FORM 20-F
( ] REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR (g) OF THE SECURITIES EXCHANGE ACT OF 1934
OR
[x] ANNUAL REPORT PURSUANT TO SECTION 13 OR lS(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the ftscal year ended December 31,~
OR
( ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from-------- to --- Commission file number 0-12828
Aktiebolaget Volvo
(Exact name of Registrant as specified in its charter)
The Kingdom of Sweden
(Jurisdiction of tncorporation or organization) S-405 08, Göteborg, Sweden
(Address of principal executive offices)
seeurities registeredor to be registered pursuant to se~tion 12(b) of the Act.
Non e
seeurities registeredor to be registered pursuant to Section 1Z(g) of the Act.
Non-Restricted B Shares (Title of Class)
seeurities for which there is a reporting obligation pursuant to Section 15(d) of the Act.
Non e (Tit1e of Class)
Indicate the number of outstanding shares of each of the issuer•s classes of capital or common stock as of the close of the period covered by the annual report.
Non-Restricted A Shares Restricted A Shares Non-Restricted B Shares Restricted B Shares
4,344,150 20,938,566 23,794,908 28,527,385
Indicate by check mark whether the Registrant (1) has filed all reports requtred to be filed by Section 13 or 15(d) of the seeurities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports) and (Z) has been subject to such filing requirements for the Rast 90 days.
'"'\_.
Yes _ __.x.___ No ______ _
lndicate by check mark which f1nanc1al statement item the Registrant has. elected to follow.
Item 17 ______ _ Item 18 ---~x _ _
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Item l .
Item 2. Item 3.
Item 4.
Item 5 . Item 6 .
Item 7.
Item 8.
Description of Business . ... .. ... . . .. .... . Background and Summary . .... . . ... . .. .. ... . . General .. . . .. .. .. . . ... . Summary of Group Business .. .. . . . .. .. . . Recent Developments ... . . . ... . ... . . Planned Cooperation with Renault . .... .. . Sale of Pharmacia Holding and
l l l 3 6 6
Provendor AB . . . . . . . . . . . . . . . . 10
Negotiations Regarding Volvo ear BV .. . .. 11
Description of Group Businesses .... . .. .. . --. 11
Transport Equipment . . . .. ... . . . . .. .. . 11
Cars . . . . . . . . . . . . . . . . . . . . . . . . . . .. 11
Trucks ... . . . . . . . . . . .. . ... , . . . . . . . . 24 Buses.... . . . . . . ... . . . . . . . ... .. . .. ... . 31
Marine and IndustrialEngines ... . 36
Aerospace . . . . . . . . . . . . . . . .. 37 Suppli ers . . . . . . . . . 41 Research and Development .... . ... .... 41
Environmental and Other Regu1atory Ma t t e r s . . . . . . .. . . • . . . . . . . • . . . a • • 4 2 Patents, Trademarks and Licenses . . . 42
Food . . . . . . . . . . . . . . . . . . . . . .... . . . 42 Trading . . . . . . . . . . . .. .. . . . . . . . . . , . . . . . . . . 46 Financial Activities . . .. . . . . . .. . ... 46
Other Operations.. .... . .. ... . .. . ... .. ... 51
Employees and Labor Relations . . .... ... 52
Description of Property . . . . .. . .. .. . . .... 55
Legal Proceedings . . . ... ... . ... .. . .. .. 56
Control of Registrant ... .. . . ... . .. . ... 56
Nature of Trading Market . . . . . . . . . 57
Exchange Controls and Other Limitations Affecting Security Holders . .. .. .. .. ... ... . . . 61
Taxation . . . . . . ... .. . . . .. .. .... .. . . .. ... . ... 62
Selected Financial Data . ... ... ... . ... 67
Dividends . . . . .. . . .. . . . . . . . . . . . . . . . . , . . . . 70
Exchange Rates . . . . . . . . . . 70
Rates of Inflation .... ... . .. . .. . ... . . ... 72
(i}
Gene r a l . . . . . . .. , . . . ~ . . . . Resu1ts of Operations .... . . ... . 1989 Compared with 1988 .. ... .. ... ... . 1988 Compared with 1987 ... . . . . Geographical Areas ... . . . ... . u.s. GAAP Information .... .... ... .... . Liquidity and Capita! Resources ... .... . Capital Expenditures for Property, Plant
and Equipment . . . ... . First Quarter 1990 Capsule Results
73 76 76
81
86
88 90
93
(Unaudi ted) . . . . . . . . . . . . 94 Item lO. Directors and Officers of Registrant .... .... 96 General . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 96 Board of Directors . . . ... ... . 96
Volvo Group Executive Committee . .. .. . . .... 99 Volvo Group Management Committee.. .. .. .... 100 Item 11. Campensatian of Directors and Officers 101 Item 12. Options to Purchase seeurities from
Regiistrant or Subsidiaries . . . . . . 101 Item 13. Interest of Management in Certain
Transactions . .. . . . . . .. . .. , . . . .. . . . .. .. . . . , 101 PART II
NOT APPLICABLE PART III
Item 15. Defau1ts upon Senior seeurities 1 • • • • • • • • • • • • 102 Item 16. Changes in seeurities and Changes
in Security for Registered seeurities 102 PART IV
Item 17. Financial statements '
... ... . ... ... .
