Volvo’s US ambitions

Promising US car sales and another record breaking year for US car exports has another foreign car manufacturer expanding its presence in the US.

Indeed, according to Autodata, 16.5m new autos were sold in 2014, 1m more than in 2013 and the highest number since before the recession. The trend appears to be continuing into 2015 as at mid-year, sales are already up 4.0% from same period in 2014. In fact, Wards Auto predicts total sales of 17.1m cars for 2015, or 600,000 more than last year.

In addition, US auto exports increased 8.0% over 2013 which resulted in a third consecutive year for record breaking exports. Thanks to NAFTA a thriving regional supply chain is in existence, with about half of US car exports destined to Canada or Mexico and about 87.0% exported from Mexico into the US.

Foreign-owned US auto plants built in the US Midwest and South are exporting more vehicles to other markets such as the Middle East and Asia. In addition, these manufacturers are further benefitting from US sales and Volvo plans to do the same.

Volvo, now owned by Chinese company Geely Group, has selected the Charleston, South Carolina area for its first North American manufacturing plant. Construction is set to begin this year with the factory expected to begin producing vehicles in 2018.

According to the New York Times, Volvo currently operates two facilities in Europe and two in China. It is looking to increase its American sales volume, after an 8.0% decline last year from 2013, which contrasts with the global picture. Overall the company is growing, up 9.0% in 2014— helped by demand in China. In fact, it also is exploring the possibility of becoming the first major automaker to import Chinese-made cars for the US market.

In addition, the company recently opened a new 1m sq ft distribution centre in northern Mississippi to support its Mack and Volvo truck lines. From this distribution centre, it will supply six regional parts depots in the US and one each in Mexico and Canada.

Volvo joins a host of foreign-owned car manufacturers to locate facilities in the US South, along with BMW, Hyundai, Mercedes, VW and KIA to name a few. The region, once known as a major hub for textile manufacturing suffered the outsourcing trend as a majority of these manufacturers relocated to China and elsewhere due to lower labour costs. However, there was a reversal of fortune beginning in the 1990s when BMW opened its first North American facility in South Carolina. Since then, foreign car manufacturers eager to take on the US Big three on its home turf have moved into such “right to work states” as Georgia, Tennessee, Alabama, Mississippi and elsewhere to take advantage of lower costs.

And while a majority of new car factories have located to Mexico in recent years versus the US, former Southern textile hubs such as Greenville, South Carolina and West Point Georgia have now grown into automobile hubs. To match this growth suppliers and logistics providers have moved into the area to the benefit of trucking, rail, airports and ports.