Volvo sold a record 534,332 vehicles last year and it may do even better this year. CEO Hakan Samuelsson expects to set a new all-time high for a fourth consecutive year in 2017. He is bullish because this year Volvo will debut the all-new XC40, which will compete in the fast-growing compact crossover segment, and launch the second generation of its best-selling XC60. He shared his outlook with Automotive News Europe Associate Publisher and Editor Luca Ciferri and Managing Editor Douglas A. Bolduc during an interview at last month's Detroit auto show.
Will Volvo maintain its record-setting sales and profit growth?
We will continue increasing our percentage of small cars [with the arrival of the new XC40 and another compact model]. That, of course, is a very important factor for better margins. In addition, we aim to have a volume increase. We are ramping up to see how much we can reach. Barring any major unforeseen changes to the market, we should be able to crank out more cars than last year.
What is your target operating margin?
A company that sells 800,000 cars a year [which Volvo aims to do by 2020] should have 8 percent profitability. Another way of saying this is that we want to be as good as anybody else [in the premium sector].
How close is the final transaction price of the XC90 and S90 compared with rival models from Mercedes-Benz, BMW, and Audi?
In the SUV segment, the XC90 and the XC60 are on the same level of earnings as Audi. The S90 and S60 [sedans] are a different story. We don't have the same strong position [in the sedan market] so the distance is bigger. On the other hand, we have a very good car now with the new S90. There is absolutely no reason why we should not be at the same level as our rivals, but I think we will need time to close this gap. We definitely need to do this because that's where the profitability will be earned.
What is Volvo's outlook for Russia?
It's a good market, especially for SUVs. They are very fond of the new XC90. The XC60 has always been a strong product there, and that will be even more evident with the new one.
How many cars did you sell in Russia in 2016 versus 2015?
It was 7,800 in 2015 and 5,800 in 2016.
And you still broke even?
Yes. We are not losing money but not making any money, either.
And in 2017?
If we sell about 8,000 cars, we can make some money. I think we have passed the low point.
Opel quit the Russian market in 2015, would Volvo consider doing the same?
We are definitely not planning to exit the Russian market, although we were in survival mode for a while. Now it looks a bit better. It will continue to be an important part of the Volvo story.
Do you also think the worst is over for the overall Russian market?
I can't provide a prediction for the overall market. For us, profitability is more important. With our new cars and with a slightly stronger ruble, our ambition is to take market share. If you look at our position versus some others, there is definitely room for expansion in Russia. Even if the market does not grow, we can grow.
Can we expect you to float a stake in Volvo next year?
We have no current plans for an initial public offering. What we're doing now is concentrating on making Volvo a sustainable, profitable, bigger company. If we were not doing this, we would not have been able to enter the bond and equity markets as we did. It is important to us to have more diversified funding options than we have now. That's good for the company.