F-lItem 18. Financial statements F-l
Item 19. Financial statements and Exhibits . ... .. . . II-l
(ii)
the convenience of the reader, this Annual Report presents translatlons inte dollars of certain krona amounts. Uniess otherwise stated, such translations have been made at the neon buying rate in New York City for cable transfers in non-Swedish currencies as certified for customs purposes by the Federal Reserve Bank of New York (the "Neon Buying Rate") on December 29, 1989, which was 6.2065 kronor per dollar
(16.1121 U.S. cents per krona). The Neon Buying Rate on December 29, 1989 differs from certain of the actual rates used in the preparation of the Consolidated Financial
statements of Volvo, which are expressed in kronor, and therefore dollar amounts appearing herein may differ significantly from actual dollar amounts which were translated into kronor in the preparation of such Consolidated Financial statements in accordance with accounting principles generally accepted in Sweden. See
"Selected Financial Data- Exchange Rates". No
representation is made that krona amounts have been, could have been or could be converted into dollars at the Neon Buying Rate on December 29, 1989 or on any other date as of which a convenience translation based on the Noori Buying Rate
is provided herein.
On
June 25, 1990, the Neon Buying Rate was 6.0730 kronor per dollar (16.4663 U.S. cents per krona) .As used herein, "Volvo", the "Company" or the
"Group" refers to Aktiebolaget Volvo and its consolidated subsidiaries and "AB Volvo" refers to Aktiebolaget Volvo, unless the context indicates otherwise.
Volvo owns or otherwise has rights to a substantial number of trademarks that it uses in conjunction with its business, including, but not limited to, the following trademarks mentioned in this Annua1 Report:
Volvo™, WHITEGMC™, White™, Leyland™, Duoprop™ and Aquamatic™.
(iii)
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Item 1. Description of Business
Background and Sumroary General
Volvo, founded in 1915, has grown to be the largest industrial group, measured by sales, in the Nordie area
(Sweden, Norway, Denmark, Finland and Iceland). It commenced assembling cars in 1926 and trucks in 1928.
Today, Volvo products are sold throughout the world. Approximately 80 percent of Volvo Group sales of
industrial products are to customers outside Sweden.
Volvo's largest operating sectors are Cars and
Trucks. The Group also has operations in such other seeters of the transport equipment industry as Buses, Marine and
industrialengines and A~rospace (aircraft andspace engines).
While production of components and finished products is firmly rooted in Sweden, there has been a considerable broadening and internationalization of Volvo•s operations during the past decade. The Group now has a self-sufficient truck operation in the United states and well-established production of cars, trucks and buses within the European
Eecnornie Community (the "EEC"). A large number of trucks and buses is also produced in Brazil.
Volvo's strategy in each of its operating sectors is to concentrate on distinct products and market segments.
Substantial investments are continuously made in product
development, improved production systems, marketing, customer service and logistics.
Volvo is continuing to internationalize its
operations. Western Europe and North America are the Group' s most important market areas.
The ear and truck industry has for a number of years been characterized by overcapacity and severe competition.
More stringent environmental requirements, a faster pace of technical development and rising capita! expenditures have resulted in increased costs. Ever larger volumes of business are required to bear these costs in the future. The industry
Corporation formed jointly owned campanies in the United
states and Canada combining the two cornpanies' North American heavy truck operations. Volvo trucks are also assembled in Sweden, Belgium, Great Britain, Portugal, Brazil, Peru and Australia.
Transport Eguipment - Buses. Through the Group
subsidiary Volvo Bus Corporation, Volvo is the seeond lergest manufacturer of heavy buses and bus chassis within the
Organization for Eecnornie Cooperation and Development
countries (the "OECD area"). The Company designs, develops, manufactures, assernbles and markets bus chassis, buses and components under the Volvo and Leyland Bus trademarks. The main productian fa~ilities are situated in Sweden, Great Britain and Brazil.
Transport Eguipment - Marine and Industrial Engines. AB Volvo Penta ("Volvo Penta"), also a Group subsidiary, designs, rnanufactures, markets and services engines, transmissions, accessories and equipment for the marine and industrial engine markets. Volvo Penta engines are sold in most markets throughout the world.
Transport Eguipment - Aerospace. Through the Group subsidiary Volvo Flygmotor AB ("Volvo Flygmotor"), Volvo is engaged in the development and productian of jet engines and components for military and commercial aircraft and for space projects. Volvo Flygmotor also has a growing number of
commercial non-aviatian products, including specialized hydraulic machinery, gas turbines, heaters for boats and vehicles and transmission systems.
fQQd. The food activities of Volvo were, prior to the end of June 1990, conducted through Provendar AB
("Provendor"), a former Group subsidiary. Provendar is a holding company, and its activities are conducted through subsidiaries that are primarily active in Europe. The Provendar group manufactures brand name consumer products, including processed meat and fish products, potato products, sugar, mineral water, preserved and deep-frozen vegetables and convenience foods. The group also includes a company active in plant breeding and the productian and sale of farm and garden seeds.
In June 1990, Volvo exchanged all Provendar shares for sheres in Procordia. Pro:vendor will form a part of the expanded food division of Procordia. See "Description of Business - Recent Developments - Sale of Pharmacia Holding and Provendar AB".
Trading. Prior to their divestiture by Volvo in April 1989, STC Scandinavian Trading Company AB ("STC") and
its subsidiaries were engaged in trading activities,
principally in oil and fruit. Trading in fruit was conducted through J.S. Saba Continent BV ("Saba") until Volvo in June 1989 sold its 50.2 percent interest in this company.
Financial Activities. Management and control of the Group's financial activities is exercised by the Corporate Finance Department at Volvo's Head Office. This unit is also responsible for the Group's capita! structure and manages the holdings of listed shares.
. In addition, financial activities are also conducted in Voivo's product and marketing companies.
