Last month RER visited Volvo Construction Equipment's Shippensburg, Pa., plant, where Volvo is investing $100 million on a 200,000-square-foot expansion of its current facility in preparation for production of Volvo wheel loaders, excavators and articulated haulers. Construction is complete on the materials service center and assembly hall, designed to improve manufacturing flow and increase space to incorporate the production of Volvo motor graders, and assembly lines are up and running for all road machinery products. Volvo is improving energy efficiency, safety, lighting, flooring and ergonomics.
RER also had the opportunity to sit down with the president and CEO of Volvo CE Pat Olney, who talked with RER about the progress of the plant, his leadership style, the company's investment into Volvo Rents and the value proposition Volvo CE offers to the rental and construction industries. When not traveling around the world, the Canadian-born Olney currently resides in Brussels, Belgium.
RER: How do you describe yourself as a leader? Are you a delegator, are you hands-on, are you detail-oriented or more of a big-picture guy?
Olney: The way I see myself is that my prime job description, No. 1, is to have a compelling sense of where we're going, so I guess you can say “big picture.” And then it comes to people. Are they motivated and enthused about that direction? There is certainly a people element to that, a communication element, which is very important to me. When we have good leaders, we tend to delegate to them. And I get involved with the major strategies, but we have people with far more expertise than I to handle business beyond that. So I would say big picture, strategic thinking is important and then leadership and communication.
Komatsu recently came out with an announcement of a complimentary maintenance and service program for customers that buy Tier 4 interim machines to help offset the additional cost of acquisition. Is Volvo contemplating any program like that?
On a global basis, I don't know what programs our dealers are offering in each area, but we are approaching the Tier 4 issue as we are not just packaging Tier 4, but that these are new machines with new features and benefits. We've made major updates to them and we're quite proud of the value proposition that we're bringing to the customers. So we're adding much more bottom-line value compared to the price of the product.
In the North American rental market, how seriously are you targeting selling to rental companies besides Volvo Rents? How important are your relationships with national and independent rental companies?
We have some relationships, key account relationships with some of the major players, and of course those are important relationships for us and we continue to work with those partners on a national scale. And of course our dealers are open to sell equipment where there's a customer demand. Second to that, as you mentioned, we have Volvo Rents stores and they are a key customer. It's not something where we're saying to our dealers you should go target certain companies; each dealer has to develop their own territory. We do have some important key relationships on a national level that we of course invest in keeping.
Any thoughts on the relationship between Volvo Rents franchisees renting Volvo equipment and having to compete with other rental companies renting Volvo equipment?
That situation can come up anywhere for anybody. What's important is that they have a value proposition that goes beyond just the piece of equipment. Let's say that Volvo Rents under the brand has a certain operating philosophy, the kind of service they provide, it's about much more than just a piece of equipment. That's part of the whole Volvo Rents approach and a certain customer-friendly way of doing business. Hopefully they are not sitting there saying “here's the rental rate.” They've got more to talk about than just that.
Some of the national players could say ‘You want us to buy from you but we're competing against Volvo Rents in the marketplace?’ Has that concern come up at all?
We've had discussions with some of those companies but I think once again if the value proposition we're offering them is meeting their needs, then it's just a discussion. But that can happen anyway out in the market. Anybody can get their hands on whatever type of equipment they want and price it according to however they see their strategy, so I think they understand that that's not really creating a brand new dynamic in the business. They have to look at if what Volvo is offering them is suitable for their business, then they'll continue to do business with us and we're happy to do business with them.
Do you think other manufacturers and other rental companies are concerned about the growth of Volvo Rents?
I don't know what [other companies] think. The reason we are developing Volvo Rents is to be sure that a customer who wants to use Volvo equipment is able to easily find a way to do that. If they want to do rent-to-rent, if they want to do rent-to-buy, if they want to buy new right out of the box, they have the possibility to not have to look too hard to find what they're looking for and that's important for us in developing the brand. If competitors are concerned about that, I don't know.
In general, Volvo Rents has not grown to the degree you might have liked to this point. You are putting capital in, buying franchises, how do you see it growing over the next few years?
Well, of course we expect it to go well. We try not to put money into things that we don't expect to make a good business out of. But looking at where we did have struggles, if a store owner doesn't have sufficient capital and can't fleet up properly, it doesn't create a good business model. So we want to make sure that whether it's a company store or an independent store, it's sufficiently capitalized in order to size the fleet properly to support and serve the market. I think there are good opportunities going forward, to approach this in the right way to support the market. And rent to rent, the rental business as you know is a big part of the market, it's an important channel, there are a lot of customers that want to come by equipment in this fashion. So we want to be there to take care of their needs.
You've got Volvo Rents in North America and several European countries, do you see growing that model in China, Russia, India, Brazil, or other countries?
The focus right now for Volvo Rents is North America. I think we'll be seeing in other markets dealers engage more in the rent-to-rent business or in some cases there is a very mature customer base with companies already in that business. It's different in each country, they are all developing differently. This Volvo Rents strategy is really primarily North America.
How do you see this facility in Shippensburg to this point as far as logistics and supply chain issues? What are your thoughts about it going forward?
It's been continually developing in a good way since we acquired it. We're making investments and going forward. Of course developing not only the internal capability, which is what the money does, but bringing suppliers along for the ride is very important. You go from having a smaller footprint to a much larger one. Suppliers invest in growth, and that's a big part of the strategy behind the scenes. We're working with those partners, sharing our plans for growth and they're sharing their plans to support it and it's going well.