Aug. 26 (Bloomberg) -- Volvo Car Group, which has come to symbolize Swedish durability since its founding in 1927, is sticking to its Scandinavian roots with its first model since being acquired by Chinese owners four years ago.
Rather than chase low wages, Volvo will maintain engineering and assembly of the new XC90 sport-utility vehicle in the carmaker’s hometown of Gothenburg. The overhaul of the brand’s flagship model, which was unveiled today near Stockholm, is part of a plan to spend about half of the manufacturer’s four-year development budget of $11 billion in Sweden.
“If the engineers just sit in laboratories and lose connection to the daily use of the cars, the cars will not be good enough,” Volvo Cars Chief Executive Officer Hakan Samuelsson said in an Aug. 15 interview. “The engineers have to experience the car personally -- scraping ice, seeing how the defrosters work, seeing how fast the seats heat up,” and that needs to be backed up by local production.
It could be a risky strategy. Less than a third the size of global luxury brands like Bayerische Motoren Werke AG, Volvo Cars still needs to match rivals’ technology while at the same time offsetting high local salaries. Auto workers in Sweden cost about $62 an hour in wages and benefits, more than anywhere else in the world except Germany, according to data from trade group VDA.
The new XC90, which sports a Swedish flag stitched to a seam in the front seats, is key to Volvo’s plan to nearly double sales to 800,000 vehicles by 2020 and provides a crucial test for the only global carmaker under Chinese control after the 2010 acquisition by billionaire Li Shufu’s Zhejiang Geely Holding Group Co. To back the expansion, about 500 workers will be hired to help staff a third production shift in Gothenburg and as many as 300 developers may be brought on board for follow-up models, said the manufacturer.
The new hires will help boost production at Volvo’s Torslanda factory in its hometown after increasing capacity by 50 percent to as much as 300,000 cars a year. The company plans to build the XC90 and a range of new models on the same underpinnings at the site.
The design of the new SUV, which seats up to seven, is more streamlined than the current edition and features a large grille and daytime running lights that Volvo says are shaped like Thor’s hammer from Nordic mythology.
To liven up its image as it vies with BMW, Volkswagen AG’s Audi and Daimler AG’s Mercedes-Benz for buyers, the Swedish automaker will add flourishes such as a crystal gear-shift lever by glassmaker Orrefors. The car, which will start at about 50,000 euros ($66,000) -- on par with BMW’s X5 -- when it enters showrooms next year, will also sport a touch screen compatible with Apple Inc. and Android devices. Additionally, Volvo will offer a selection of hybrid variants to shore up its environmental image.
An event at the Artipelag art venue by the Baltic Sea near Stockholm that featured a video with clips of pine forests, snow-capped mountains, lakes and beaches attracted 700 journalists from around the world for the XC90’s public unveiling today.
“We are emphasizing our determination to build the future of our brand on our Swedish heritage,” Samuelsson said at the presentation. “This has been a very interesting and challenging phase for us all in the company but I’m quite convinced it has made the company stronger, transforming it from a division to a stand-alone car manufacturer with a stable owner.”
The goal of the manufacturer’s model strategy is to increase its profit margin to 8 percent of revenue, in line with other upscale carmakers. After selling 427,840 cars last year, Volvo forecasts growth of nearly 10 percent in 2014.
The company’s expansion would bring relief to a region whose automotive industry suffered thousands of job cuts during the global recession in 2008 and 2009 and was hurt by the bankruptcy of Saab Automobile, Sweden’s only other large-scale carmaker. Gothenburg is also home to Volvo AB, the world’s second-largest truckmaker, and SKF AB, the biggest maker of ball bearings.
“Volvo is important for all of Sweden and of course for Gothenburg,” Anneli Hulthen, the city’s mayor, said in an e-mailed response to questions yesterday. “It is important that a large employer such as Volvo wants to hire,” and that generally results in even more jobs in the area.
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