P&L: Volvo Will Start Producing Cars in U.S. by Mid-2018

American International Auto Show. Um, Lex, what has surprised you about this show? Just looking in general? Has anything? Um? I think what you what you see here is is the trends, which is going on, more pickup trucks, more SUVs and UH and autonomost drive is the um let's say, it's the hot words out today. Yeah, but is that from demand from consumers or is it for auto companies to feel like they've got a toe hold in what

could come perhaps in the next decade. No. I think we as automotive manufacturers, we need to be a little bit ahead of the of the gang, and we strongly believe at least I speak for Volvo. We we have a very clear vision by twenty twenty nobody should be killed or seriously injured in a Volvo car, and autonomous drive is a very important ingredient of of of reaching that target. So I think it's it's driven where the automotive industry is going in the future. Let's talk about

Volvo cars. You did what about a half a million at last last year? We we had a we had a third in a row record, a year in a row record for five and thirty four thousand units. Okay, five thirty four thousand units. Let's look at the sort of breakdown of those units and what you see for the future. Uh, the Let's start with what you're going to unveil or trying to unveil today. What is up with this T eight hybrid drive train with a combined combustion engine. Now we have we have the EXCE ninety

and that is the the T eight. It's an electrical motor and it's a force clinder force clinder engine. So you have the best out of two worlds. You can drive electric and you can drive with your regular combustion engine. What will show today is is another step in what we again, I'm talking about autonomous drive. Um, we will start a project in Sweden end of this year where we hand over one cars too regular customers who are going to experience what autonomous drive means in their daily life.

And that's the This isn't Goldenburg, Sweden? Where where where the Volvo headquarter is? What about in the US? I mean, how concerned are you lex about the political backtrap and interfering with Volvo's plans to unveiled both autonomous cars as well as manufactured things in the cheapest possible manner. Um, let me take a step back. We we have decided to build a factory in the United States because of Trump. That was far before President Electron came in came into

the picture. We decided this is in South Carolina. This is in South Carolina. We decided that two years ago we will start producing cars mid two thousand eighteen. We built that factory in the United States because we wanted to be in the United States. Of course, Mexico was an option. There are other places where we could go. We wanted to be here because Volver has been here for sixty years. So it has nothing to do with

with with the existing discussion. The discussion is about autonomous drivers. We believe in something as much we believed in producing cars in the United States, we believe in autonomous drive. But do you think that from a regulatory standpoint that you will be allowed to test autonomous cars in a way that you'll need to be able to do so in the United States the way that you are saying, sweet, Well,

that's a good question. And I think that the NIZA has released a report or proposal in in in in July or August where they try to come to a solution on a from a federal perspective, ALMO allowing manufacturers to test and because that's a prequisite you you we can't sell cars which you can't drive from California to Arizona. You have to stop. So I think that's a prequisite for the autonomous drive. Yes, just quickly, you're gonna be importing a car into the United States that's made with

your partner Geely in China. We are we are, we are currently yes, we are currently already importing cars from China into the United States. Tell people just what the model is and what it's it. We we we we we we we imported the sd S sixty since since since one and a half year, and we are a global company. We have factories all over the world, and we import and export cars out of the US in the future and into the US from different places in the world. Might be the way for other automakers to

do it as well. Thanks very much, Lexa kursen Maker's He is the senior vice president America's President chief executive for Volvo. We are ready for some transformation and we have two gentlemen that can help us. Kevin Tynan is our senior autos analyst for Bloomberg Intelligence. He can be followed on Twitter at keV tyn in ten and also joining us is David Welch, our Detroit bureau chief for

Bloomberg News. David Welch, I want to start with you, because first I want to thank you for having us here in Detroit and showing us the hospitality of the bureau and arranging for a very nice dinner last night. Thank you. What is the biggest theme we We've been going back in fourth year, whether the theme is autonomous driving, is it hybrid vehicles, or is it just or is it just really I'm gonna get to the Honda truck in a second. But is or is it trucks? What's

the theme for you? Well, the market is always trucks, That's what everybody's buying. Um. But what I find interesting, honestly is the number of cars and evs that are here in an era when gas is cheap, No one is really buying either one of of those, whether it's electric cars or passenger cars. Um. And the Trump era is only gonna husher in more of that. He's drill, baby drill, He's franc baby frank. Um. You know, he

wants to bring cold back. He wants cheap energy of every kind, which which means gasoline will be cheap for as far as the eye can see. And people buy big stuff. But at this show, we've got a new BMW five series and Mercedes E Class when that markets down this year. We've got a new camera you know that that has head here in five years, right, Um? And you've got uh many has plug in hybrid. You know who's gonna I mean, I'm a mini owner, but you know i'm the guy. Um, So it was you.

