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Volvo Standing Up to Russian Economic Headwinds

Executive Summary

First-quarter deliveries slumped 39.2% from year-ago, but the automaker predicts full-year sales will fall no more than 30%, revived by a broadened product lineup led by the all-new XC90 CUV.

ST. PETERSBURG – Plummeting sales aren’t chasing Volvo out of Russia.

The Swedish manufacturer, owned since 2010 by China’s Geely Automobile, plans to expand its product lineup and dealer network while trying to offset damage inflicted by the devaluation of the ruble through deep discounts.

Volvo sold 1,971 cars in Russia in the first three months of 2014, down 39.2% from 3,242 prior-year, according to WardsAuto data. The decline was even steeper in March with just 944 deliveries, off 44.4% from like-2013.

But Volvo President and CEO Hakan Samuelsson predicts full-year sales will fall no more than 30%, revived by the launches of the all-new XC90 CUV and new-generation S60 Cross Country sedan and V60 Cross Country wagon.

Indeed, Samuelsson says he believes the Russian market has the potential to become as large as Germany’s. WardsAuto data shows 3.36 million light vehicles were sold in Germany in 2014, some 28.8% more than Russia’s 2.61 million.

For now, however, Volvo and many other foreign automakers face stiff economic headwinds that already have pushed General Motors to cut its losses in Russia by shutting down production and halting sales of its Opel and volume brands.

Volvo responded by raising prices 20% to 30% in December and January but is considering a rollback should the ruble regain strength. But within the past two weeks the automaker has begun offering discounts of about RR200,000 ($4,000) on its XC60 and XC70 CUVs.

The eight Volvo models sold in Russia are imported from plants in Sweden and Belgium. The automaker has not ruled out building its own plant in the country, although that would not take place before 2019.

Volvo closed dealerships in Novosibirsk and Kursk last year, but Samuelsson says five new dealerships are to open this year in Moscow, St. Petersburg, Yekaterinburg and Rostov-on-Don. The automaker is expanding its retail network by absorbing former GM dealers.

With new-model launches upcoming, Volvo has no plans to cut spending on advertising in Russia. But under a new global strategy called Volvo Way to Market, the automaker will limit its participation in auto shows to one each in Europe, Asia and the U.S.

Volvo meanwhile will focus on increasing online sales. Last September, 1,927 XC90 First Edition models were sold online globally in 47 hours.

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