Acquisition pays off with pooled strengths
By Christine Tierney / The Detroit News
About Volvo Car Corp.
Founded: April 14, 1927, by Assar Gabrielsson and Gustaf Larson
Headquarters: Gothenburg, Sweden
President and CEO: Hans- Olov Olsson
Factory sites: Torslanda, Sweden, and Ghent, Belgium
Employees: 28,000 worldwide
First model: Jakob
History: Introduced world's first three-point safety belt in 1959; offered rear-facing child safety seat in 1972. After AB Volvo abandoned plans in 1993 for a merger with Renault SA, Ford acquired Volvo's car business for $6.45 billion in 1999.
GOTHENBURG, Sweden — When Ford Motor Co. bought Swedish automaker Volvo in 1999, Scandinavians envisioned planeloads of American executives overrunning this coastal city.
The fears proved largely unfounded at the headquarters of the Swedish auto industry’s 77-year-old crown jewel, maker of some of the safest cars and sport utility vehicles.
“The only people who came from Dearborn were financial guys,” Volvo Car Corp. product planning chief Lex Kerssemakers says. “They helped us make our plans and ensure the right balance between spending and revenues.”
Kerssemakers shuffles more paper now, but that’s largely because Volvo is developing and building more new models than ever — a direct benefit of the Ford deal.
Of all the automotive pairings negotiated in the 1990s, Ford’s $6.45 billion acquisition of Volvo ranks as one of only two unqualified successes — along with the Renault-Nissan alliance.
Ford’s five-year stewardship has led to a rapid rollout of new Volvo models, such as the snappy S40 sedan that shares parts with Ford and Mazda Motor Corp. cars. Volvo’s sales, which totalled 415,046 vehicles last year, are forecast to reach 500,000 by 2006.
For Ford, Volvo’s steady profit contributions — averaging more than $600 million annually for the past three years — could not have come at a better time.
Its North American operations are struggling in a brutally competitive market, and its other European premium brands, notably Jaguar and Land Rover, have yet to generate any real return on investment.
“Volvo is just a tremendous asset,” says David Thursfield, executive vice president of Ford and head of its international operations. “They have brought a lot to the table, and Ford’s resources bring a lot to their table, too. We’re leveraging ourselves to get the best of the best.”
As Ford knows all too well, such success is rare. Its Jaguar brand has fallen back into the red after a brief recovery. Five years into the DaimlerChrysler AG merger, Chrysler is still struggling to recover.
General Motors Corp.’s acquisition of Volvo’s crosstown rival, Saab Automobile AB, has not lived up to its potential. Saab sales are down in Europe and in the United States.
For Volvo’s 28,000 employees, Saab’s troubles serve as a cautionary tale of what can befall even a prestigious brand when it loses its independence.
“We must deliver what we have promised,” says Hans-Olov Olsson, president and CEO of Volvo Car Corp. “If you don’t deliver, all sorts of people will start controlling things they don’t understand, and that would be very dangerous for Volvo.”
So far, the Volvo deal concluded by Ford’s then-CEO Jacques Nasser has delivered on its promises, and most Swedes and Americans find their cooperation rewarding.
But at Volvo’s headquarters in Gothenburg, managers and employees worry that as Ford exerts more control, Volvo could lose the distinctive people-centered culture that underlies the brand’s strength.
“Bill Ford came and said, we didn’t buy Volvo to make it Ford. People here trust 100 percent in what he has said,” Olsson says.
But Ford’s push to establish cost and other controls, and align Volvo staff with its multi-layered corporate hierarchy, represents a painful adjustment for many Swedish employees accustomed to a looser and more egalitarian style.
“Here, anyone can e-mail Olsson and say, ‘I don’t agree with your decision,’ ” says Peter Bailliere, senior vice president of human resources at Volvo.
Yet despite the culture clashes, there are few regrets.
After the acrimonious collapse in 1993 of a plan to merge with France’s Renault SA, automotive and engineering conglomerate AB Volvo concluded in the late 1990s that it could not finance the development of its car business in the long run and decided to sell it.
By the time Nasser extended his offer, “we were convinced that we wouldn’t survive in the long run as a stand-alone company,” says Mikael Saellstroem, a precision mechanic in Volvo’s product testing department and representative of the Svenska Metall union.
Today, Volvo’s design and engineering studios are bristling with activity as the carmaker prepares to expand its lineup and enter new segments, such as larger and more luxurious wagons, to hang on to more customers. Currently, Volvo retains only 32 percent of its U.S. customers.
“If I look at our capital spending, we have never spent so much consistently as we have in the last five years,” says Curt Germundsson, Volvo’s senior vice president and manufacturing chief.
“When I look at our business plan for the coming years, I see consistency in capital spending. That’s the most important sign that this is also a very successful merger for Volvo.”
Baby Volvo on the way?
At Volvo, investment is going further. As part of Ford’s Premier Automotive Group, Volvo has been able to develop new models with 20 percent less capital and saves up to 40 percent on purchasing and production costs per vehicle.
Volvo executives are mulling whether they should introduce a smaller car, just below the S40, to appeal to customers in Europe’s huge compact segment.
But instead of developing a new vehicle platform — the chassis and other underbody parts — at a cost of up to $1 billion, and spending millions more to build a factory, Volvo could design the car using a platform built by Ford’s Japanese affiliate Mazda.
Volvo’s two assembly plants — in Torslanda near Gothenburg and in Ghent, Belgium — are running at full capacity, but Volvo could assemble a small car at a Mazda factory.
Meanwhile, Ford is drawing on Volvo’s world-renowned expertise in safety, manufacturing prowess and experience in building flexible plants that can produce different types of cars on the same line.
