Volvo Car Group in 2012: New products and developments for future growth

Volvo Car Group in 2012

New products and developments for future growth

• Global sales of 421,951 cars
• New Volvo V40 successfully launched
• Sales start of the Volvo V60 Plug-in Hybrid
• Launch of world first safety innovations
• Focus on development of a new product architecture and engine family
• Loan agreement with China Development Bank

During 2012 - a year of economic recession in global markets and great challenges for the car industry - Volvo Car Group (Volvo Cars) took several strategic steps which will be of high significance to ensure the future success of the company. The company continued to follow the strategy for future growth despite a challenging business environment. New products were introduced in the market, significant investments were made in future vehicle technologies and the company entered strategic partnerships in several areas. Volvo Cars also adapted to the general downturn in the car industry by adjusting its operations in line with customer demand.

CORPORATE UPDATE

Retail Sales: 421,951 cars

Full-year sales for Volvo Cars amounted to 421,951 cars, a deterioration of 6.1 per cent versus 2011. Several markets reported significant improvements, particularly emerging and overseas markets, while the economic situation in mature markets and regions adversely affected consumer demand for new cars. The phase-out of the Volvo C30, S40 and V50 models had a major impact on sales during the year as the new Volvo V40 was launched towards the end of the year and therefore did not reach full effect in affected markets. This factor as well as the economic situation in Europe are the main explanations behind the deterioration in full-year sales.

The United States was Volvo Cars' largest market in 2012 and for the full year, retail sales reached 68,079 cars, up 1.2 per cent versus 2011. US sales was mainly driven by strong demand for the Volvo S60 and XC60 models while the overall performance was affected by Volvo Cars' strategy to keep incentives at moderate levels. In Sweden, Volvo remained the largest car brand with almost one fifth of the market. Volvo followed the Swedish market development and sales were down 11.3 per cent to 51,832 cars. In China, Volvo performed well with the S60 and XC60 models while the overall performance deteriorated by 10.9 per cent to 41,989 cars, partly explained by the termination of the S40 model. Another factor affecting Volvo sales in China was the fierce competition among the imported luxury brands. The Volvo V60 was introduced in China during 2012 while the new V40 model is due for Chinese launch in 2013 to strengthen the offer.

2012 First half financials

Volvo Cars reported a positive operating profit for the first six months of the year - a result of protecting margins, staying prudent and not fully participating in incentive wars in some markets. The company reported an operating profit (EBIT) of 239 MSEK over the first six months of 2012, down from an EBIT of 1,529 MSEK over the same period in 2011. Revenue over the period increased by 3.9 per cent to 65.3 BSEK compared with the first half of 2011 (62.9 BSEK). Volvo Cars' global retail sales for the first half of 2012 amounted to 221,309 cars, down 4.1 per cent versus the same period in 2011 (230,746). The year-end report will be published early May 2013.

New President and CEO

On October 19^th, the Board of Directors appointed Håkan Samuelsson as new President and CEO of Volvo Cars. He replaced Stefan Jacoby who left the company. Håkan Samuelsson had been a member of the Board for the last two years and brings with him a broad industrial experience.

Loan agreement with China Development Bank

Under the intent of a Memorandum of Understanding, Volvo Cars and China Development Bank agreed to evaluate financing of Volvo Cars' business plan. In late 2012, a loan agreement was signed - a testament to China Development Bank's belief in the strength and viability of the Volvo Cars global business plan and corporate strategy. The first step under the agreement is a EUR 922 million loan which is to be used for a refinancing of Volvo Cars' current loans.

China expansion

In 2012 Volvo Cars continued to expand its Chinese operations. Volvo Cars' full-fledged business operations in Shanghai include product development, design, purchasing and staff support functions. The expansion of the retailer network and the industrial system goes hand in hand with the recruitments of talented people to add the competence needed. Around 700 people have been recruited during 2012. A new manufacturing plant in Chengdu is the next step and will be a milestone in Volvo Cars' ambitious industrial strategy. This new plant will be up and running in the second half of 2013.

PRODUCT DEVELOPMENT FOR NEXT-GENERATION VOLVO CARS
Volvo Cars' future as a strong, independent car maker was reinforced with the announcement of a multi-billion dollar investment in SPA - Scalable Product Architecture and VEA - Volvo Engine Architecture. SPA is a flexible, scalable product architecture that will cover most of Volvo's future car models. With lower costs for development and parts designed to be shared by all models, there will be more capacity left for focusing on individual details that are important to customers. The first car model based on the new architecture is the next-generation Volvo XC90.

The new engine range VEA will consist solely of four-cylinder engines. Combined with electrification and other spearhead technology, the VEA range will deliver higher performance than today's six-cylinder units, along with lower fuel consumption than today's four-cylinder engines.