Volvo's holdings of listed shares as of the end of June 1990 included:
(l) a 39 percent interest in the voting power (43 percent of the equity) in Procordiai the parent company of the newly enlarged Proeardia group with operations in pharmaceuticals/biotechnology, food and services, as a result of the combination of the
operations of Provendor, Pharmacia AB ("Pharmacia") and Procordia. See "Description of Business - Recent
Developments - Sale of Pharmacia Holding and Provendar AB";
(2) a 27 percent interest in the voting power (24 percent of the equity) in AB Custos ("Custos"), an investment company with substantial interests in
publicly-traded Swedish industrial companies, real estate campanies and banks, which also owns seven percent of the voting power (three percent of the equity) of AB Volvo;
(3) a 47 percent interest in Investment AB Cardo, a mixed investment company with operations in the
industrial equipment and medical equipment areas and a diversified investment portfolio, including five percent of the voting power (two percent of the equity) of AB Volvo;
(4) a 49 percent interest in AB Catena ("Catena"), the operations of which include a dealer network that retails Volvo's transport equipment and other products in the Nordie area and within the European Eecnornie
Community;
(5) a 36 percent interest in Protorp Förvaltnings AB ("Protorp"), an investment company with substantial interests in publicly-traded Swedish construction and building materials companies, which also owns four
percent of the voting power (two percent of the equity) of AB Volvo; and
(6) a 20 percent interest in Saga Petroleum a.s . ("Saga"), a publicly traded Norwegian company. Saga participates in concessions for oil and gas in the
Norwegian seetar of the North sea and operates certain of these concessions.
Volvo's other major investments include;
(l) a 26 percent interest in Park Ridge Corporation (''Park Ridge"), the parent company of Hertz Corporation, the world's largest ear rental company;
(2) a 20 percent interest in I
.
.J. Holdings Corporation ("I.J. Holdings"), the parent company of Minstar Inc. ("Minstar") and Genmar Industries, Inc.("Genmar"), North America's largest independent group of boat builders;
(3) a 50 percent interest in VME Group NV ("VME"}, a holding company formed by Volvo and Clark Equipment Company ("Clark"), which includes the former construction equipment businesses of Volvo and Clark; and
(4) a 30 percent interest in Volvo ear BV, a Dutch company, 70 percent of which is owned by the Dutch
state. Volvo ear BV produces Volvo cars in the
medium-sized 300 and 400 series. see "Description of Group Business - Recent Developments - Negotiations Regarding Volvo ear BV" for a discussion of the
negotiations with the Dutch government regarding Volvo ear
av.
Other Operations. The Group also conducts activities in other areas, including ear insurance and reinsurance operations related to Group risks.
Recent Developments
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Planneg cooperation with Renault
General. At the end of February 1990, it was
announced that the Volvo Group and Regie Nationale des Usines Renault ("Renaul~~), the parent organizatiort of the French
automat i ve__ manu f acturing group, in t end to en ter- in to a comprehensfve cooperation agreement. The objective of the planned cooperation is to strengthen the competitiveness of each group through technical and industrial cooperation in ear, truck and bus operations. _The planned cooperation is intended to enable Volvo and Renault to distribute the costs of product development, as well as capita! expenditures, over a larger number of produced units. Volvo's presence within the EEC will be strengthened and conditions for participation in the ongoing restructuring of the automotive industry will be improved.
Productian and marketing will not be directly
affected. Each company will retain its identity, as well as its trademarks and distribution channels. The two groups will cooperate in research and product development, primarily in the areas of advanced engine and component ,technology, and in procurement of components. , Industri al resources will also be utilized more efficiently through coordinated investment plans together with basic long-term research and technical development airned at sharing costs.
Restructurings. In order to create conditions for Renault's participation in the ownership of the ear, truck and bus operating sectors, the Volvo subsidiaries invalved in the planned cooperatiori - Volvo ear Corporation, Volvo Truck Corporation and Volvo Bus Corporation - will be restructured in such a way that each company, to the extent possible
without loss of cost-effectiveness, will be identical with its operating sector. Each subsidiary will become
responsible for the development of its business and product concepts, in addition to its design, production, development and marketing activities and will be responsible for the operational side of the business and for financial
consolidation. In addition, Volvo Truck Corporation and Volvo Bus Corporation will be earobined in a common corporate grouping.
Renault's ear operations are part of the Group's parent company, while its entire truck and bus operations are held in a wholly owned subsidiary, Renault Vehicules
Industriels SA ("RVI") and its subsidiaries. Renault is currently wholly owned by the French government and is
expected to be converted to a capita! stock company (societe anonyme) before the end of 1990 to facilitate Volvo's
acquisition of an equity interest in the parent organization of the Renault group ("Renault SA") following such conversion.
Ownership Interests. Following completion of the restructurings described above, the cooperation is planned to be implemented as follows:
AB Volvo will acquire, through a special issue of shares by Renault SA, 20 percent of the share capital and voting rights in Renault SA, with an option to raise this interest to 25 percent, within three years of the signing of the definitive
agreements, through an additional special issue of shares;
Renault SA will acquire 25 percent of the shate capital and voting rights in the parent company of Volvo•s restructured ear operations;
AB Volvo will acquire 45 percent of the share capital and voting rights in RVI; and
Renault SA will acquire 45 percent of the share capita! and voting rights in the parent company of Volvo's restructured truck and bus operations. Volvo's acquisition of an interest in Renault SA will be effected through a special issue of new shares and not through acquisition of shares from the French
government. The amount paid by Volvo will thus be credited to Renault SA's operations.
In addition, Renault plans to acquire AB Volvo's shares in the open market in an amount not exceeding ten percent of the voting rights in AB Volvo.
