Volvo 2005 Annual Report Download - page 59

Volvo Group 2005 55
Many of our products take a long time to
develop from initial idea to finished product. It
is important to involve customers in the early
stages of the development process, to ensure
the success of new products and at the same
time being at the forefront in the research and
development of new technologies that are
important to the development of efficient
products.
Volvo Group relies on suppliers
Volvo purchases raw materials, parts and com-
ponents from numerous outside suppliers. A
majority of the Group’s requirements for raw
materials and supplies is filled by single-
source suppliers. The effects of delivery inter-
ruptions vary depending on the item or com-
ponent. Certain items are standard throughout
the industry, whereas others are internally
developed and require unique tools that are
time-consuming to replace. A supplier’s inabil-
ity to deliver could have negative conse-
quences for production at certain Volvo
Group manufacturing sites.
The Volvo Group’s costs for raw materials
and components can vary significantly over a
business cycle. Cost variations may be caused
by changes in world market prices for raw
materials or by an inability of our suppliers to
deliver.
The companies in the Volvo Group and their
suppliers work closely together to manage
material flows by monitoring suppliers’ financial
stability, quality systems and production flexi-
bility.
Commercial vehicles industry is
subject to extensive government
regulation
Regulations regarding exhaust emission levels,
noise, safety and levels of pollutants from
production plants are extensive within the
industry. These regulations are subject to
change, often making them more restrictive.
The c os ts to c omply wi th these reg ul ations can
be significant for the automotive industry.
Most of the regulatory challenges regarding
products relate to reduced engine emissions.
The Volvo Group is a large player in the com-
mercial vehicle industr y and the world’s largest
producer of heavy-duty diesel engines. The
product development capacity within the Volvo
Group is well consolidated to be able to focus
resources for research and development to
meet tougher emission regulations. Future
product regulations are well known (provided
that they are not changed), and the product
development strategy is well tuned to the intro-
duction of new regulations. The new regula-
tions regarding product emissions are
stringent, but our current assessment is that
they are manageable for the Volvo Group.
Volvo has had production facilities in
numerous countries worldwide for many
years. A worldwide production standard for
environmental performance has been intro-
duced, enabling production plants to achieve
best industry standard.
Volvo Group is reliant on the proper
protection and maintenance of its
intangible assets
The Volvo Group’s products are primarily sold
under the brand names “Volvo”, “Volvo Penta”,
“Volvo Aero”, “Renault”, “Mack”, “Prévost” and
“Nova Bus”. AB Volvo owns or otherwise has
rights to a number of patents and brands that
refer to the products the Company manufac-
tures. T hese pa ten ts a nd b rand s, a cqu ire d o ver
a number of years, have been valuable as the
Volvo Group’s operations expanded and may
continue to be valuable in the future. We do
not consider that any of the Group’s operations
are heavily dependent on any single patent or
group of patents.
Through Volvo Trademark Holding AB, AB
Volvo and Volvo Car Corporation jointly own
the brand “Volvo”. AB Volvo has the exclusive
right to use the Volvo name and trademark for
its products and services. Similarly, the Volvo
Car Corpor ation has the exclusive right to use
the name and trademark Volvo for its products
and services. To protect these rights and avoid
any weakening of the brand, AB Volvo and the
Volvo Car Corporation jointly introduced a
control function governing the use of the brand
name, to prevent others from taking unfair
advantage of it.
Similar control functions apply to the use of
the “Mack” brand name, which is owned by AB
Volvo. The Volvo Group’s rights to use the
Renault brand are restricted to the truck
industry only and are regulated by a license
from Renault SA, which owns the “Renault”
brand.
Complaints and legal actions by
customers and other third parties
The Volvo Group could be the target of com-
plaints and legal actions initiated by custom-
ers, employees and other third parties alleging
health, environmental, safety or business-
related issues, or failure to comply with appli-
cable legislation and regulations. Even if such
disputes were to be resolved successfully,
without having adverse financial conse-
quences, they could negatively impact the
Group’s reputation and take up financial and
management resources that could be used for
other purposes.
Volvo continuously reviews its manufac-
turing and administrative processes with the
aim of ensuring that Volvo products and oper-
ations meet applicable legal and other regu-
latory requirements. Volvo does also have
insurance coverage in certain areas, for
example product liability, business interruption
and property.