GOTHENBURG, Sweden - As president and CEO of Volvo Trucks North America, Inc. , Peter Karlsten must wrestle with the new manufacturing strategies necessitated by customer demands for increasingly soph...
VIEW FROM THE TOP: Volvo Trucks North America's Peter Karlsten shares his views on the industry, the trends we are seeing and his expectations for the future.
GOTHENBURG, Sweden – As president and CEO of Volvo Trucks North America, Inc. , Peter Karlsten must wrestle with the new manufacturing strategies necessitated by customer demands for increasingly sophisticated products brought to market at increasingly faster speeds and the corporate need to better leverage economies of scale.
Truck News caught up with the Swedish-born Karlsten in Gothenburg, Sweden, to discuss the challenges and opportunities faced by the global truck manufacturer.
TN: Truck sales on both sides of the border are gathering steam and are expected to continue growing the next two years. How are you keeping up with demand?
PK: We also see the next two years as strong years for truck sales. Volvo Trucks North America increased production several times in 2004 at our New River Valley Plant in Virginia. We added a second shift in May and increased production again in August to the point where we are now building 126 Volvos each day. We are working closely with our dealers and our customers to ensure our order and delivery process remains smooth and satisfactory, even while truck orders are at very strong levels. Our success reflects the great acceptance of the new Volvo VN and the Volvo VED12 engine by our customers and our ability to attract new customers to the brand.
TN: Do high steel prices and shortages remain an issue? How long do you expect it to remain so and what has been the impact on your ability to meet orders and on pricing?
PK: We don’t anticipate that these costs will decrease to their previous levels in the near future. To offset higher costs for materials and components, we implemented a permanent 1.5 per cent increase on our base model prices for all truck orders entered into our system after June 14, 2004.
Our deliveries to customers have not been affected by shortages, but we continue to work closely with our suppliers.
TN: What do you see as the main operating challenges facing your customers today and how are you moving to answer their concerns with your truck and engine designs?
PK: The driver is the limiting factor on many fleets’ ability to increase revenues. We expect this will continue. New drivers are hard to attract. Driver pay is rising and some fleets are paying big bonuses for new drivers. And according to the American Trucking Associations, driver turnover in the truckload segment reached 116 per cent earlier in 2004 – and that costs a lot of money.
As an OEM, improved driver productivity is a major focus of our product research and development. How we design our trucks and our support services can make drivers more productive and more satisfied. And maybe they will not change jobs so readily. So we make our trucks easier to drive, using smart design and new components, such as automated transmissions. Volvo’s engineering and design ensures a 100-pound woman can drive our trucks as safely and productively as a 250-pound man. This widens the pool of potential drivers to include non-traditional or non-mechanical backgrounds.
New drivers can become fully productive more quickly. Volvo has integrated different technologies into easy-to-understand displays. For instance, we can use these technologies to train drivers to be fuel efficient, by providing instantaneous miles per gallon and by displaying the RPM “sweet spot” for each gear. And given the continuing high cost of diesel, this is a crucial challenge for fleets.
TN: How is the owner/operator in NA holding up? Is he going to need special incentives or financial help to get back on his feet?
PK: Reliable owner/operators are always in demand, especially in a strong freight market, such as we have now. It’s essential that owner/operators manage their business expenses and finances correctly. This is an area where their truck dealer can play a major supporting role, by making sure the truck they order is properly spec’d for their business, to be as productive and reliable as possible.
Currently, we see some successful owner/operators purchasing high-image trucks, such as Volvo’s VN 780, with good down payments. These are the operators who are financially strong and have good agreements with their carriers. Low interest rates and fuel cost support have helped the new truck transaction to fall back in line with the operating cost/revenue formula, to help the owner/operator to succeed. Also, the driver shortage has made good operating agreements easier to find.
TN: Will your role have to change too? Will you have to provide them with more business training, for example? Is that a role an OEM should play?
PK: Volvo aims to be a complete transportation solution provider. Through Volvo Commercial Finance, we already offer our customers a wide array of business services, such as insurance, accounting, record keeping, fuel tax reporting and more.
We have also developed other specialized services like Volvo Trip Manager, which tracks and reports vehicle performance for fleet managers, and the Volvo Link satellite communications system.