Following the irnplementation of the planned
cooperation with the Renault group, assets of AB Volvo will consist largely of shareholdings in operating campanies that are not wholly owned. This means that AB Volvo will be
dependent on dividend incorne to maintain a strong financial position and pay dividends to its shareholders that reflect the trend of earnings within the Volvo Group.
Valuation. In 1989, the Renault group had total sales of 174.5 billion French francs and, at December 31, 1989, total assets of 122.1 billion French francs. RVI had total sales of 34.3 billion French francs and total assets of 21.8 billion French francs.
At the time of the announcement in February 1990, Volvo and Renault valued Volvo•s proposed 20.percent interest
in Renault (excluding the five percent option) at SEK 13.8 billion. At such time, the estimated value of the 25 percent interest in Volvo's ear operations was SEK 4 billion and the estimated values of the 45 percent interests in Vo1vo's and Renault's truck and bus operations SEK 7.2 billion and SEK
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5.3 billion, respectively. Consequently, Volvo was expected to pay Renault approximately SEK 7.9 billion in consideration of the amount by -which the estimated value of its proposed interests in Renault SA and RVI will exceed the value of Renault SA's proposed interests in Volvo's operations. All of the above amounts were preliminary and remain subject to further negotiation and adjustment, including to reflect any liability incurred by Renault in connectionwith EEC's recent investigation of the assumption by the French government of certain of Renault's debts. Negotiations between Volvo and Renault are currently under way with a view to reaching a final agreement.
Approvals and Conditions. At the Annual General Meeting of AB Volvo on April 25, 1990, the Board of Directors was authorized to sell 25 percent of Volvo's ear operations
and 45 percent of Volvo's truck and bus operations to
Renault SA within the framework of the planned cooperation with Renault SA.
To facilitate Renault's planned acquisition of AB Volvo's shares in the open market, Volvo's Annual General Meeting also approved a change in AB Volvo's Articles of
Association whereby the number of Volvo's unrestricted shares may amount to a maximum of 30 percent of the total number of voting rights in the Company, campared to a maximum of 24 percent currently in effect. Approval of the Swedish
government is required before this change becomes effective.
Implementation of the planned cooperation remains subject to various conditions including the negotiation and execution of definitive agreements and certain approvals of both the Swedish and French governments, the French
Parlisment and certain national and transnational authorities cancerned with competitive matters some of which have already been received.
After the implementation of the planned cooperation, both Volvo and/or Renault SA and the operating subsidiaries invalved in the planned cooperation are expected to be
subject to certain restrictions in connection with certain increases of share capital and dispasals of shares, including the right of first refusal and right of terroination under certain circumstances.
Organization. The cooperation between Volvo and the Renault group is expected to take place on four levels:
Boards of Directors, committees, work teams at the Group and operational leve! and special groups assigned to specific projects.
Volvo and Renault are expected to have
representation on the Boards of Directors of each of the campanies invalved in the planned cooperation. Accordingly, Volvo will appoint two members to the Board of Directors of Renault SA and of RVI. Renault SA will appoint two members to the Board of Directors of the parent company of Volvo's restructured truck and bus operations and the parent company of Volvo's restructured ear operations. At Volvo's Annual General Meeting on April 25, 1990, Raymond H. Levy, Chairman of the Board and Chief Executive Officer of the Renault
group, was elected to serve on·the Board of Directors of AB Volvo.
In addition, three committees are expected to be formed to direct and manage the cooperation. The Joint General Policy Committee will establish objectives and determine strategies and guide the cooperation, including such matters as planning, joint investments, the companies' financial strategies, dividend policy and major agreements invalving cooperation with other automotive manufacturers.
A Truck and Bus Joint Technical Coordination Committee and Car Joint Technical Coordination Committee will also be established to consider and decide all major matters of common interest in the relevant operating areas, including product planning, common components, productian and
purchasing.
Sale of Pharmacia Holding and Provender AB
In December 1989, Volvo, the Swedish government and Proeardia AB agreed to combine Procordia's, Pharmacia's and Provendor's food and pharmaceutical operations.
This combination was effected during the spring of
f
1990 through offers by Procordia and Volvo to acquire all outstanding Pharmacia shares and convertible debentures. The offers consisted of offers by Proeardia to acquire all
Pharmacia shares and convertible debentures for shares in Proeardia and cash and partial offers by Volvo to purchase Pharmacia shares and convertible debentures for cash. Shares and convertible debentures purchased pursuant to the Volvo offers as well as the Pharmacia shares previously held by Volvo (representing 49.9 percent of the voting power and 36.8 percent of the equity in Pharmacia) were tendered by Volvo into the Proeardia offers. Following the consummation of t he tender offers, Procordia's ownership interest now exceeds 90 percent of voting rights and equity in Pharmacia and
Proeardia has comrnenced proceedings for a compulsory acquisition of the remaining Pharmacia securities.
Concurrently with the consummation of the tender offers, Volvo exchanged the shares of Provender for shares of Procordia. It is anticipated that the Swedish government and Volvo will each own approximately 43% of Procordia's voting power after conversions of certain Proeardia shares held by Volvo and the Swedish government. The remaining shares in Proeardia will be publicly held. The pro forma sales of the newly enlarged Proeardia group would have amounted to
approximately SEK 37 billion in 1989 and the pro forma total assets to approximately SEK 35 billion at December 31, 1989.
Through its substantial ownership interest in
Procordia, Volvo has confirmed its continued involvement in the food and pharmaceutical sectors. Under its agreement with the Swedish government, Volvo has the right to appoint
four members of the Board of Directors of Procordia. At Procordia's Extraordinary General Meeting on June 14, 1990, Volvo's appointees were elected to serve as members of the Board of Directors of Procordia, including Pehr G
Gyllenhammar as ehairman of the Board.
