At last, Volvo is joining other luxury automakers in sourcing vehicles in the United States.
Making that happen -- and catching up with competition that has been building luxury vehicles here for years -- will take the Chinese-owned Swedish brand into some supply chain operations that are new to Volvo, and also to the rest of the U.S. auto industry.
When it gets up and running in 2018, Volvo Car USA's first U.S. auto plant, in Ridgeville, S.C., will build the new-generation S60 sedan using about 40 percent locally sourced components.
That is about 20 percent less locally sourced parts than the company relied on to launch its auto factories in China in recent years, according the company executive overseeing the plant project.
The U.S. plant will instead rely on outside suppliers for major parts, including metal stamping, says Katarina Fjording, Volvo vice president of purchasing and manufacturing for the Americas.
That is a strategic decision for Volvo, a play to make the S60 cost-competitive enough to build in the United States for global markets.
The $500 million factory goes into production in the third quarter of 2018. Volvo plans to start small with initial annual production of 65,000 vehicles. A decision on which second vehicle to add there will be made within 18 months, says Lex Kerssemakers, CEO of Volvo Car USA and the architect of Volvo's entry in U.S. automaking.
Volvo bucked a trend among luxury automakers in North America by opting for an assembly plant in the United States instead of Mexico. Competitors Audi, BMW, Infiniti and Mercedes-Benz have embarked on a Mexico production strategy.
Volvo went with South Carolina for largely one reason: suppliers.
The availability of suppliers familiar with the demands of luxury brands in the Southeast led Volvo to decide on the U.S. location, Kerssemakers says.
Fjording, who is heading the creation of Volvo's new supply base, says, "The Southeast has an automotive cluster of OEMs and suppliers. It makes a good foundation to put a business here."
BMW is a 2½-hour drive away in Spartanburg, S.C., and Mercedes-Benz builds cars, crossovers and SUVs in Vance, Ala. Both have developed a substantial supplier base that includes many of the European giants such as Bosch and Valeo that are common to the Euro-luxury automakers. BMW has about 40 suppliers near its Spartanburg factory.
It was important to Volvo that suppliers had U.S. operations, Fjording says. "Otherwise, they would be starting the same journey as us," she says -- a risk Volvo did not want as it tries to restore its fortunes in the U.S.
Many of BMW's U.S. suppliers, as well as some parts companies from China and some supplier plants in Europe, will make components for the Ridgeville plant, she says. Fjording contends that those U.S. suppliers are in a special luxury tier and "more in the forefront of being able to supply premium auto manufacturers.
"Most of us have been working with them for many years. We have grown together," she says of the European-heavy circle.
About half the supplier contracts have been negotiated but she declines to name suppliers.
For the record, Volvo operated a North American assembly plant for more than 30 years. It was kit-assembly operation in Halifax, Nova Scotia, that -- beginning in 1963 -- assembled 6,000 to 8,000 cars a year from cartons of premade bodies, engines and parts shipped from Sweden.
That operation closed in 1998, just as Germany's luxury automakers were getting under way here.
Things have changed dramatically for Volvo, which was acquired, and then sold, by Ford Motor Co. Geely Automobile of China bought Volvo in 2010 for $1.8 billion.
Fjording is no stranger to Volvo's changing global supply chain, nor to its recent strategy in manufacturing. Before taking her new assignment in the United States for Kerssemakers, she set up the automaker's two manufacturing and engine factories in China. She says there will be similarities between the Chinese ventures and how the new U.S. plant is designed and operates.
But at least for a while, increasing local content in the U.S. venture won't be Volvo's immediate priority, she makes clear.
"You can't turn things around overnight. We have to source some components globally for the whole cluster" she says, referring to what Volvo calls its 60 cluster, which includes the redesigned XC60 crossover, V60 station wagon and the V60 Cross Country. Stepping up local sourcing levels is something that "we tend to do where it is most efficient, where it is most cost effective with shipping and the actual cost of the componentry," she says.
"Some components will come from China because they are globally sourced. Some will come from Europe going to all the plants. We are hoping now that some components will come from North America going to all the plants as well."
The Chinese supplier Scivic, which supports Volvo in China, will provide undisclosed components for U.S. final assembly. "They have proven adequate," she says. "They have a partner here and we will be sourcing them and we thought that was natural."
Volvo also plans more modular assembly for the S60, and to perform the work in-house. It might ask some suppliers to assemble those components before delivery.
Supplier park deals
Volvo does not intend to operate a supplier park at Ridgeville. But South Carolina has set aside nearby land for one.
"There are financial incentives for any supplier who wants to set up close to us," she says of the state's business development activity. "And there are some suppliers that are in dialogue with the state."
Setting up shop nearby may make sense for suppliers, as Volvo expands the plant's capacity and can offer more business, she says.
The state is also taking steps to make transportation easier into and out of the plant. South Carolina is building an exit off the highway straight to the factory. A rail connection is also being constructed.
"We are in the middle of the woods right now," Fjording says of the South Carolina site.
Volvo's global plan
Creating new manufacturing capacity is a key step in Volvo's global growth plan, Kerssemakers says. The automaker wants to sell 800,000 vehicles a year worldwide by 2020, up from 503,127 last year.
The new Chinese plants were the first step. The current-generation S60 long-wheelbase car, called the Inscription, is made in China and exported to the United States.
But Kerssemakers says more is at stake than launching a factory. Volvo wants to reassert its brand as a global force. Having a U.S. plant sends a message to consumers and to dealers, he says.
"Building a factory on U.S. soil is the ultimate sign that Volvo is here to stay. We want to continue to be here for another 60 years."
But the devil is in the details.
Opening U.S. production for the first time requires a U.S. supply chain -- something far more sophisticated and integrated than the cartons of parts that arrived by ship in Nova Scotia decades ago. Like other luxury automakers that came here in the 1990s, Volvo knows that a U.S. manufacturing base can strengthen the company financially and insulate it from currency surprises from year to year, Kerssemakers says.
That will take more local parts content in the years to come -- a supplier opportunity that will grow as Volvo itself grows here.