or increased our shares in these markets. The strength of the US dollar has supported the Volvo business in America. For a period in the US we had to live with the S70 and V70 range. The situation is now different. We have introduced the S80 and next year we will broaden the range again with the S40 and V40, which will be on the market from mid-year. Our ambition is to sell 200,000 cars in North America, up from today's level of 110,000.
How is Europe faring?
Europe is a different picture now. We had enjoyed a strong situation in Europe until some five weeks back. I think that we share the same experience with our competition - an experience caused by the turbulence in the financial markets and the effects of the Asian and Russian economies. We have registered lower retail sales in the last few weeks.
Do you notice this in any particular markets more than others?
The UK has been tough, Italy is tough. Sweden was very tough but we improved by putting more pressure on the marketplace. But overall activity is lower, and we can see more price pressure. We can also see that more people go for lower specifications, so it is a mixed picture. But we feel that we are improving against the competition, not least because of the S80.
Do you still expect to surpass 400,000 units this year worldwide?
We are on that level. But the last week of December can fall either way.
Volvo plans to reach 500,000 in three or four years. What will be your level next year?
I honestly do not know. If we have a weak European market it may create more capacity for the S40 and V40 in North America. We do have restrictions on capacity for those cars (at NedCar in the Netherlands). The capacity is approximately 150,000-160,000 NedCar-produced cars. We cannot really produce very much more than that.
You aim to sell 200,000 vehicles in North America, up from about 110,000 this year. How long will it take you to get to that level?
The planning includes additional product. Give it five years.
How will the S40 and the V40 be positioned in the USA?
A small luxury car with a price range from $24,000 upwards. I am very optimistic. The restriction will be capacity.
What are your options for adding capacity?
They are limited. We are improving productivity at NedCar, so we have gone from 280,000 total capacity to over 300,000 (including partner Mitsubishi.) The bottleneck is in the paint shop. So we cannot go beyond that. We can use some capacity at our kit assembly operations in Thailand and Malaysia. That would give additional volume for Europe and North America. We can do that, but our maximum level would be only 170,000 cars.
Can you negotiate with Mitsubishi for a bigger share of production at NedCar?
We have done that. But they have introductions coming at the NedCar plant.
Can you build them in the USA?
Not possible. The planning time is too long and too expensive because you need local sour-cing; otherwise it becomes very uneconomical. When and if we get US production it will be based on local sourcing.
Will you expand your existing plants in Europe?
The large-car platform, which will be used for four products, is going to be produced in our two European plants - Torslanda, here in Sweden, and Ghent in Belgium. There is some capacity expansion planned in both plants.
The extra capacity at Ghent will be for a multi-purpose-type vehicle based on your large platform?
Mitsubishi is having financial difficulties at the moment. Is there an opportunity for you to take a bigger stake at NedCar?
No. We have an agreement for 50-50. Volvo would never go above that.
Don't you need significantly more capacity to reach your target of 500,000?
We have the capacity for 530,000 cars already today. We have 170,000 in Torslanda, the same amount in Belgium, 150,000 in Holland, 20,000 at Autonova (joint venture with TWR Group in Uddevalla, Sweden), and the rest in our kit assembly plants.
Will Volvo offer a car smaller than the S40?
(Only) where Volvo's definition of safety allows us to go slowly down in size and weight. Volvo will not go beyond what we think is important from a safety point of view. We have pressure on us, as with all the others, to go down in fuel consumption, to make engine alternatives that are relevant. An example is diesel engine developments. We should not underestimate the strength of that in Europe. So we understand better and better that Volvo must participate in those trends, when it comes to some of the smaller cars. But we still need the space and the functionality of Volvo cars.
What about a bigger car than you offer now?
It would surprise me if we felt that there was a market need above the S80. The exception would be the sport-utility trend, where there is another definition of what is needed. That is very much North American. It would have to be a natural Volvo, by no means a copy or something similar to what is on the market today.
Is Volvo developing its own diesel engine for passenger cars?
We have a pre-study of diesel engines as an alternative to buying from outside. We are very well positioned to do that if we decide to. We are very well positioned to go straight to world class diesel production with an internal solution.
With a supplier or by yourself?
We have worked on the project with a couple of technology partners, the best around. We have that option if we want it.
Is it common-rail?
We are not commenting on the technology. We are very well positioned if we so decide.
Will Volvo merge with another automaker?
One should never say never. We are very comfortable with our strategies. So is the board of directors. We have no problem with what we are doing, we have outlined our strategy well, we have explained it, we have delivered on it. Remember that we had a different situation in 1994. We have worked with the strategy since then and we have delivered on the strategy. I am realistic person. We recognize, of course, that the world is changing. But there is nothing telling us that we, from a point of weakness, should do something to merge with other automakers.
Tuve Johannesson was interviewed on 10 November in Gothenburg, Sweden, by Richard Johnson, editor of Automotive News Europe.