A.B. Volvo

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A.B. Volvo

S-405 08
(031) 59 00 00

Public Company
Incorporated: in 1926 as a subsidiary of AB Svenska
Employees: 67,857
Sales: SKr 80.3 billion (US$11.8 billion)
Market Value: SKr 26.3 billion (US$3.86 billion)
Stock Index: Stockholm London Düsseldorf Frankfurt
Hamburg Oslo Paris

Volvo is a diversified international group of companies operating primarily in the areas of transportation equipment, energy, and food. The parent company, AB Volvo, is Scandinavias largest industrial enterprise; it generates more than $11 billion in annual sales and employs more than 70,000 people worldwide. Although Volvo manufactures a wide variety of products, it is best known for its automobiles.

Established as a subsidiary of AB Svenska Kullagerfabriken in 1915, Volvo began to assemble cars and trucks in 1926. It was established as an independent company in 1935 under the leadership of Assar Gabrielsson and Gustaf Larson. Gabrielsson was working in France as the sales manager for a Swedish ballbearing company which was a major supplier to the French automotive industry. In the early 1920s he saw a great deal of potential in the establishment of Swedish auto manufacturing and thus entered into discussions with Larson, who had worked for several years in the British auto industry and had intended to start such a company. Larsons technical ability and Gabrielssons economic and marketing skills complemented one another quite well.

At an early stage in the development of the company, Gabrielsson decided to concentrate on volume rather than immediate profit. He safeguarded engine deliveries by acquiring a majority interest in AB Pentaverken in 1930 and integrated it completely into Volvo five years later. Gabrielsson, not averse to taking risks, ordered 10,000 revolutionary crankshafts in 1933 for overhead-valve engines. The new shaft was forged in one piece, in direct contrast to the multiple-forging shafts used until that time by automakers around the world. In 1925 Volvo was entered on the Stockholm Stock Exchange. Weve now become the property of all the Swedish people, declared Gabrielsson.

In 1941, a majority interest was acquired in a Swedish precision engineering company, Svenska Flygmotor AB, and the following year Swedens leading gearbox manufacturer was also purchased. Gabrielssons bold ambitions could not be dampened even by World War II. While Europe was in turmoil, he authorized the development of the innovative Volvo PV144 auto and instigated the development of two versions of diesel engines, one featuring pre-ignition chamber fuel injection for a more solvent operation and the other featuring direct fuel injection for greater fuel economy. In 1942, the company produced its first bogie axle, thus increasing the load capacity of its trucks; a year later, Volvo manufactured its first tractor.

Gabrielsson and Larson jointly controlled all aspects of the companys two main operational areas. By 1947, twenty years after its founding, Volvo was one of the largest companies in Sweden. Between 1945 and 1946 sales of Volvo trucks doubled while sales of buses increased sixfold. By 1949 Volvo had produced more than 100,000 vehicles, one-fifth of them for export. During this same period Volvos 10,000th tractor rolled off the production line.

Volvo began the 1950s with the acquisition of Bolinder-Munktell, a Swedish manufacturer of farm machinery with its own line of diesel engines. This increased Volvos capacity to produce components for the expanding automotive market, while also making it possible to concentrate Volvos tractor assembly operation in Bolinder-Munktells plants. Now known as Volvo BM, the company took over production of tractors in 1951 and soon afterwards one out of every five tractors sold in Sweden was being made by Volvo. Passenger car volume also surpassed that of trucks and buses, partly due to heavy demand for the PV444 model. In 1951 about 25,000 PV444s were produced; five years later the figure was 100,000. The creativity of Volvo designers was underscored in 1954 when the company introduced the first test model of the Volvo Sport. The sports car, a convertible, featured a unique plastic body and puncture-proof tires.