The Swedish government granted Volvo tax exemption on the capita! gain arising from Volvo's sale of Provender shares to Procordia.
Negotiations Regarding Volvo ear BV
In June 1990, Volvo publicly announced its interest in increasing its ownership in Volvo ear BV. Negotiations with the Dutch government regarding an acquisition are under way.
Description of Group Businesses Transport Eguipment
Transport equipment is the Group's dominant business area. Its operations are conducted by separate operating seeters for cars, trucks, buses, marine and industrial engines, and aerospace. • A significant strategy of the transport equipment businesses is the development, where possible, of component parts that may be used, or readily adapted for use, in other transport equipment products of the Group.
The Worldwide Automobile Industry. The worldwide automobile industry in which Volvo 's ear business competes is
characterized by a !arge number of producers, with no single one accounting for a major percentage of total sales, but with some producers accounting for !arge percentages of total sales in particular countries, especially their respective countries of origin. Moreover, a larger number of ear makes are today also being produced outside their country of origin.
The world automotive industry had another record in 1989. Manufacturing rose to a total of 35.5 million cars worldwide, compared with 34.2 million in 1988. In 1989,
industry sales again rose in Western Europe. ear production, rneasured in units, rose in Western Europe and Japan but
declined in the United States.
General. The Cars operating sector includes the activities of Volvo ear Corporation, the productian of ear components by its wholly owned subsidiary, Volvo ear
Components Corporation, marketing by Volvo's sales
subsidiaries, and the manufacture andsale of spare parts . The comprehensive capital expenditure program designed to achieve greater flexibility, efficiency and quality in the various productian units continued during 1989. Primarily as a result of stiftening international competition, higher
costs in Sweden as a result of low productivity,
substantially higher research and development costs, and lower effective rate for the dollar, the Cars operating
sector reported substantially lower operating income in 1989 despite higher total sales.
Development and manufacture of Volvo cars in the 200 and 700 series are included in this operating sector. Most of these cars are assembled in Sweden and Belgium, but
assembly also takes place i~ Canada, Thailand, Malaysia and
Indonesia. The Volvo 300 and 400 series are produced by ~: Volvo ear BV in the Netherlands. In 1989, as in earlier
years, the largest market areas for Volvo cars were North America, Western Europe and the Nordie area. During the year, 8J percent of Volvo cars, measured in terms of sales
revenue, were sold outside Sweden.
For a number of years, Volvo cars have been one of the leading European autornotive imports into the United States, measured by numbers of units sold.
Volvo's revenues in the cars sector are principally affected by unit sales volume and vehicle prices and also by currency fluctuations, product mix and sales of optional equipment. The profitability of Volvo•s automotive ·sales
depends on a great number of factors, including research and development costs and the ability to achieve cost and capital efficiencies in product manufacture.
A substantial portion of Volvo's ear sales and
component purchases are made outside of Sweden. Accordingly, Volvo's revenues and results are affected by changes in
currency exchange rates, which also affect the competitive position of the Company. see "Selected Financial Data -
Exchange Rates" and "Management's Discussion and Analysis of Results of Operations and Financial Condition - General - Impact of Currency Fluctuations". Competition from other manufacturers (both in Sweden and in other countries) in Volvo's market segments may also affect future earnings.
Further, Volvo is subject to the possibility that countries into which it sells may increase requirements that local products or services be used in the manufacture of vehicles sold in that country or may impose other protectionist
measures. Such requirements or other measures could affect Volvo's costs and profits. See "Descrfption ~f Business - Description of Group Businesses - Transport Equipment - Cars - Environmental and Other Regulatory Matters". ·
Volvo believes that its emphasis on the Volvo trademark, and the related reputation of its vehicles for quality, safety and reliability, and the Company's concern for its customers position it advantageously to continue to compete successfully in the worldwide automobile industry.
Products; Production. The Volvo ear range currently consists of four series: the Volvo 700 series, including the Volvo 740, 760 and 780 models; the Volvo 200 series, which
includes 10 different models of medium-size cars with 2.0- to 2.3-liter engines; the smaller-sized Volvo 340 with 1.4- and 1.7-liter engines; and the Volvo 400 series with a range of models from the medium-sized family ear Volvo 440 and the saloon version Volvo 460 to the sports coupe Volvo 480 . Volvo Car Corporation manufactures the 700 and 200 series, while the 300 and 400 series are manufactured by Volvo ear BV.
The Volvo 700 Series -- The Volvo 760 luxury models have a large selection of options available, including three engine alternatives -- the Volvo 760 GLE six-cylinder light alloy V6 gasoline engine, the Volvo 760 Turbo Diesel and the Volvo 760 Turbo four-cylinder gasoline turbo-charged engine with full electronics and intercooler.
The introduction of the Volvo 760 models in 1982 was followed during 1984 by the introductions of the Volvo 740 GLE, the Volvo 740 Turbo and the Volvo 740 GL. Early in 1985, the Volvo 760 and 740 station wagons were introduced.
In 1987, a technically and aesthetically upgraded 760 was introduced, incorporating a new individual rear
suspension, the Multi-Link, an advanced electronically controlied climate-system, a larger fuel-tank and a new interior.
During the spring of 1988, the 740 GLT, another high-performance version, was introduced. It features a 2.3-liter 16-valve engine with double overhead camshaft and counter rotating balance shaft.