There is increasing need for us to provide customers with these transportation solutions. It is not enough to make the best trucks on the market; we must also ensure that our trucks and services give our customer the most uptime and reliability, too.
TN: All truck manufacturers have been placing greater emphasis on leveraging economies of scale to curtail price increases. I assume this is a trend that will continue in coming years. How is it affecting how your own company approaches the marketplace, particularly since it has a working relationship with Mack?
PK: The demands of the marketplace and the ongoing regulatory requirements are tremendous. The economies of scale we’ll achieve through common architecture and components will allow us to be more competitive, and to better meet the needs of customers. But the most important point is that the products from each brand – Volvo and Mack – will be optimized to meet the unique demands of their individual customers, and will not compromise the distinctive image of either brand.
Volvo Trucks North America is part of the Volvo Group, one of the largest truck manufacturers in the world and the largest manufacturer of heavy-duty diesel engines in the world. This global scale means Volvo has the resources to develop and deliver the best solutions and technology for our customers. We use this advantage every day.
TN: How will this trend affect the spec’ing of trucks? Should carriers and owner/operators be prepared for more common platforms and fewer options?
PK: Our product offerings reflect our customers’ needs and wishes, and will continue to do so. The emphasis should not be on the number of available options, but on how productive and reliable the overall truck is. As an integrated manufacturer, Volvo is able to optimize how the systems in its trucks work together, for the best performance. Volvo’s technical sophistication allows us to use common vehicle architecture in many markets, which reduces cost and complexity, while still meeting individual customer needs in each unique market.
TN: How does the dealer have to evolve to keep up with the changes in the market place and how are you preparing your dealer network for this change?
PK: Volvo’s North American dealer network has seen tremendous changes since 2001. The total number of Volvo outlets has increased from 275 in June 2001 to 354 today, and we expect that number to continue to grow. This has provided our dealers with a very strong business proposition, as they have seen significant improvements in dealer parts absorption and return on sales.
Our dealers as a whole are now stronger and better able to provide premium levels of service. Volvo has made a deep commitment to providing customers with a premium level of service and support. These resources are part of Volvo’s “World Class Customer Satisfaction” initiative.
The objective of WCCS is to ensure Volvo customers enjoy industry-leading service and support, al
ong with increased vehicle uptime, and reduced maintenance and service costs.
We are accomplishing this by providing our dealers with advanced technical support and training, as well as implementing our Symbols of Excellence program of dealership best practices.
TN: What’s your read on the engines you currently have in the field. I’ve heard a lot of different figures from fleets and manufacturers on fuel efficiency loss.
I realize that it’s dependent on application but overall from your own data collection what are you finding in terms of fuel performance?
PK: All of our data indicates that, thanks to the fact that we have the only new vehicle totally redesigned around the EPA’02 engines, the Volvo VN has experienced fuel economy degradation of zero to two per cent. And the performance and reliability of the Volvo VED12 engine has been excellent.
TN: Is there anything that can be done to improve that as EGR technology evolves?
PK: We already have excellent performance, reliability and fuel economy from the Volvo VED12 and the Cummins ISX.
The new family of Volvo engines Volvo Trucks North America will have in place for 2007 will build upon that starting point.
In addition, the Volvo VN was designed with the 2007 standards in mind, so again we see the benefits of being an integrated manufacturer.
TN: How about repair costs? You had a limited window to test the EGR engines. Based on the company’s own expectations, how are the engines holding up in the field so far?
PK: Excellent. We have had no major problems and the Volvo VED12 engine has gained a tremendous reputation for reliability and performance.
TN: Let’s look ahead to 2007. How is Volvo coming along with preparations for the 2007 emissions standards?
PK: As we shared with the media in Sweden in October, everything is well in hand and we are very confident.
Our technology path is well known and the technologies involved – EGR and diesel particulate filters – have plenty of real-world experience operating in North American conditions.
We are prepared to meet the new standards in 2007.
TN: When will you have engines running in customer fleets?
PK: Between Mack and Volvo – both of which will be using the same emission-control technologies – we plan to have about 30 engines in field testing with selected customers, beginning in the spring of 2005. In the meantime, we are working with ATA to ensure that as the industry moves toward EPA07, the needs and concerns of customers are addressed.