Volvo Heading East. Will New U.S. Plant Follow?

March 20, 2008

With the imminent break-up of Ford Motor Co.’s Premier Automotive Group, it’s getting lonely out at PAG headquarters, in Irvine, CA. Gone is Aston Martin, now owned by Kuwaiti investors, and with their pending sale to India’s Tata Motors, Jaguar and Land Rover should soon follow, leaving only Volvo in the shell of the once grand plans to create a global luxury empire.

Volvo, however, intends to head back East, where it had long been headquartered. Even as it searches for a new HQ, in Northern New Jersey, however, company officials are weighing an even bolder move: the possibility of opening an assembly line somewhere in the U.S. That move would help the Swedish maker counter increasingly lopsided exchange rates that make it hard to earn a profit on Volvo imports.

The goal is to conclude the move to NJ “by the end of the year,” Doug Speck, Volvo’s new U.S. chief executive, told TheCarConnection.com, during an interview at the 2008 New York Auto Show. “Experience tells us,” however, that “many will stay behind,” perhaps as much as 60 percent of the California workforce of 75.

But the benefits outweigh the risk, Speck insisted, noting that by combining a workforce now split on opposite coasts, it will be easier to form a cohesive corporate culture. And it will also make it easier to work with Volvo’s corporate headquarters, in Sweden, since NJ is only six hours behind, not nine.

Asked about rumors that Volvo would build a U.S. assembly line, Speck was circumspect, saying only that, “I wake up every day trying to figure out how to succeed in America. Anything that helps would be great.’

The fact that the Euro has nearly doubled against the dollar, in recent years, certainly isn’t helping. It is making it increasingly difficult to turn a profit on products like the new 2009 Volvo XC60 crossover vehicle, which received its North American debut at the New York Auto Show.

Fredrik Arp, Volvo CEO, confirmed that the issue is under intense scrutiny, though “for the time being, we’re just studying” the idea of adding a North American production base.” While it might seem a straightforward idea, Arp cautioned that there are “so many unknowns,” such as where parts would be sourced. If most components had to still be imported from Europe, it would save relatively little money and add supply chain complications, he suggested.

Along with the idea of building a unique plant for Volvo, sources tell TheCarConnection that the automaker might alternatively consider sharing one of Ford’s under-utilized assembly lines. For now, however, there appears to be no firm date for making a decision.

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