Volvo confident of fending off Asian threat

Volvo is braced for growing competition from Asian truckmakers but European manufacturers can remain dominant on the global stage, according to Leif Johansson, chief executive of the Swedish group.

He said Chinese and Indian truckmakers were becoming more formidable as they benefited from surging sales in their fast-growing domestic markets.

“Do I see Chinese and Indian competition in future? Absolutely,” Mr Johansson told the Financial Times. “We have stripped down their trucks [to assess quality] and they are improving very quickly.”

A report has showed that China last year produced 49 per cent of the world’s heavy and medium-sized commercial vehicles, up from 20 per cent in 2006, as Chinese producers avoided the steep downturn suffered by western truckmakers.

In addition to surging domestic sales, Chinese truckmakers are starting to export into the emerging markets of Africa and south-east Asia, providing the first signs of a global challenge to Volvo and its rivals such as Daimler and MAN of Germany and Scania of Sweden.

Chinese exports of commercial vehicles rose 25 per cent in the first half of 2010, compared with the same period last year, to 134,000 units, according to Alix Partners, the automotive consultancy.

Chinese trucks are often priced at less than half their western counterparts but Mr Johansson said that, at the higher end of the market where Volvo is focused, the difference “was starting to even out”. Local producers would see production costs rise as they climb the value chain, he said, including rising wages for skilled labour.

“Indian and Chinese engineers, over time, will not be dramatically lower paid [than those in the west]. So the worst is behind us when it comes to the cost gap.”

Volvo, the world’s second-biggest truckmaker after Daimler, has a manufacturing presence in China through its joint-venture with Dongfeng Motor Group but the bulk of its capacity remains in Sweden and other high-cost countries.

The group signalled its willingness to move more production to Asia in June with the announcement of plans to build a new medium-duty engine in India.

Mr Johansson said Volvo would “always” have production facilities in Sweden but warned that European competitiveness was threatened by a lack of investment in engineering.

“We have a generation of engineers going into retirement and fewer young people coming in to replace them,” he said.

“If we carry on down this road, the European manufacturing base will be gradually eroded.”

Surging sales in China, India and Brazil have helped Volvo recover this year from the worst downturn in its history.