In 1989, a new 2-liter engine with turbocharger and 16 valves was introduced for the 700 series. Rated at 147 kW
(200 hp), it is the most powerful Volvo engine produced to date, designed for such markets as Italy where special
restrietions are appl)ed to cars with an engine exceeding the 2-liter size.
Production of the Volvo 780, a two-door luxury touring ear, eommeneed in 1985. The Volvo 780 eombines the best of Volvo's traditions with the skills of one of the world's most distinguished ear designers, the Italian
Carrozzeria Bertone, and is produced in limited quantities. The Volvo 200 Series -- When the Volvo 240 was introduced in 1974, it was described by the press as the
first production safety vehiele. During the years, the Volvo 200 series has been updated and modified on several
occasions. The series includes sedans and station wagon
models, different equipment levels and an engine program with 2.0- or 2.3-liter carburetor or fuel injection versions as well as a six-cylinder diesel.
The Volvo 300 Series The Volvo 340 is a
medium-size, 1.4-liter engine ear introdueed in 1976. In • , 1979, a five-door version was added and, in 1980, a 2.0-liter ~ engine was released. The 340 models are equipped with a
manual transmission or a continuously variable transmission.
In 1982, the 360 mode! was introdueed, with the Volvo 360 GLT, equipped with a 2.0-liter fuel-injected engine, at the top of the _line ..
The Volvo 400 Series -- In 1985, Volvo ear BV launched the Volvo 480 ES, a sports model with advanced styling, driving charaeteristics and technical eoncept.
Sales of this model, equipped with a 1.7-liter fuel-injected engine, began during 1986. At present it is sold throughout Europe. A turbo version was ~dded to the line in late 1987 and a convertible version was introduced in March 1990.
In June 1988, Volvo ear BV launched the new Volvo 440, a medium-sized family ear, in three versions: GL, GLT
and Turbo with a 1.7-liter engine. The cars in the 400 series are distinguished by their front-wheel drive, transverse engine and new front suspension technology.
At the end of 1989, a GLE and turbo version of the Volvo 460 was offered on markets in Western Europe. This is a saloon version of the Volvo 440.
Substantial resources have been allocated for
product development in Volvo's ear business in recent years, and this trend continued in 1989. Research and development costs have increased significantly during the last decade and will continue to be high as product programs for the 1990s are implemented.
Construction of the new assembly plant in Uddevalla, Sweden, was started during the autumn of 1986. Productian started in the late summer of 1988 and, in 1989, 9,200 cars were produced. The plant is expected to have a single-shift capacity of 40,000 cars per year by the early 1990s.
Major capita! expenditure projects are also continuing in the Group's other factories. The assembly
plant in Kalmar has been enlarged to handle all assemblies of the Volvo 760. The assembly plant in Ghent, Belgium, is
being further expanded in order to raise its annual productian capacity. A new assembly plant in Halifax,
Canada, replaced existing facilities in the autumn of 1987. Significant expansions are also in progress at component productian facilities. The new gasoline engine plant in Skövde will be completed during 1990. A new finisbing plant is under way in the factory in Malaysia.
The substantial capital expenditure program within Volvo Cars is designed to create better working and externa!
environments, to irnprove productian efficiency, to increase productian by stages and to assure continued quality
improvement. Following completion of this program in the mid-1990s, Volvo is expected to have productian capacity for 350,000 cars a year (excluding Volvo ear BV) .
The rnodernization of the Terslanda factory in Göteborg continued in 1989. A new finisbing plant, which will further accelerate the reduction of emissions of
solvents, is being built. This facility, which is adapted to the use of new environmentally compatible materials and
processes, is expected to be completed during 1990. The cost is estimated at SEK 1.7 billion. See "Description of
Business - Description of Group Businesses - Transport Equipment - Cars - Environmental and Other Regulatory Matters".
The following table set s forth by series, for the years 1985 through 1989, the number of Volvo cars produced and the percent of total production represented by e a ch series:
.l2B2 .l.2S.U l2.6l l.2.6a ~
Units Units Units Units Units
Produced ~ Produced ~ Produced ~ Produced ~ Produced Volvo 700
Series 156,100 40 175,000 42 191,400 45 192' 100 48 196,100
Volvo ZOO
Series 132,000 33 120,800 29 107,600 25 93,500 23 84,700
Volvo 300
Series 1 109,000 27 115,600 28 110,000 26 84,100 21 53,200
Volvo 400
Series1 - 3.300 ...l 14.800 ~ 30.900 ~ 80.000
Total 327 l 100 ~ 414.7QQ .lQ2, 42J1~0Q l.2D. 40Q.60Q .l2.Q. 414.00Q
Produced by Volvo Car BV.
Between 1982 and 1987, productivity at Volvo ear
,Corporation's facilities increased approximately five percent
~per year. ear production capacity could not be fully 'utilized in l988 and 1989. In 1989~ the increase in
productivity,was weak in most of the Group's Swedish plants, primarily as 'a result of high employee turnover, continuing high absenteeism and slightly lower production. Product ivity measurement is based upon the relationship between the
monetary value equivalent of the volume of production in a year and the quantifiable resources used that year in
production. The measurement is then indexed against a base year.
Prior to May 1981, Volvo' held a majority of Volvo ear BV, and the Dutch State held the balance. In May 1981, the Dutch state increased its ownership to 70 percent and with Volvo undertock a joint support program for Volvo Car BV
.,
t··
4g
211
~
D
_19
.lJ!Q
for product development. Volvo Car Corporation participates in the development of, component part supply for, and
marketing of, the products of Volvo ear BV and provides other forms of cooperation and consultation. See "Description of Business - Recent Developments - Negotiations Regarding Volvo Car BV" for a discussion of the negotiations with the Dutch government regarding Volvo ear BV.
