Volvo 1997 Annual Report Download - page 26

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24
Financial review by business area
a planned production start in early 1999. The cars will be sold in South Africa and
neighboring markets.
AutoNova in Uddevalla, Sweden, which began production of the Volvo C70
Coupé during the year, did not reach its planned production volume of 7,000 cars.
Strict demands on quality in a new production process, coupled with late deliver-
ies of components by suppliers, caused delays. The rate of production gradually
increased toward the end of the year and plans call for 18,000 Volvo C70 cars to
be produced in 1998.
Lower product costs
Costs were reduced through higher productivity and lower purchasing prices.
The establishment of suppliers close to the Torslanda plant continued and is
expected to be completed by the middle of 1998. Transport time and ware-
housing costs in the plant are being minimized while assembly times are being
shortened since a number of components are being delivered as entire modules.
Inventory costs also decline in pace with customer-order-driven production being
implemented to an ever increasing extent. The program of concentrating dealer
operations in fewer but larger units is continuing in Europe and the U.S.
Broadened product line
During the year, Volvo S40 and V40 models with two turbo engines were intro-
duced: a T4 1.9-liter, 200-hp version and a light-pressure 2.0T, 160-hp turbo
engine. The Volvo S70 R and V70 R, as well as the four-wheel-drive Volvo
V70 R AWD were introduced in May 1997. The Volvo V70 XC (Cross Country),
an enhanced version of the Volvo V70 AWD, was presented in September.
Investm ents for new car models
Capital expenditures for property, plant and equipment increased to SEK
5,544 M (4,425). The greater part pertained to changeover costs in the Torslanda
plant and investments in type-specific tools for future car models.
Closer cooperation with Mitsubishi
During the year Cars concluded an agreement with Mitsubishi covering the
purchase of Mitsubishi GDI engines for the Volvo S40 and V40. “GDI” is the
abbreviation for Gasoline Direct Injection, an engine concept that is expected to
reduce fuel consumption in the Volvo S40 and V40 by 10% to 15%. The agree-
ment pertains to the purchase of 15,000 engines annually and sales of the first
Volvo cars with the new engine – designated Volvo S40 1.8i and V40 1.8i –
will begin during 1998.
Trucks
Economic trends throughout the world that in 1997 were characterized by low
inflation and low interest rates favored investments in trucks. This helped to
keep global demand for heavy trucks at the same high level as a year earlier.
The truck industry continued to be marked by structural changes in which
mergers and partnerships of various types were formed. In addition, new players
in the form of finance and leasing companies established themselves as agents
between producers and end-customers.
The Volvo S40 was the
only medium -class car to
win four out of four possi-
ble stars for very good
perform ance in collision
tests conducted by the
European New Cars
Assessm ent Programme
Partnership (Euro-NCAP).
Later in the year the Volvo
S40 also received the
English Prince Michael
Road Safety Award for the
most im portant contribu-
tion to autom otive safety
in 1997.