You're You're the one. You were the statistic on the far chart. You know, Kevin, do you agree I mean what I mean? And also, why do you think that these automakers are rolling out and sort of advertising their sedans and their mid sized cars in an era where the truck is king. Yeah, and and we're basically unwinding car demand and car supplied. There's still significant segments. There's still a lot of univolume that goes to those segments,

but it is declining every year. So I think what you're getting can you just put that into perspective and how much has the car segment declined is a proportion

of overall sales? Well, if you look at the top three segments by volume as as we lay them out, compact crossover suv is the largest for the first time last year, UH, compact car and midsize car would be two and three, and those had formerly been the largest segments as as recently as UH those two segments combined, the car segment we're down in roughly eight percent last year.

Now keep in mind this is a record year in volume, and car sales were down on midsize and compact while the compact crossover suv segment was up, so even outperformed basically a little bit better than flat market. You have a situation where you can't sell cars. Can't sell cars except if you've got big promotions, low cost financing, sure sure leasing. We're seeing record leasing levels also, which is uh, we're finding creating affordability as average transaction prices are at

record highs as well. But it's also aligning the driver with the technology cycle. We're seeing new technology every year. A nice thirty six month lease aligns with what's new and what's coming. But I keep seeing that there are a leases for a lot longer and for the actual loan business is taken you out in terms of years to the point where I don't know whether there being more rubber or left on the tires by the time you turn it back. That's a FAIG concern right now,

because resale values have also been going uh down. So David, why do you think, uh, is this just basically a PR push then to sort of give a sort of environmentally friendly uh sort of face to auto companies um with what they're showing versus the trucks that they're selling. Yeah, there's well, there are a couple of reasons that you're seeing a lot of evs plug in hybrids and that sort of thing I don't auto show one is they want to talk to regulators. We're doing the right thing,

because that's these vehicles are regulatory. You got that, got the cafe standards, right, I mean yeah, And you've also got a requirement in California that you have a certain percentage of your sales and it's not insignificant. Has to be zero emissions, nothing out of the tail play that typically means an electric car or and you get partial credits for a plug in hybrids. They have to make them, so they're putting them up there to make that statement.

The other thing you have to remember, too, is the vehicles that we're seeing today, we're planned and developed. There were designers and engineers on the sketch board in two thousands, well when gas was three six gallon. Obama was talking about much tougher, tougher fuel economy rules and Donald Trump was every reality TV star, So it was a very different world. When these vehicles are on the drawing board, and now they're coming to market and the market is

much much different than it was back then. We've seen three and a thousand, five and a thousand years of growth and it's mostly been SUVs and trucks, but the stuff they were developing when all that started was much more thrifty. So, Kevin, would you agree with that sort of lens to put on this that A lot of what we're seeing in terms of the electric vehicles and the a ton of striving in the midsized cars, a lot of that was produced in an era when people

believed that we're moving to a more fuel efficient standard. Sure, And what I think automakers are doing is looking out whether it's five, fifteen, twenty years and saying, let's assume this endgame is electrification and working backwards. And I think what's different now than the pre bankruptcy period was that they're involved in the development of that technology. Rather than pushing what they want to the market and saying you'll come and you'll buy it. They're involved in that investment,

and then it's able to be scalable. So if if electric vehicle penetration goes from three to five to ten to fifteen to forty, whatever it winds up being, they can scale up with. If it doesn't happen, those vehicles can go to the lift fleet, the uber fleet in low low cost leases and they hit their their cafe and their emissions requirements. That way free to sell as many trucks as they want. On the other side of the equation, there's something we haven't talked about here that's

hugely important, and that's China. So China is now the biggest car mark in the world, and the air quality in its major city's is is just unbreathable. So they are really giving big incentives and big requirements for plug and hybrids, and over the last twelve day two months they've started to go from plug and hybrids being good enough to incentives for battery electric fields just just pure

electric cars. And in some cases you know that the company are the government owned companies get massive incentives for buying these cars, and those guys lose money, but that

the government props them up. So they're buying a lot of these vehicles that that lose money um for the people who sell them, but the Chinese wanted and as long as the Chinese want this, you're going to have to make them globally, and car makers tend to engine your global fleets of vehicles that they build and sell, So real quick, do you think next year you're going to see the same number of electric vehicles more more, more China leading the charge. Thank you so much both

