Volvo is leading producer of commercial products

VOLVO IS LEADING PRODUCER OF COMMERCIAL PRODUCTS Volvo projects strong growth in the years immediately ahead within the Group's commercial business areas: trucks, buses, construction equipment and marine and industrial engines. Growth will occur organically as well as through continued acquisitions. Further coordination within this segment of the Group will result in reduced costs, including through efficiency enhancement within product development. These comments were made by Volvo's CEO Leif Johansson today (Thursday) in London at a media and analysts meeting about Volvo's commercial products. The commercial business areas account for up to 50% of Volvo's consolidated sales and earnings. Growth posted for Volvo's commercial vehicles has been high, with total sales values rising from about SEK 35 billion annually to approximately SEK 90 billion during the most recent economic cycle. Volvo intends to increase coordination between the business areas in the commercial segment of operations to achieve synergies. The different product types are becoming increasingly integrated as a result of statutory requirements, new technologies and market demands for total transport solution, among other factors. This means an increasing number of common components in different types of products and, consequently, opportunities for a higher degree of joint product development within the Group's commercial business areas. Product development expenses for Trucks, Buses, Construction Equipment as well as Marine and Industrial Engines amount to approximately SEK 3 billion annually. Through increased coordination, Volvo expects to realize substantial efficiency gains and savings. The previously announced decision to coordinate Volvo's spare parts administration within Trucks, Buses Construction Machinery and Marine and Industrial Engines results in annual savings of about SEK 250 million. "The increased integration of commercial products and the breadth of the Volvo Group's product offering provide substantial potential for coordination. More efficient use of synergies within and between the business areas will not only yield significantly reduced costs but also an improvement in earnings capability," says Leif Johansson. Volvo's recently announced cooperation agreement with Deutz, the German diesel engine manufacturer, will yield substantial costs savings for the Volvo Group. As a result of the agreement, Deutz will become Volvo's main supplier of small and mid-size diesel engines and development of these engines in the future will be carried out jointly with the company. At today's seminar it was revealed that the agreement with Deutz reduces Volvo's costs by more than SEK 400 million on an annual basis within a few years. As a result of the agreement with Deutz, Volvo will concentrate its operations within commercial diesel engines to heavy engines with 8-16 liters piston displacement. Through Volvo Penta, the Group currently sells diesel engines externally in the marine and industrial sectors. Volvo Penta accounts for 24 % of Volvo's total production and sales of diesel engines. These operations will be intensified through expanded sales externally of diesel engines. As a result, Volvo estimates being able to sell an additional 10,000-12,000 heavy diesel engines annually. Volvo is the world's fifth largest manufacturer of heavy diesel engines. During the current year, Volvo has acquired Nova Bus and Samsung's construction equipment division and a major portion of Volvo's future growth within the commercial area will also be realized through acquisitions. Volvo also foresees continued organic growth in established markets and in growth markets. Volvo's strategy for growth will largely involve Groupwide efforts in new markets, while retaining the current Group structure. Volvo announced earlier that its operations in Turkey and Russia will be coordinated through Group companies. Volvo has also now decided that operations for commercial products in Japan will be combined in a joint company. "During the later years of the 1980s, Volvo went through a period which resulted in extensive fragmentation of the Group, whereby each business area created its own structure. In the future, we will apply a Group perspective to a greater degree and, as a result, achieve considerable costs savings in such as areas as distribution, spare parts, service and purchasing," says Leif Johansson. September 10, 1998 Presentation material from the meeting is available at http://press.volvo.se/