In April Göran Gummeson will retire from being the head of Volvo Penta to make way for Björn Ingemanson, previously president of Volvo Trucks International Division. In this interview IBI’s publisher Nick Hopkinson talks Göran through his tenure at the helm of one of the leisure marine industry’s most significant global companies
NH: When did you start with Volvo Penta ?
GG: I was brought in to reorganise the European management structure in 1998 and to streamline the reporting process. At that time most of the company subsidiaries had their own managing directors but now we have a centralised European management which has improved the coordination of the business. I moved on from this role to become president and CEO in 2004.
NH: Presumably 2004 was not a bad time to take over as it must have been during a strong growth phase?
GG: Absolutely and in fact we had started to see strong growth since 2000 based on a great deal of new product innovation and the underlying market strength. We benefited from the launch of good products and grew our reputation as an innovative company.We were growing by more than 10-15 per cent annually and we had strong growth all the way up to 2008. We celebrated our 100th anniversary in 2007 with record sales and profits, so it was a great event!
NH: I guess the next year came as something of a shock?
CG: Yes, the world changed. It started at the end of 2008 and we saw it immediately in the decline in our order intake which was common to everyone in the business. But I think we were pretty lucky because we reduced both our production rates and selling and administration expenses quite dramatically. We anticipated early on what was going to happen and reacted quickly and proportionately. We had to reorganise and this meant taking a one-time hit which saw us make our first ever loss in 2009 but by 2010 we were back in profit again.
NH: Volvo recently released its year-end results for 2011. The Group as a whole had a record year on the back of tight cost control and surging sales in the truck and construction machinery businesses. How did the marine division perform?
CG: Yes, it’s true that Volvo Group as a whole had its best ever results, with sales in 2011 of SEK310.4bn and an operating profit of SEK26.9bn, but the marine section is still fighting a declining overall market. The year started well but the third quarter saw a downturn and the fourth quarter was very weak. (Click here for the latest IBI Plus financial analysis for Volvo Penta)
NH: How do you see the market in 2012 and 2013?
CG: We are assuming a weak first half but hopefully with some more encouraging growth in the US. But in the other major markets such as Europe we don’t predict any improvement. In fact we are planning for a flat or slightly negative global market for the next two to three years. There will be some niches where things could be better but the analysis we did showed that everyone massively reduced inventories in 2009 and in 2010 thought that the business would recover and ramped up production again only to be severely disappointed when it was not there. We did see growth in Brazil and a strong increase in orders from China, albeit from a low base, but this will not compensate from what has been lost in the US and Europe.
NH: What is the trend today?
CG: We have seen a forward order decrease of 40 per cent compared to this time last year and most of us in the business are now keeping our inventories very low and keeping tight control of the pipelines. We have all learnt a lesson. The reverse side of this coin is that suppliers to the OEMs could find it very challenging from a production and resource point of view to react to any market improvement.
NH: How do you view the latest news from the Italian industry concerning the acquisition of the Ferretti Group?
CG: Italy is a challenge at the moment with the government’s fiscal policy clearly directed at reducing luxury consumption through the implementation of a tougher taxation policy. It was no great surprise to see a major Asian company taking the opportunity to acquire a well-known luxury brand during a period of market weakness to gain local market access. Shandong Industries is a very large group which includes the largest diesel engine manufacturer in the world. I am convinced that we will see other Asian companies taking an interest in the marine business, which is good as it opens up business opportunities.
NH: What is the main thrust of Volvo Penta’s R&D programme at the moment?
CG: We are working hard and making significant R&D investment aimed at making boating an easier experience and more akin to that which a car owner now expects in terms of integrated operating systems. We are going to introduce a lot of new things on the electronics side. As a percentage of sales our expenditure on research is higher than ever and we also have to be prepared for tougher emission regulations which will require further development work. We see a lot of opportunities in becoming more of a one-stop supplier from the control position down to the propellers for the benefit of the OEMs.
NH: Have you entered any new strategic partnerships?
CG: Last year we made an agreement with Yamaha to work together and share technology on steering systems and engine monitoring which could also be good for outboard engines. More recently we have also announced we are talking to Garmin about cooperation in the area of navigational equipment.
NH: What are your feelings on having decided to retire?
CG: Well, I have had grown up with Volvo over several years with a lot of activities and I have made many friends in the boat business so I leave with a good heart. We have a sound profitable business and are capable of investing heavily in the marine market so we will remain a strong player. I am handing over to a very capable guy at a time of some turmoil in the marketplace, so the company will benefit from his fresh thinking.