Volvo Construction Equipment consolidates in Shippensburg
Editor’s note: Volvo Construction Equipment is investing $100 million in the expansion of its Shippensburg, Pa., facility and recently celebrated the completion of the first wheel loader made at the factory with a special ceremony. The company also has consolidated its North American sales and marketing department in Shippensburg, moving its North American headquarters from Asheville, N.C. Pat Olney, president of Volvo Construction Equipment, based in Brussels, Belgium, attended the North America event. Originally from London, Ontario, Canada, Olney earned a business degree from the University of Western Ontario in Canada and became a professional accountant, working at Price Waterhouse and then for one of his client companies that was eventually acquired by Volvo. He has been with Volvo for 17 years and previously lived in Shippensburg before he and his family moved to Brussels. At the event, Olney spoke with Rental Management about the importance of the rental industry to the Volvo strategy as well as the company’s core values and concerns for the future. An edited transcript of that conversation follows.
RM: How does rental fit into the overall strategy of Volvo Construction Equipment now that the company has Volvo Rents as a growing network of owned rental stores. Does that change your rental market strategy?
Pat Olney: No, not at all. We’ve been building that model under one form or another for more than a decade. That grew out of the recognition that the rental path to customers represents half the market. We have to address it. We wanted to address it in a way that promoted our brand as well as our products. This is what led us down that solution and ultimately morphed into our strategy that we have today with the Volvo business.
RM: Do you sell equipment to other rental companies or just exclusively to Volvo Rents?
Olney: Volvo Rents is its own business in the Volvo Group. From a Volvo Construction Equipment point of view, I’m selling to Volvo Rents as one key customer, but can sell to XYZ rental company another day. What is important is that we manage the terms in a fair way. There are no philosophical issues. It’s a big market and there are heritage or legacy relationships, which we value, that came with the Ingersoll Rand acquisition.
RM: It seems like every other week Volvo Rents acquires another rental company. How did the acquisitions in 2012 impact Volvo Construction Equipment?
Olney: I can’t quote you a number, but it was significant in this market. It was two-fold last year, too. In the industry in general, there was a restocking, so the rental houses that were acquired by Volvo Rents needed more fleet, but we also see a benefit in aligning the fleet composition with the Volvo brand where we have the product. I just met with Scott Hall, the president of Volvo Rents, and I asked him, as a supplier, how he evaluates our equipment because if the Volvo brand equipment can’t help them be competitive, it’s not a sustainable solution. What he told me is that he believes customers value the productivity, safety and ease of operation of Volvo equipment. He said the equipment stands on its own merit and customers appreciate that.
RM: What are your key concerns today? What keeps you up at night?
Olney: One of the key concerns is the market in China, because it is the largest in the world. We all have an expectation of how it will develop this year, but it is a policy driven market as much as an underlying demand market. In the U.S., there are policy decisions that impact infrastructure, but a huge element of it is driven by business economic activity, which stimulates itself through cycles. The China market has a huge component, which is government policy driven and can be affected one way or the other. If they decide to fight inflation, all of sudden things grind down. If they decide to accelerate projects within three to six months, you see a boom. It adds some uncertainty. China just had a government transition and we all have expectations of what could or should happen this year. Now we have to see if it develops that way or if there was something wrong in our outlook. It has a big impact because it is such a big market. Then there is Europe and the U.S., with the government functionality question. Both are at crossroads in fiscal development. Depending on the choices politicians make, they can send the outlook for the next decade in different directions, so that sort of keeps me up at night.
RM: Your outlook for North America in 2013 is plus or minus 5 percent. What has to happen to swing it to the positive side?
Olney: The best case scenario in the U.S. is that the politicians solve the debt crisis in a manner which is not just a two-month “kick-the-can-down-the-road” solution, but a real agreement that gets things organized again in the budget and importantly adds infrastructure spending. Infrastructure spending creates jobs and has a double whammy for us because it directly stimulates demand in our products and it creates work in America that boosts the economy, which creates more work for us.
RM: How have Tier 4 requirements changed your business?
Olney: It is an initiative well aligned with Volvo’s core values. Sure, it drives a lot of investment, but we believe we are one of the stronger competitors positioned to have met these requirements in a good way for our customers. It is a competitive advantage from that point of view. Tier 4 has driven a lot of effort in research and development and product renewal. We have introduced about 115 new products in the last two years. A lot of that can be linked back to the need to update these products from the Tier 4 point of view. We are pleased with the solutions we have out in the market. We think they are very competitive and it creates that opportunity and also allows us to support the company’s core value of environmental care. This continues on with the next step of Tier 4 final and so on.
RM: Rental stores turn over fleet faster than contractors, so they will likely have more Tier 4 equipment. This equipment can be more expensive, which means rental stores will need to increase rates. How can Volvo Construction Equipment help Volvo Rents and other rental customers educate customers on the benefits of Tier 4? There seems to be an opportunity for rental stores.
Olney: Some manufacturers could just jam in what they buy from an OEM engine manufacturer, asking for a Tier 4
aftertreatment system and engine to put in the product. In that way, you add cost. Other than being compliant, you are not adding any customer benefits. Using our extensive powertrain knowledge, we’ve made further optimization in terms of fuel efficiency in both the base engine and total system, and taken the opportunity to not only update to Tier 4 interim, but to bring some additional productivity gains, operator comfort gains, safety and so on. We are positioning it as an improvement in the total offer. There are many examples in individual product launches. We can say the equipment offers better productivity, better safety, better ergonomics, better fuel efficiency, is Tier 4 interim compliant and here’s the price that goes with that.
