Volvo's new U.S. factory starts racing the clock

RIDGEVILLE, S.C. — Volvo Cars' new U.S. auto plant is only partially staffed, its assembly lines barely stirring. But don't let the calm fool you: The clock is ticking on an ambitious plan to make the plant the exclusive global source of Volvo's most profitable nameplate — the XC90 luxury crossover — in only 36 months.

It is a show of confidence from the once-beleaguered Swedish automaker in its first U.S. factory, an investment of $1.1 billion. Volvo is targeting rapid world-class status in South Carolina using an untested work force, a new U.S. manufacturing team and a fledgling North American supply chain.

But Volvo is following the well-worn path of European automakers BMW and Mercedes-Benz, both of which turned untried U.S. plant startups into global export machines.

Sole-sourcing a global flagship "increases the stakes quite a bit," noted Bernard Swiecki, senior automotive analyst with the Center for Automotive Research.

"You've got an all-eggs-in-one-basket situation," he said.

The plant, 45 miles northwest of Charleston, will begin ramping up production of the redesigned S60 sedan in late August. But in three years, a new-generation XC90 will be added to the mix.

The seven-seat crossover will be built on the second iteration of Volvo's Scalable Product Architecture platform. SPA 2, as it's known, eventually will bring Level 4 autonomous driving capability and other safety and convenience features to Volvo vehicles.

Volvo's decision to consolidate global production of its flagship XC90 in an unproven factory is less about chutzpah and more about market realities.

"The U.S. is the biggest market for the XC90, so it's natural to start there," Volvo Cars CEO Hakan Samuelsson told Automotive News last week at an event celebrating the plant's opening. And, he added: "We need a second car for the factory."

The XC90 accounts for just over a third of Volvo's U.S. sales. Through May, Volvo sold 12,745 XC90s in the U.S., up 37 percent from the year-earlier period.

"It's better to build where you sell the majority of the volume," Volvo Cars of North America CEO Anders Gustafsson echoed.

Volvo is on pace this year to sell 600,000 vehicles globally for the first time in its 91-year history, helped by strong demand in the U.S., where sales surged more than 40 percent for the first five months of this year, to 37,754.

Export hub

At full capacity, the new plant will pump out 150,000 vehicles annually. About half its output is targeted for overseas markets.

"We will export as many cars from this factory as we will import into the U.S.," Samuelsson said. "This factory is a foundation for growth."

Volvo is following the German model of building export-oriented auto plants in the U.S. BMW exported about 70 percent of the 371,284 vehicles it built last year at its plant in Spartanburg, S.C. Mercedes-Benz is Alabama's top auto exporter, shipping about $5 billion in vehicles annually.

Making premium cars in the U.S. for export is smart, said Michelle Krebs, executive analyst with Autotrader.

"In the current political environment, having exports is probably a good idea, especially for a company owned by a Chinese parent," Krebs said, referring to Volvo. "The U.S. has become pretty competitive in terms of manufacturing."

The mission

But scaling production and the supply chain to handle global demand for Volvo's flagship vehicle in just three years will require near-perfect execution.

"It's a challenge," Samuelsson admitted. "We need to be a global company, we need to master that."

But Volvo executives also say this isn't their first rodeo. The automaker has experience building production capacity around the world. Volvo has factories in Sweden and Belgium, as well as China, where it has three car production sitesand where owner Zhejiang Geely Holding Group is headquartered.

"We see enormous capacity in terms of delivering quality in our new production systems that we have set up," said Henrik Green, Volvo senior vice president of r&d. "I see no limitations in the sense of quality or capacity in this plant."

Familiar

Volvo's decision to build its U.S. plant in South Carolina will help the automaker ramp up quickly. The state, home to BMW and a Daimler commercial van plant, leads the U.S. in exports of completed passenger vehicles. The assembly plants have attracted a constellation of parts suppliers — many of them familiar European companies — that Volvo can graft onto. Also not far away in Chattanooga, Germany's Volkswagen Group continues to expand and attract more suppliers into the region.

"The automotive industry loves short supply chains," CAR's Swiecki said. "By locating in an area where there is already an existing buildup of suppliers that can support you, that does give you an advantage."

The Southeast's auto plants also give Volvo confidence it can find skilled manufacturing talent as it ramps up. Vehicle launches require an experienced hand, Swiecki added.

"It really helps if you're starting in a region where there is already an understanding of manufacturing," he said, "where you've got people that are not strangers to putting something together."