Markets. Sales and Competition. The following table shows the distribution of Group ear sales by geographic
market area and operating income for the years 1985 through 1989:
.l.2.a.5. 1986 .!W. .1.2ae. .!.9.a2
(In millions of SEK)
Sweden 4,895 4,741 6,434 7,610 7,305
Nordie area
(excluding Sweden) 3,023 3,564 3,193 2,515 2,699
Europe (excluding
Nord i c area) 8,295 10' 103 11,806 12,167 12. 186
North America 15,519 15,402 15,090 13,762 16,568
Other markets _L_ill ~ _LIDlQ ~ ~
Total Sales ~ ~ ~ ~ 42.944
Operating Income ~ ~
....u.u
..l..a..§.!U l ! 93_§_Volvo has a worldwide marketing strategy based upon its product attributes; the strategy also is intended to accommodate variations among different geographical markets. In Sweden, the Company's strategy is to maintain a stable market share within its market segment, the medium-size ear. In the rest of Western Europe and North America, Volvo has targeted the family and upscale seetars of the medium-size ear segment as areas in which it can compete effectively with
larger manufacturers.
In the last five years, the Company gradually increased its share of the medium-size ear market. Volvo believes that these increases were primarily attributable to increased customer acceptance of the principal values of the Volvo product and to a broadening of its product range -- as well as to greater ability to position Volvo cars to respond to the specific demands of different geographic markets.
Operating income of the Cars operating seetar has continued to decline over the previous five years. For a
discussion of the factors relating t·o"this decline, see
"Management•s Discussion and Analysis of Results of
Operations and Financial Conditian - Results of Operations - 1989 compared with 1988 - Cars".
Although Volvo cars have only a one percent market share worldwide, the Company estimates that its share of the
!arge family ear market segment, as defined by Volvo, is considerably higher in Western Europe and North America, approximately ten and three percent, respectively. In the United States, the largest market for Volvo cars, Volvo
believes that it has the highest market share, approximately 40 percent in 1989, of all imported station wagons in Volvo•s market segment.
In 1989, in geographic markets that accounted for
6. more than 90 percent of Volvo's sales, the Company's ~
principal competitors, in terms of number of units sold, were Mercedes-Benz, BMW, Audi, Ford and Opel. Virtually all of the Western European and Japanese ear makers are active with a large number of models in the segment of the ear market in which Volvo competes.
The market for upper-medium-size cars, which
includes the Volvo 300 and 400 Series, expanded during 1989 and accounted for 23 percent of the total market for cars in Western Europe. Volvo's share of the segment increased
slightly in 1989, to approximately four percent.
The following table sets out for the years 1985 through 1989 the number of new Volvo cars registered in Volvo's principal markets and Volvo's relative market share, based upon official registration statistics:
New Volvo Car Registrations and Volvo Harket Shares
lm .1.2.82 1987
.ma
1.262Number of Volvo Number of Volvo Numbe·r of Volvo Number of Volvo Number of Volvo New Volvo Car Mark et New Volvo Car Mark et New Volvo Car Mark et New Volvo Car Harket New Volvo Car Mark et Reaistrations SM!:L Registrations Share Registrations .s.hJ..!:L Registrations Share Registratjons Share
United States 102,300 0.9% 111,100 1. or. 105,100 1.0% 97,800 0.9% 101,900 1. or.
Great Britain 59,500 3.3 69,000 3.7 70,900 3.5 80,400 3.6 81.700 3.6
Sweden 71,200 27.1 64,600 23.9 72,500 22.9 74,600 21.6 66,600 21.7
The Netherlands 26,700 5.4 28,700 5.2 26,100 4.8 21,800 4.1 24,100 4.9
West Germany 14,200 0.6 17,300 0.6 17,300 0.6 17,500 0.6 18,000 0.6
France 18,200 1.0 19,300 l. O 18,800 0.9 17,300 0.7 16,600 0.7
Ita1y 17,600 1.0 16,700 0.9 16,300 0.8 14,800 0.7 15.100 0.6
Be1gium 8,400 2.4 10,000 2.5 9,200 2.3 9,000 2.0 9,800 2.2
Finland 7,300 5.3 7,400 5.2 8,100 5.4 8,000 4.6 7,500 4.2
Japan l ,500 0.0 2,200 o. 1 3,400 o. l 4,600 o. 1 7,100 0.2
Canada 8,100 0.7 7,500 0.7 7,400 0.7 6,200 0.6 7,000 0.7
Switzerland 5,200 2.0 5,600 1.9 5,300 1.8 5,500 1.7 5,500 1.8
Austda 3,400 1.4 3,600 1.4 3,000 1.2 2,900 1.1 3,600 1.3
Norway 12,400 7.8 13,800 8.2 9,200 8.0 5,000 7.4 3,500 6.4
Australia 5,500 1.1 3,700 0.9 3,400 0.9 3,900 1.0 3,500 0.8
Denmark 6,300 4.0 6,500 3.8 4,400 3.6 2,700 3.0 2,500 3.2
Total for 16
111ain markets 367,800 1.4 387,000 1.4 380,400 1.5 372,000 1.4 374,000 1.4
Volvo delivered 405,600 cars to customers in 1989 (400,900 in 1988), an increase of one percent. Deliveries of the 700 series amounted to 191,100 units (191,40~ in 1988) , while deliveries of the 200 series decreased to 87,300 units
{89,400 in 1988).
Volvo ear BV in the Netherlands delivered a larger number of cars in 1989, 127,200 {120,100 in 1988).
