RPO83

By Brian Lysaght

Geneva, Aug. 20 (Bloomberg) -- Ford Motor Co.'s Volvo Cars unit is counting on its first sport utility vehicle, a $40,000 model called the XC90, to halt the Gothenburg, Sweden-based company's declining U.S. sales.

``In the U.S., customers have been leaving us because we don't have a sport utility, and some people don't come into our showrooms because we don't have one,'' said Hans Wikman, director of XC90 development in a phone interview.

Volvo's sales fell 17 percent this year through July in the U.S., its biggest market. The XC90 goes on sale in October, and the company aims to sell 50,000 models annually, including 35,000 in North America.

Ford, the world's second-largest automaker, had a loss of $5.45 billion in 2001. Volvo, one of Ford's luxury brands, posted a record profit. The XC90 is central to Volvo's plan to boost profitability and increase annual sales by 40 percent to 600,000 vehicles by 2007, executives said.

Volvo's push comes as demand for SUVs in the U.S. and Europe rises. Toyota Motor Corp.'s Lexus RX300 is the best-selling U.S. luxury sport utility, with sales of 42,598 vehicles through July, down 2.3 percent from a year-earlier. Bayerische Mortoren Werke AG's X5 sales rose 14 percent to 25,008 trucks.

Carving a unique niche won't be easy, some analysts said.

Rivals

``BMW is getting it right in terms of product and appeal and it's going to be tough for someone like Volvo to get in on that,'' said Mark Fulthorpe, an auto industry consultant with CSM Worldwide in Byfleet, England.

The Volvo sport utility, developed at a cost of $500 million, has seven seats, has an all-wheel drive system and is designed for road rather than trail driving. It's powered by turbocharged six- cylinder 2.9-liter and five-cylinder 2.5-liter gasoline engines. In Europe, it's available also with a 2.4-liter five-cylinder diesel engine.

Some U.S. safety groups say sport utilities are more likely to flip and to cause greater damage to cars in accidents because of their height. Volvo ``thought hard'' about how to offer a sport utility with safety and environmental levels that match Volvo's cars, Wikman said.

Volvo said it lowered XC90 development costs by using the same structure as Volvo S80 and S60 cars. The XC90 was in the works before Ford bought Volvo in 1999 for $6.45 billion from truckmaker Volvo AB.

The next new Volvo cars, including the S40 small sedan due next year, will share parts with the Ford Focus. That line is likely to produce a smaller Volvo sport utility, the XC50, analyst Fulthorpe said. Volvo executives said they are studying a small sport utility.

Ford is spending about $3.7 billion in the next three years to expand Volvo's two assembly plants and add new models.

Volvo executives who showed the XC90 to journalists in Geneva said it offers extra safety features such as a stability control system to reduce rollovers, a reinforced roof to protect occupants and a low-front metal beam to reduce damage to cars in collisions.

Prices start at $35,100 in the U.S. for a base model and $39,975 for a more equipped model. That's on par with a Lexus RX300 which ranges from $34,530 to $36,280 for a four-wheel drive version with a 3.0-liter engine. The BMW X5 ranges from $39,545 to $66,845 for an eight-cylinder engine version, according to Kelley Blue Book.

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*Retired.