Introduction

Volvo Trucks is one of the leading manufacturers of heavy trucks, serving 180 markets and delivering
81,000 medium and heavy trucks. Volvo held 14.9% of European markets and 10.9% of North American
market

has entered the U.S. in an attempt to survive in the toughest market in the world. After an unsuccessful
alliance, Volvo turned to acquisition and purchased two American truck companies, WMC and GM.
Although the companies successfully utilized its brand and positioned themselves as a high quality and
safe vehicle, their sales remained low.

Volvo’s strong interest and other European truck companies to enter the U.S. market is due to its large
size. In Europe, a trucking company was considered ‘large’ was when it had between 50-100 trucks. On
the other hand, large companies in the U.S. were those that could buy/sell hundreds and thousands of
trucks per year.

Volvo’s failure to penetrate the U.S. market is because of the preference differences between European
and American markets. For example, traditional truck buyers in the U.S. prefer trucks built domestically,
following the conventional design. Another reason as to why Volvo failed could be due to its
unwillingness to acquire technology leader Freightliner in 1980 and instead acquired bankrupt and
poorly performing companies.
PESTEL ANALYSIS

 Political
 Signing of U.S.-Canada Auto pact agreement of 1964 which removed tariffs on trade in
trucks and parts

 Economical
 Truck industry is highly cyclical
 Fluctuating growth rates
 High fuel price so European trucks shifted first towards diesel engines and American
trucks followed suit in early 1980s
 Engine development costs increased due to the pressure for higher fuel economy
 Growing trade across continents in drive train components
 Export of heavy trucks occurred in Europe, Asia, North America, and Latin America but
rarely across continents
 Western Europe and North America accounted for one-third of total truck world market
 Beginning in the mid-1970s, the leading European manufactures entered the U.S.
market - Volvo, DB, AND RVI
 The presence of U.S. trucking companies in Europe was limited
 In 2000, the only U.S. manufacturer in Europe was Pacaar, the number two producer in
terms of units worldwide
 The US trucking market was deregulated in 1981, opening entry and abolishing pricing
restrictions
 After U.S. market deregulation in 1981, trucking companies profitability fell, and the
industry consolidated into larger companies from 50 to around 6 significant companies
 In Europe, there has also been significant consolidation from 40 manufacturers in 1960s
to a handful in 2000
 Truck leasing companies began to emerge and in the 1990s became full-service
companies
 Large fleet operators dominated the U.S. market unlike European markets
 In Europe, short-haul truckers own and drive their trucks and long-haul truckers were
employed by medium to large trucking companies, but the drivers operated their own
designated truck
 Leasing companies in Europe were much less prevalent than in the U.S.
 Unexpected high increase in demand for trucks in 1987
 History of Volvo in the U.S. market:
 Volvo was present in the U.S. market since 1955, when the first Volvo passenger
car was exported there
 In the 1970s, Volvo decided to become a global player leading to its decision to
enter the U.S. market in 1975
  Initially, Volvo marketed only medium trucks drawn from its European product
range and sales were focused on the 13 northeastern states which were
deemed densely populated enough to build adequate service network
 Volvo’s progress was slow, and sales were minimal
 By 1978, Volvo had 45 dealerships in the U.S.
 Volvo was not able to attract enough dealers and in 1978, Volvo only had 45
dealers
 Freightliner and Volvo teamed up with Freightliner assuming responsibility for
the U.S. distribution and service of Volvo trucks
 The U.S. market peaked in 1979, and Volvo sold 1,998 truck units
 Afterwards, the market declined sharply, and Freightliner was put up for sale
and later bought by DB
 Volvo acquired bankrupt WMC in 1981 and introduced the Integral Sleeper,
prestige-end truck, which became an instant success
 Volvo’s market share however only increased by 1% by 1987 because of the
sudden truck demand increase. Volvo was unable to meet orders
 In 1988, Volvo acquired GM’s heavy truck business (which was also not a big
player in the truck industry) and created a new brand alongside with
WHITEGMC
 In the early 1990s, the U.S. tuck industry market grew but Volvo’s total share fell
slightly to 11.6%
 In 1995, Volvo invested $500 million in production, marketing, and
organizational changes to prepare for the 1996 launch of a new truck series, the
VN
 The VN series design was partly based on the European truck design, and partly
based on U.S. customer demands
 By 1996, 18% of the trucks sold in the U.S. had a Volvo engine
 The VN launch was spoiled by 15% decline in industry volume and its sales
dropped by 38% resulting in a record loss of $240 million
 Volvo decided to restructure the business which cost the company $105 million
and 940 jobs were lost between January 1996 – mid 1997
 Volvo introduced new truck in the VN series, and industry demand improved in
1998 but the company’s margins remained low

 Sociocultural
 The U.S. market preferred the cab-over trucks
 The European market preferred conventional trucks
 The U.S. preferred unsynchronized gearboxes, while Europe preferred synchronized
gearboxes
 Buyers of trucks included trucking companies, distribution companies, construction
companies, and companies operating their own trucks
 After deregulation of the U.S. market, truck buyers became more professional and
concerned with fuel economy, truck quality, and overall cost performance
  Small buyers in the U.S. favored U.S.-built products and wanted customization of
products and features


 Technological
 By the late 1990s, European and American engine technology converged on engines on
12- and 16-liter capacity with 400-500 horsepower
 Engine manufacturing involved the most economies of scale
 Truck assembly involved modest economies of scale
 All the leading European truck manufacturers were backward-integrated into drive-train
components
 The U.S. manufacturers were assemblers; they made their own cabs with components
from other suppliers
 Legal
 European and American restrictions on truck length for safety reasons
 In 1981, the U.S. Surface Transportation Act was altered so that the length of the tractor
was no longer included in the total length of the truck
 Restrictions in regard to the maximum acceptable weight of trucks with European
countries having more maximum weight allowed
 In 1981, the U.S. market was deregulated
Porter’s Five Forces Analysis
Threat of new Bargaining power Bargaining power Threat of Rivalry - HIGH
entrants - LOW of suppliers - of buyer - substitutes
MEDIUM MEDIUM
High economies Established High switching No direct Many competitors
of scale supplier networks cost substitutes
High brand loyalty High switching Buyers buy High switching
costs for buyer infrequently but cost and exit
in large volume barriers
High capital No threat of High buyer High fixed costs
requirements forward concentration
integration by
supplier
High product Low supplier No close Low industry
differentiation concentration substitutes growth rate

Porter’s Diamond Model

 Factor conditions
 Knowledge
 Capital resources
 Infrastructure
 Deregulation of U.S. market
 The industry

 Demand Conditions
 Truck industry demand highly cyclical
 U.S. small buyers prefer U.S.-built trucks

 Related & supporting industries

 Trucks sold through U.S. distributers who maintained close relationships with
customers
 Leasing companies emerged (included full servicing contracts)
 Trucks sold with service contracts

 Firm strategy, structure & rivalry


https://www.porteranalysis.com/porters-five-forces-volvo-group/

https://www.thecasesolutions.com/volvo-trucks-a-penetrating-the-us-market-12833

https://www.academia.edu/9644860/Global_Strategic_Management_Case_Analysis_Volvo_Trucks_Sec
tion_404

https://www.scribd.com/document/123484639/Volvo-Trucks-Case

https://www.scribd.com/presentation/317289061/Volvo-Trucks-Penetrating-the-US-market

https://www.slideshare.net/Aamirchouhan/volvo-42085158