Deliveries of the 400 series, which totalled 69,100, more than doubled as a result of the'-1-htroduction of the Volvo 440, and Volvo 460. Sales of the 300 series decreased as planned. Volvo cars are sold in nearly 100 countries. The 16 largest markets accounted for more than 90 percent of the cars sold in 1989. The United states has been Volvo's
largest singlemarket since the mid 1970s.
In Western Europe outside the Nordie area, sales of Volvo cars in 1989 totaled 185,400 units, which was again higher than in the preceding yeqr. This region, of more than 20 countries, is Volvo's 1argest market area for cars.
From the very high 1evel recorded in 1988, sales of new cars in Sweden declined by about 11 percent in 1989. As in the preceding year, the Volvo 740 was the best-selling ear in the country and the 200-series ranked fourth. The 400 series moved up to fifth place. The number of Volvo cars registered decreased to 66,600 (74,600 in 1988), and Volvo's share of the total market, 21.7 percent, was unchanged.
The downturn in the Danish and Norwegian ear markets continued. Registrations decreased 12 percent in Denmark and 19 percent in Norway. Volvo's share of the market in Denmark
rose, but was lower in Norway. In Finland, as well, fewer ~
Volvo cars were registered and the Company's share of the ~ market decreased.
Volvo was the only European ear manufacturer to record an increase in sales in the declining North American market. A total of 101,900 Volvo cars (97,800 in 1988), including 30,600 station wagons, was sold in the United States. Sales in Canada increased to 7,000 (6,200 in 1988) . As the resuft of a well-developed dealer network and a
product program adapted to the market, Volvo was able to maintain its position as the largest European exporter of cars to the United States.
Imports of European cars continued to rise in Japan. The number of new registrations of Volvo cars
increased slightly more than 50 percent, to 7,100 units. In
addition to dealers who handie Volvos exclusively, the cars are being marketed through 18 Subaru/Volvo dealers .
Volvo also gained in other markets in East Asia. A total of 8,500 Volvo cars (7,400 in 1988) were sold in Hong Kong, Taiwan, Thailand, Malaysia, south Korea and Singapore, among other countries.
A total of 3,500 Volvo cars (3,900 in 1988) were registered in Australia. Reduced demand, due in part to sharply higher interest rates, was one reason for the downturn.
Environmenta1 and Other Regulatory Matters. Volvo's manufacturing facilities, in common with those of the
automobile industry generally, are subject to numerous laws and regulations designed to proteet the environment,
particularly with respect to plant waste and emissions. VehiQ4es manufactured by Volvo also must comply with extensive national, federal, state and local laws and
regulations, including those which regulate vehicle safety. emissions and noise.
Volvo has generally been able to comply with regulatory requirements affecting its facilities and its
products in the relevant markets. It is continuously engaged in monitoring such reguirements and adjusting affected
operations so as to achieve compliance. Volvo's management believes that such regulatory reguirements have not had a material adverse effect on Volvo's operations. However, compliance with environmental regulations and standards has increased costs and will continue to do so in the future.
start-up and operation of the planned new finishing plant at the Terslanda factory has been subjeet to
governmental approval of Volvo's permit application with respeet to permissible emissions. The new plant will enable Volvo to ehange over eompletely to the use of waterborn
paints for both metallic and solid eolers, thereby redueing hydraearbon emissions during the application of paint. The Company also has introdueed a new solvent-free material for ear undereoatings effeetive January l, 1990. Volvo is the first ear ma.nufaeturer in the world to use this material for the greater part of a cars' undercoating. By these measures the emission of solvents should be reduced by more than half from 3,000 tons in 1988 to a maximum of 1,100 tons in 1992.
In its permit applieations, the Company has also expressed the firm ambition of further reduetion to 700 tons by 1996 and to 450 tons by 1998. This was eonfirmed by the Swedish government early in 1990. Investment in the new finishing plant is estimated at SEK 1.7 billion.
The program to eliroinate the use of freons was
aeeelerated to atternpt to aehieve this objeetive rnore rapidly than required by Swedish law, currently the strietest in the world.
During the auturnn of 1987, Volvo produeed its millionth ear equipped with a eatalytie converter.
Development work on the system began in 1970, and in 1976 Volvo became the first rnanufacturer in the world to deliver series-produeed ears equipped with a three-way eatalytic eonverter in the United States.
Following agreements between public authorities and ear rnanufacturers in Western Europe, strict exhaust emission eontrol requirements were introduced, effective with 1989 models. By late 1986, Volvo had introduced in Sweden a
system which met these requirements.
The availability of leadfree gasoline is a
prerequisite for catalytic cleaning of exhaust emissions. Under a provision of the Swedish law, tax differentiations favoring leadfree gasoline became effective in January 1986.
From July 1987, leadfree gasoline has been available in all Swedish gasoline stations with more than one pump.
Following intensive studies and debate, the Swedish Parliament in December 1985 adopted a law requiring
eompulsory certification of 1989 ear models based on air pollution standards in the United states in 1987, ineluding requirements related to partiele emissions. In June 1989, the EEC deterrnined to adopt pollution control standards that will app1y to all new ear models from July l, 1992 and to all new cars with engines under 1.4 liters from January l, 1993.
While compliance with the emission control standards adopted by the Swedish Parliament and by the EEC Commission may increase Volvo's costs, Volvo does not anticipate any material difficulty in complying with those standards.
Revised environmental policy for the Volvo Group.
Revised long-term environmental policy guidelines for the Volvo Group were adopted during the autumn of 1989. The basic principles of these guidelines are as follows:
choosing,J . pro-enviranmental and recyclable material for the'' development and manufacture of Volvo
products and when purchasing components from sub-contractors,