Assar Gabrielsson retired in 1956. He was succeeded, in the midst of the Suez Crisis, by Gunnar Engellau, who had been directing Volvo Flygmotor. The closing of the Suez canal at that time disrupted the flow of oil to many countries. In Sweden alone sales of Volvo cars were reduced by one-third, and Gunnar Engellau was obliged to implement a four day work week and other cost-cutting measures. Those months were some of the most dramatic I experienced at Volvo, Engellau noted later. But my gamble on the date when the Suez crisis would be settled was successful. During the spring of 1957 Volvo was able to meet a sudden surge in demand with full-capacity resources.

In the mid-1950s exports set one record after another, increasing an impressive 82% between 1955 and 1956. In 1954 Volvo was the first manufacturer to introduce turbo-charged diesel engines in trucks and buses. The power of Volvos largest truck, the Titan, was increased 25% while the weight of the engine increased a mere 3%. Truck production rose steadily, reaching 1,400 units in 1956. The following year, the first Volvo Amazon appeared on the road, and the company exported some 5,050 PV444s and Duets. Engellau himself directed international marketing strategy.

1958 was another eventful year for Volvo: the PV544 was introduced; the 100,000th Volvo automobile was exported; and the first Volvo truck was sold in the United States. A new foundry opened in Skovde during 1951 and two years later a large assembly plant was constructed in Góteborg. Up to 15,000 buses and trucks could be produced annually on the two assembly lines, and by 1959 more than 89,000 commercial vehicles had been produced at the Góteborg plant. Almost 50% of production was exported. Volvo announced preliminary plans to build a new automobile plant in Torslanda, a suburb of Góteborg. In January 1959 the company earned accolades for its introduction of the revolutionary Aquamatic drive for boatsthe worlds first commercially successful solution to the problem of an inboard engine with an outboard drive.

Volvo continued its successes in the 1960s, and there were numerous major developments, including the establishment of Forsakrings AB Volvia, an insurance company; the 50,000th automobile in the PV444 and PV544 series was shipped to the U.S.; the P-1800 sports car model was introduced; a new tractor plant was built in central Sweden; Volvo developed its most powerful truck, the Volvo L495 Titan; the engine factory at Skovde was rebuilt to handle larger capacity production; and a plant was opened in Malaysia.

The Volvo Trucks division also introduced a revolutionary new model, the L4571 Raske-Tiptop, a forward control truck with a tilt cab. In Nova Scotia, Canada, Volvo built its first assembly plant for automobiles outside Sweden. Volvo became the first automotive manufacturer to introduce argon-shielded short arc welding. By the mid-1960s Volvo had nearly 25,000 employees and its products were assembled in eight foreign countries.

Sweden decided against membership of the European Economic Community in the 1960s, but Volvo nevertheless established operations in Ghent, Belgium, where a passenger car plant with a capacity of 14,000 units per year was inaugurated in 1965. The plant was Volvos largest foreign investment and enabled the company to avoid EEC tariffs on cars imported from outside the Common Market. Volvos exports increased more than eightfold between 1954 and 1964.

In 1966 Volvo introduced its 144 model which won acclaim as the Car of the Year. In the same year, the company commenced truck production in Peru, and construction began on a new auto assembly plant in Halifax, Canada. In the United States Volvo sales increased rapidly, and facilities in Ghent were expanded to handle the growing demand.

Volvo turned 1969 into its best year despite some labor problems in Sweden. Sales rose 14% and paved the way for an investment program projected for the 1970s. The planned capital expenditure program included such projects as: assembly plants for passenger cars and trucks in Belgium; civilian projects in Volvo Flygmotor; and investment in sales companies in Germany and France. Increased sums were also allocated for product development.

During the 1960s Volvo had concentrated largely on investments to increase production. The growth of the automotive market and the development of production technology had made it profitable to manufacture large quantities of each auto series. Since Volvos line of automobiles was limited, however, it was obvious that the company could achieve only a relatively small share of the markets. Yet Volvos share of the Swedish market, and of the Scandinavian market in general, was so large that there was little room for expansion; continued growth could only be achieved by an even more vigorous export program in the 1970s.

