In the wake of their $7.4 billion merger, Swedish truck and bus makers AB Volvo and AB Scania hope to consolidate their supply bases.
Lower supplier prices will account for much of the $490 million to $610 million in annual savings the company hopes to achieve over the next three years.
The company will offer suppliers higher sales volumes in return for reduced prices, according to Lars Holmqvist, this is a common scandinavian spelling, so GS thinks the QV is CQ managing director of the Association of Swedish Automotive Suppliers.
Due to the traditionally fierce competition between Swedish truck and bus makers AB Volvo and AB Scania, the two companies maintain largely separate supplier bases.
That is about to end. For example, glass and bearings are two likely candidates for supplier consolidation.
Scania buys its glass from the Saint-Gobain Group, while Volvo uses Pilkington PLC; Scania buys its bearings from the SKF Group; Volvo buys from GKN PLC.
The enlarged company will have more than 30 percent of the European commercial vehicle market, and will be second world-wide behind DaimlerChrysler.
Not only will the supplier base be cut, but some production sites are likely to be closed, Holmqvist predicts.
He believes Volvo will renegotiate deals as soon as the acquisition has been approved by the European Union.
However, new contracts with suppliers will have to wait for the coordination working groups to be led by Volvo CEO Leif Johansson, Saab CEO Leif Ostling and Volvo Truck Managing Director Karl-Erling Trogen.
Holmqvist predicts Volvo's cabin factory in Umea in northern Sweden probably cannot compete with Scania's better-located site south of Stockholm.
On the other hand, Scania's bus factory in Katrineholm will struggle against Volvo's plant in Boras.The merged company can save money on supply, production and distribution. The company also hopes to save money by consolidating its network of dealers.
But Volvo's Johansson says he wants to maintain both partners' identities.