September 2, 2014 at 1:32 pm

Volvo pegs growth to $66,000 Swedish SUV

Volvo Car Group, which has come to symbolize Swedish durability since its founding in 1927, is sticking to its Scandinavian roots with its first model since being acquired by Chinese owners four years ago.

Rather than chase low wages, Volvo will maintain engineering and assembly of the new XC90 sport-utility vehicle in the carmaker’s hometown of Gothenburg. The overhaul of the brand’s flagship model, unveiled Tuesday near Stockholm, is part of a plan to spend about half of the manufacturer’s four-year development budget of 75 billion kronor ($10.8 billion) in Sweden.

“If the engineers just sit in laboratories and lose connection to the daily use of the cars, the cars will not be good enough,” Volvo Cars Chief Executive Officer Hakan Samuelsson said in an interview. “The engineers have to experience the car personally — scraping ice, seeing how the defrosters work, seeing how fast the seats heat up,” and that needs to be backed up by local production.

It could be a risky strategy. Less than a third the size of luxury brands like Bayerische Motoren Werke AG, Volvo Cars still needs to match rivals’ technology while at the same time offsetting high local salaries. Auto workers in Sweden cost about $62 an hour in wages and benefits, more than anywhere else in the world except Germany, according to data from trade group VDA.

The XC90 is key to Volvo’s plan to nearly double sales to 800,000 vehicles by 2020 and provides a crucial test for the only global carmaker under Chinese control after the 2010 acquisition by billionaire Li Shufu’s Zhejiang Geely Holding Group Co. To back the expansion, about 500 workers will be hired to help staff a third production shift in Gothenburg and as many as 300 developers may be brought on board for follow-up models, said the manufacturer.

The new hires will help boost production at Volvo’s Torslanda factory in its hometown after increasing capacity by 50 percent to as much as 300,000 cars a year. The company plans to build the XC90 and a range of new models on the same underpinnings at the site.

To liven up its image as it vies with BMW, Volkswagen AG’s Audi and Daimler AG’s Mercedes-Benz for buyers, the Swedish automaker will add flourishes such as a crystal gear-shift lever by glassmaker Orrefors. The car, which will start at about 50,000 euros ($66,000) — on par with BMW’s X5 — when it enters showrooms next year, will also sport a touch screen compatible with Apple Inc. and Android devices. Additionally, Volvo will offer a selection of hybrid variants to shore up its environmental image.

The goal of the manufacturer’s model strategy is to increase its profit margin to 8 percent of revenue, in line with other upscale carmakers. After selling 427,840 cars last year, Volvo forecasts growth of nearly 10 percent in 2014.