Ford has tapped Volvo to establish the electronic architecture for all Premier Automotive Group models. The company also is dipping into Volvo’s pool of talented executives, such as Hans Gustavsson, now product development director for Jaguar and Land Rover, and British designer Peter Horbury.
Horbury deftly updated Volvo’s boxy look in the 1990s, and in 2002, Ford appointed him chief designer of the Premier Automotive Group. In December, he was promoted again, to head North American design for the Ford, Mercury and Lincoln brands.
For the Ford Five Hundred sedan, the cornerstone of Ford’s efforts to revive its sagging passenger car business, Ford borrowed not only Volvo components but also product engineers such as Jan Vulcan.
Vulcan had just overseen the launch of Volvo’s elegant V70 station wagon in 2000 when Ford decided to borrow both the V70 chassis — and Vulcan — for the ambitious project.
In addition to the Five Hundred sedan, unveiled at the North American International Auto Show in January, a Mercury Montego sedan, a Ford Freestyle crossover and a Mercury crossover will be built on the same platform.
Ford chose the V70’s front-wheel-drive chassis because it could easily be converted to all-wheel-drive — a key selling point.
Getting a better view
At Volvo, engineers design cars based on their expertise and experience of what works and what sells. In Dearborn, however, Vulcan was impressed by the reams of data Ford was collecting to gauge what consumers wanted — and didn’t want — in a sedan.
Drivers’ biggest concern was that they would not be able to see beyond and around the pickups and SUVs on the road.
From the outset, Vulcan’s team designed the Five Hundred so that its seats would be a few inches higher than those in rival sedans, such as Toyota Motor Co.’s popular Camry.
Engineers raised the forward attachment on which the front seats rest, creating more leg room for rear-seat passengers in the process.
Volvo has always been famed for car safety, but Ford engineers working on the project were still astounded by the integrity of the Volvo vehicle architecture: Every beam and pillar is designed to channel crash energy away from occupants during a collision.
“We used a lot of their structural engineering practices, the way the pillars collapse,” says Joan Florian, program manager for the vehicles.
For instance, the Five Hundred’s B pillar, located between the front and back doors, is an adaptation of Volvo’s.
Reinforced with high-strength steel, the pillar is designed to disperse a side-impact collision’s energy above the passenger and below. Low in the pillar, engineers set a hinge point to create a weak spot where it can buckle, diverting the energy below the seats and protecting the occupants, says Chris O’Connor, crash safety supervisor for the project.
But Volvo also has benefited from the cooperation with Ford. The XC90 sport utility vehicle’s vaunted electronic roll stability control system, designed to help prevent rollovers, was developed with the help of Ford’s expertise in sensors and software.
Too many layers
For all the benefits, however, meshing two companies is hard work. In the five years since the deal, the near-constant upheaval in Ford’s senior management has complicated matters. Nasser is gone. So is Wolfgang Reitzle, the prickly but supremely talented head of the Premier Automotive Group who was the link between the premium brands and CEO Bill Ford Jr.
Now, instead of one executive between Olsson and Bill Ford, there are three: Mark Fields at the head of the Premier Automotive Group, Thursfield and Nick Scheele, Ford’s chief operating officer.
Despite Volvo’s importance as one of Ford’s most profitable and promising investments, its top management keeps slipping down the ranks.
“Ford has distanced itself from Volvo organizationally, by adding more levels,” Olsson says.
Perhaps unintentionally, Ford is also creating a steeper hierarchy at Volvo, as it aligns Volvo management and compensation levels to those elsewhere in the group.
Volvo had been a relatively flat organization, and employees were categorized by their function.
“We have cases now where someone shows up at a meeting because they’re responsible for the subject of the discussion, and people will say, what are you doing here? You’re not at the right management level,” Bailliere said.
He is trying to persuade Ford officials to allow Volvo to redelegate some operating decisions back down the chain of command. “It was perhaps too loose before, but now it’s disempowering people more than it’s intended to.”
More like the Japanese?
In any cross-border merger, and certainly in DaimlerChrysler’s case, national cultures emerge sooner or later as an issue. In the case of Ford and Volvo, the companies have vastly different ways of managing people that reflect deep differences in the cultures.
“There are more similarities between the Swedes and the Japanese than between the Swedes and the Americans,” says Fields, who was previously CEO of Mazda.
The Swedes and Japanese both need to build consensus before moving forward. That results in a longer decision-making process than the quick, top-down American way.
“There are more questions here — people need to understand what and why. In other parts of the Ford organization, we probably tend to ask fewer questions,” says Nerissa Morris Hampton, a Ford employee serving a stint as vice president for human resources at Volvo.
Once a decision is made, Swedes and Japanese often implement it faster, whereas Americans are more likely to make adjustments during the execution phase.
Those differences create misunderstandings. “There’s frustration on both sides,” says Tom McDonough, a Ford international service integration manager who has spent 20 months in Gothenburg.
“The Volvo people say, ‘why haven’t they given us information?’ The Ford people are saying, we have a process, get on the bus. Let’s go,” he says. “Essentially, it comes down to communications.”
But unlike the DaimlerChrysler deal, which left some Auburn Hills employees hankering for the good old days, the Swedes are taking a more pragmatic view.
“We are more metalworkers in Sweden working for Volvo today than we were in 1999,” Svenska Metall’s Saellstroem says. “We’ve seen a big increase in product development.”
Volvo has earned money in each of the five years, launched models successfully and generated huge savings for itself and the Ford group. “This is the most successful acquisition I know of in the car industry,” Olsson says.
“We’ve done everything that could be expected from the two parties.”