Investments in the manufacturing system

As part of the significant investments in the new SPA and VEA projects, construction of the new body shop in the Torslanda vehicle plant in Gothenburg, Sweden is ongoing and will be completed during the second half of 2013. In addition, there will also be considerable investments in the Body Components plant in Olofström, Sweden as well as in the Engine plant in Skövde, Sweden. In Belgium, the Ghent plant will also benefit from the SPA investments. The Ghent plant operates at a very high capacity utilisation level with 2012 being its second best year ever in terms of production volumes. Further, the new Volvo V40 models were successfully introduced in this plant during the year. Also the Chengdu plant in China will, when it starts up late 2013, be ready for the upcoming new vehicle architecture. Further, a flexible manufacturing system for the Volvo S60 model has been introduced which means that volumes can be allocated to the Torslanda and Ghent plants depending on capacity situation.

Volvo XC60 Plug-in Hybrid Concept - a unique blend of gasoline and electric power

During the Detroit Motor Show in January 2012, Volvo revealed the Volvo XC60 Plug-in Hybrid Concept. It is an electric car, a highly economical hybrid and a powerful high-performance car - all rolled into one. At the touch of a button, the driver decides how the available power from the combination of the high-performance gasoline engine and the electric motor is to be utilized. This world-class gasoline plug-in hybrid technology, featuring a state-of-the-art four-cylinder engine from the upcoming VEA engine family, will reach showrooms in a couple of years.

Electric car recharging time cut to 1.5 hours

Volvo Cars started testing a new fast-charger for electric cars that cuts recharging time to an outstanding 1.5 hours - six times faster than today's on-board devices. The fast-charging unit helps cure what is known as ‘range anxiety' since the car can be more easily recharged during the day. The new charger has been installed and will be evaluated in a number of Volvo C30 Electric cars. In 2012, Volvo Cars also delivered 15 Volvo C30 Electric cars to the City of Shanghai for pioneering an open road test-drive project. Meanwhile, the Volvo C30 Electric was also awarded "Green Car of the Year" in China at the 4th China New Energy Mobility Summit, in recognition of its world-leading safety and superb performance.

Strategic partnerships for future vehicle technologies

Volvo Cars also announced a number of technology partnerships. The company revealed in May that it had chosen electronic equipment supplier Mitsubishi Electric Corporation as partner for the next-generation infotainment system for future Volvo cars. Mitsubishi's world-leading knowledge and experience will bring the infotainment system in future Volvo cars up to a world class level. In the area of automotive internet services, Volvo Cars and Ericsson joined forces to advance the technical development of industry-leading, cloud-based innovations. Volvo Cars also signed a Memorandum of Understanding with the members of the CAR 2 CAR Communication Consortium regarding implementation of shared technology for communication between cars in 2016. Also, further steps were taken in the partnership with Siemens to continue the developments of electrification technologies.

NEW PRODUCTS

The new Volvo V40 - a premium hatchback with large car characteristics

The most significant product announcement of 2012 for Volvo Cars was the launch of the new Volvo V40. This car is ready to overtake the competition in the premium hatchback class with characteristics from larger Volvos wrapped in a sleek, compact package. The car is built in the Ghent plant in Belgium and it is primarily aiming at European markets - a massive 85 percent of the total volume will go to European customers. The success for the new Volvo V40 was confirmed by its place on the shortlist for the European Car of the Year award, where the winner will be announced in March 2013.

The new car boasts class-leading driving dynamics thanks to a chassis designed for an agile drive and true driving pleasure. The engine range spans everything from Volvo's compact diesel with CO₂ emissions of just 94 g/km to the turbocharged T5 petrol engine with 254 hp and acceleration from 0 to 100 km/h in 6.1 seconds. It offers two world first safety systems - the innovative Pedestrian Detection system as well as the groundbreaking Pedestrian Airbag Technology which operates through sensors in the front bumper which registers physical contact between the car and the pedestrian.

Volvo V40 Cross Country - capable ruggedness and expressive elegance

In September, during the Paris Motor Show, Volvo Cars revealed the V40 Cross Country, an elegant and refined premium crossover. Around 50 percent of the total volume will go to European customers and approximately 30 per cent to Chinese buyers. This is a capable all-road version of the V40 thanks to a number of unique Cross Country details and a 40mm higher ride than the regular car. The V40 Cross Country also features Hill Descent Control on the T5 version with All Wheel Drive, as well as a practical Hill Hold function that makes starting in a hill easy.