RM: Does telematics fit into that equation? For example, with equipment like pavers, telematics and GPS can make the machine much more productive.
Olney: Our solution in this area is Care Track. We’ve been fitting that on our product for two or three years. With this, the sky is the limit because you can imagine 100 things to do with it. The challenge is to focus on the programs that will add the most value. We’ve focused on machine monitoring and remote diagnostics. Dealers then can understand where a machine is when it is down and support customers in the best possible way. This also is very good because it taps into the onboard monitoring system to tell you how a machine is being used. For example, is the operator using it in the most fuel efficient manner? People talk about fuel efficiency and we talk about the engine, but Volvo goes another step. We look at the whole system and optimize it. We also look at the operator. We ran a program in China called “Eco Operator.” The purpose of the program was to raise awareness and train operators on how to get the most out of the machine. We gave 150,000 excavator operators the chance to prove their skills and be evaluated in a round-robin tournament system to reach the finals. The winner was given an award at the end. We can put the technology in for efficiency, but if the operator is not using the machine properly, it can make a huge difference on fuel economy, not to mention safety and productivity. The way I would describe our solution is that it is a holistic approach that goes from technology and know-how all the way through to operator training and field monitoring support feedback. We can help customers get the absolute most out of their machine. There are a lot of gains on that side of the business.
RM: You have talked about Volvo’s core value of the environment and being environmentally friendly. What are the advantages of this? You have been with Volvo 17 years, so I assume this comes from the top of the company and spreads out in the corporate culture. Where did this culture come from and where do you see it going?
Olney: There are many companies that love to jump on the eco bandwagon because it is fashionable or they think it will help them sell product. For Volvo, I like the way we use this as a core value. That implies it is not a new fad or strategy, but has been with us a long time. Safety goes back to the heritage of the cars in 1927. Volvo developed the first three-point seat belt and innovations that translated through our whole organization. Environmental care came in the 1970s. Part of this understanding is that in Sweden, the environment is of extreme importance. Sweden was once struggling with acid rain and dead lakes. There was and is a real awareness in society there that something had to be done. That translated quickly into Volvo’s core value and has been with us ever since. It guides things we do that maybe don’t immediately affect the bottom line. Take our commitment to the World Wildlife Fund (WWF). I can’t tell you that this will make us another dollar of profit, but it’s the right thing to do for the company and a space we should be in as leaders in the industry. That’s real stuff with Volvo and one of the reasons I like working for this company.
Volvo ribbon cutting
Volvo commemorates $100 million North American expansion
On March 21, 2013, Volvo Construction Equipment (Volvo CE) officials and invited dignitaries cut the ribbon to officially commemorate the company’s $100 million expansion program at its Shippensburg, Pa., facility. In addition to the official opening of a new headquarters building for the Americas, the event also marked the start of wheel loader production at the company’s North American base in Shippensburg.
Joining Volvo CE President Pat Olney in the inauguration ceremony were United States Federal Highway Administrator Victor Mendez, Pennsylvania Department of Community and Economic Development Secretary Alan Walker and Swedish Ambassador to the United States Jonas Hafström, along with 1,000 employees and other guests.
The investment is designed to affirm Volvo CE’s long-term confidence in the North American market, the company said, and consolidates its North American operations onto one site. The opening of the new building also marks the completed relocation of the sales office from Asheville, N.C., to Shippensburg.
“This should serve as a very clear signal that Volvo CE is committed to this market and in a better position than ever before to offer our customers products that are made by Americans, for Americans,” Volvo CE’s Olney says.
“Longer term, building machines closer to our customers will have a positive impact for U.S.-based suppliers, who will gain more business; for customers, who will enjoy shorter lead times; and for Volvo CE, which will be less exposed to currency swings,” he says.
“What we have committed, from a strategic point of view, is to bring articulated dump trucks, crawler excavators and wheel loaders into Shippensburg and create the infrastructure to handle that. Step one is wheel loaders coming in today,” Olney says.
Wheel loader production will initially start for the L60 to L90 range of loaders. “These machines are in high demand in North America. It’s easier to start up production of smaller machines and work our way up,” says Sean Glennon, vice president of operations at the Shippensburg facility. “The investment we make in these smaller models will allow us to eventually launch into the bigger machines and meet a wider scope of customer needs.”
Localized production also is expected to help the company become more flexible and responsive to its customers in the region. As part of the same investment, Volvo CE will open a customer center in the area in the first quarter of 2014.
“We built a new assembly hall and built a warehousing center to give us the capacity to bring some of these products here. The $100 million is about bringing the products here and about our customers, but this is not an end point, just an important milestone in this five-year journey where we are making a $100 million investment in this market not only in operations and factory initiatives, but also in the important area of sales and marketing and our customers. All functions now are under one roof and we will invest in world-class training and demonstration facilities adjacent to this property to give customers and dealers a one-stop shop for experiencing the Volvo construction brand in North America,” Olney says.
The facility’s design also resulted in Volvo receiving Leadership in Energy and Environmental Design (LEED) silver certification in different areas. For example, the lighting system is designed to adjust power levels as needed since the lighting is supplemented by skylights.
The new Americas headquarters serves both the North American and Latin American business of Volvo Construction Equipment. In addition, the site’s global technology center employs around 200 people and provides development expertise to the wider Volvo business.
Today, the site has more than 1,000 employees from nearly 20 countries, together working in operations, technology, sales and marketing, and customer support.
In addition to wheel loaders, the Shippensburg facility also makes more than 50 models of road machinery, including soil and asphalt compactors, motor graders, pavers, screeds, and milling machines. Operations include welding, large machining, paint and assembly.