But at the same time the company felt that in the long-term it must reduce its dependence on cars. The Volvo Truck Corporation had been plagued by serious problems relating to quality control and profitability, and during the latter half of the 1960s the company had been considering terminating the operation. Instead, management decided to take the opposite course and expand the truck business.

There was no assurance, in the mid-1970s, that Volvo would be able to survive as an independent auto manufacturer. The crucial problem was how to solve the high costs of product development. Volvos profits, which decreased in 1976 and 1977, were clearly inadequate to finance a comprehensive product updating program. The recent past pointed towards well established firms having to merge or undergo a restructuring program in order to survive. In Volvos case, the natural course was to explore the potential effects of a merger with Saab-Scania, Swedens other major car manufacturer. In May 1977 the two Swedish car makers announced that they planned to merge. After some weeks, however, opposition to the merger began to develop and by August of that year the plans had been abandoned. The same month, the company initiated discussions with Norways prime minister, Oddvar Nordli. Volvo management wanted to link its future industrial development with the oil industry and it was particularly interested in Norways offshore oil supplies. Ultimately, however, it was not possible to obtain the support of shareholders for the far-reaching proposals.

While Volvo was engaged in these negotiations, a substantially larger transaction, the acquisition of the Beijerinvest Group, was taking shape. Volvo was particularly attracted by Beijerinvests oil trading firm, the Scandinavian Trading Company (STC). The Beijerinvest Group also operated a profitable food processing business, several engineering concerns, and many smaller companies. The acquisition took place and profits for Volvo in 1978 were twice as large as in 1977.

Meanwhile, Volvo sold Renault a 9.9% interest in its car division, which, in combination with the proceeds of a new share issue, assured the company of funds it needed for continued growth. At this time, the sale of Volvo cars became increasingly profitable and the price of Volvo shares began to rise. The new issue of shares in 1979 was followed by second and third issues in 1981 and 1982. The latter was the largest in the history of Swedish industry.

The present chief executive officer of the company is Pehr G. Gyllenhammar. He has seen Volvo become Swedens largest industrial company and expects his companys 1987 sales to exceed $10 billion12% of Swedens gross domestic product.

Under Gyllenhammars leadership the company has diversified in order to reduce its sensitivity to fluctuations in the world economy. During 1986 Volvo acquired shares representing slightly more than 25% of each of two pharmaceutical companies, Pharmacia and Sonesson, and its acquisitions within the food industry continued to increase. At the same time, acquisitions are becoming more difficult for Gyllenhammar. The political context within which his company operates is complex. Swedens socialist government prohibits acquisitions abroad and many industry analysts believe the government will not look favorably on the companys anticipated growth within Sweden itself.

Principal Subsidiaries

Volvo Car Corp.; Volvo Truck Corp.; Volvo Components Corp.; Centro-Morgards-hammar AB; Volvo Bus Corp.; AB Volvo Pentaverken; Volvo Flygmotor AB; Kockums Jernverksaktiebolag AB; Volvobil Svenska Bil AB; STC Scandinavian Trading Company AB; Provender Food AB; Volvo Energy Corp.; Volvo Transport AB; Volvo Data AB; Forsakrings AB Volvia; Fastighets AB Volvo-City; Volvo International Development AB; Volvo Aktiesparfondforvaltning AB; Wilh Sonesson AB (30%); AB Custos (16%); AB Gambrinus (25%); Pharmacia AB (27%); AB Catena (48%). The company also has subsidiaries in the following countries: Argentina, Australia, Belgium, Brazil, Denmark, Finland, France, Hong Kong, Iran, Mexico, The Netherlands, Norway, Peru, Singapore, Switzerland, United Kingdom; United States, and West Germany.

Further Reading

How Volvo Adapts Work to People by Pehr G. Gyllenhammar in Harvard Business Review 55 (Cambridge, Massachusetts), Summer 1977; Job Redesign and Management Control: Studies in British Leyland and Volvo by F.H.M. Blackler, Farnborough, Hampshire, Saxon House, 1978; Volvo: The Cars-from the 20s to the 80s by Bjórn-Eric Lindh, London, Osprey, 1984.