Volvo V60 Plug-in Hybrid - a world first
The V60 Plug-in Hybrid reached the first customers in the autumn of 2012 with the first 1,000 ‘Pure Limited' cars sold out even before they reached the showrooms. Production will increase to 4,000-6,000 cars for model year 2014. The V60 Plug-in Hybrid is the world's first diesel-powered plug-in hybrid, giving owners an electric range of 50 km and fuel consumption as low as 1.8 l/100 km (48 g/km CO₂) in hybrid mode. It integrates the best properties from three different car types into an attractive sports wagon - by simply pressing a button you can choose which car you want to drive: A pure electric car, a high-efficiency hybrid or a muscular fun-to-drive car with acceleration from 0 to 100 km/h of just 6.1 seconds.

Volvo Cars reinforces efficiency leadership with new initiatives in model year 2013

A range of new CO₂ initiatives reinforced Volvo Cars' European leadership in fuel efficiency improvement. The model year 2013 line-up saw the introduction of CO₂ emissions below 120 g/km for the majority of all diesel-powered versions of the Volvo S60, V60, V70 and S80. The conventional diesel and petrol power trains continue to play a major role on the environmental agenda and they therefore play an important role in improving the average emission performance. In the recent years Volvo has brought CO₂ emissions from diesel and petrol models down significantly and further improvement are under development.

SAFETY INNOVATIONS

In 2012 the airbag technology's 25th anniversary was celebrated with the introduction of the groundbreaking pedestrian airbag in the new Volvo V40. This is the first time airbag technology has been used to help protect vulnerable road users, in this case pedestrians, outside the car.

Autonomous driving - with steering, acceleration and/or braking automatically controlled by a vehicle that requires very little human interaction - is a major focus area in Volvo Cars development work in the safety area. It also serves as important tools in Volvo Cars "Vision 2020" where the aim is that nobody should die or suffer serious injuries in a new Volvo car by the year 2020. These new safety systems will also lead to CO₂ emission reductions as well as clear customer benefits in terms of flexibility in monotonous driving situations.

Road Train premiere on public roads

The European SARTRE (Safe Road Trains for the Environment) project, in which Volvo Cars is the first and only participating car manufacturer, was successfully completed in 2012. The SARTRE project focused on the attractive possibility of taking the hands off the wheel and the eyes off the road on long motorway trips. The road train offers the best of two worlds - enjoying all the multi-tasking possibilities of public transportation behind the wheel of the customer's own car, while also contributing to lower CO₂ emissions and a safer driving environment.

New Traffic Jam assistance system next steptowards autonomous driving

Volvo Cars took further steps in the journey towards self-driving vehicles by presenting a new traffic jam assistance system. The new system, whereby the car automatically follows the vehicle in front in slow-moving queues up to 50 km/h, will be ready for production in 2014. This technology makes driving more relaxed in the kind of monotonous queuing that is a less attractive part of daily driving in urban areas. It offers safe, effortless drive in slow traffic.

Record-breaking safety rating for the new Volvo V40 and top crash test results for S60 and V60

The new Volvo V40 received the top rating of five stars in the Euro NCAP collision test - the overall result was the best ever recorded by the institute, proving that the all-new Volvo V40 has the same safety level as in larger cars. Volvo Cars' leadership in car safety was also highlighted by the Insurance Institute for Highway Safety (IIHS). Volvo S60 was one out of the two cars that earn the best rating in IIHS's new small offset frontal crash test. No less than five Volvo models - the C30, S60, S80, XC60 and XC90 - have recently earned a Top Safety Pick. The XC60 was also the only SUV crossover with an IIHS Top Safety Pick and an overall 5 star U.S. NCAP rating. Also, the Volvo S60 achieved an overall five star NHTSA crash test rating. In Europe, the Volvo V60 received five stars and was named best car in the Large Family category in the 2011 Euro NCAP rating. The Volvo V60 Plug-in Hybrid scored five stars in Euro NCAP and the highest number of points ever for an electrified car.

VOLVO OCEAN RACE
The 2011-2012 edition of the Volvo Ocean Race took off from Alicante, Spain and after eight stopovers and 39,000 nautical miles around the world, the French Groupama team was the first to reach the goal in Galway, Ireland having battled against five other teams in the closest race ever. The next race has already been announced, due to start in 2014. Tradition continues also when Volvo Cars' Special Vehicles Division launches a specially designed model range with a sail racing theme - the new Volvo Ocean Race edition.

2012 IN FIGURES

2013 OUTLOOK

Competition in the car industry will most likely continue to be as fierce as in 2012 as manufacturers will seek to capture volumes and market shares in a market where the economic situation will remain unstable. 2013 is therefore expected to be a challenging year in terms of margins and growth.

For Volvo Cars, 2013 will be one of the most intense years in the company's history. Including the new Volvo V40 versions launched in 2012, Volvo Cars is renewing more or less the whole model range. The developments of the new product architecture and engine family will be further intensified and a range of new engines will reach the market in 2013. In China, the opening of the Chengdu plant in 2013 will be a milestone and a major step in the growth strategy.

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