of you for joining us. UH. Kevin Tynan, senior auto analysts for Bloomberg Intelligence and Detroit Bureau chief David Welch, thank you so much. You get more perspective on this incredible, massive floor that we're sitting on with lots of cars in all sorts of positions. I saw one hanging from a wall. I want to bring in Sam Slaughter, chairman of the North American International Auto Show, UH with us

here in Detroit. So can you give us some perspective on how this show compares to previous years in terms of scope, a number of attendees, and the types of offerings. Well as far as scope goes. We've added the whole automobility section downstairs, which really speaks to the technology that's coming in our cars. That a lot of it's here, but we're getting all the way up to autonomous self driving cars and and that's really the thing to talk about at the show this year. There's a lot of

technology here. You can see it even in this play boost right behind they're doing this simulated drive and cars actually moving the way a car would actually move in the track, but it's virtual. Do you think that we're going to see true autonomous vehicles gained some popularity in the next decade? And if so, how to what degree?

I mean, how how much will the perpetration be? Yeah, you know, John kraft Trek was here yesterday, the Google autonomous driving guy, and and and they've created this new company called way Bow, and they actually have this price of pacifica that does drive by itself. And they've logged three million miles on the actual vehicle, but five billion miles virtually. And so they're really, uh, they're they're they're perfected it in such a way that, in his words,

you know, you can't get close with autonomous driving. It has to be perfect. And so yes, I think you're gonna see increasing self driving capabilities, whether it's fully autonomous or not. I think you're gonna see more and more self driving capabilities. But someday, you know, it could all be self driving. The one thing I don't think it can be, at least yet, is it can't be self cleaning.

And the reason I bring that up is because I know that you started off your real love of automobiles by washing cars at the dealership that you subsequently But that's correct. Yeah, and I can still detail a card just so you know. So that's something that you can't automate. And you cannot automate I wish you could. All right, Well, then let's talk about the automation and the detail because you've had to learn a lot of of terms in

the last let's say five years. If I had said led ar to you five years ago, what would you have said. I would have no clue. I would have said, as it's something to eat, I don't know. Yeah, So tell people about what it is and maybe just give us let's say the five most important things that people ask for when they're looking for a car and they want this new technology. Well, they're not asking for lighter

yet because nobody knows what it is. But what lightar does is it really can see in the dark, in the bright sun, in the snow, and it's really gonna enable self driving things to happen. But you know that technology is coming. Right now, I'm driving a car right now, a gmc Acadia that has adaptive cruise control. You set the cruise at seventy miles an hour. Somebody cuts in front of you to pass a truck, your car slows down automatically, it speeds up automatically, a panic stop and

it stops. So there's a lot of things that we're seeing right now in our car, So customers are starting to ask for those kinds of things. Do you think that the first adopters for autonomous cars will really be the ride sharing services? And how much have you seen

sort of an increase in representatives from the ride sharing company. Yeah, that's that's a great question, Lisa, And and that some of these ride sharing companies are are participating in the Auto Show for the first time ever with with automobility, And yes, I think that's where the most natural application for it is. The other natural application for his long haul trucking. That's where you know guys getting trucks and they have to drive for eight hours and they have

to take eight hours off. Well, the autnos driving truck doesn't have to take time off. So you still might have a driver to keep it clean, to unload and load, but that driver can take his nap while the truck is still making its progress across the country. So have you seen the number of regulators attending this conference also increasing? Just as a result of some of the prospects of trucks barreling at uh, you know, but eighty miles per

hour without a driver without a driver. Yeah, you know, that's so interesting you ask that question, because I think that's a whole, you know, wave of of litigation and planning that we haven't had yet. Is you know, right now you and I make a decision where they're going to hit the baby or hit the tree. Right, well, but hopefully not choice. You're going to have to make it. But how do you program that? And who programs that? And then who's responsible for what happens when that accident happens.

The good thing about autonomous driving vehicles and all the safety features is we're gonna have a lot fewer accidents, and the ones we have are gonna be bumps, not collisions. Tracking devices that will be in cars to allow not only your family, but perhaps law enforcement or regulatory bodies him really paranoid and do you have something to hide?

I mean, are you worried about being But one of the things that I found most interesting is that the information that is garnered from the Tesla automobiles, that is all compiled and used by Tesla in order to then create the next iteration of whatever it is they're trying to accomplish, right, And that's one of the things that this technology, the technology actually learns from its own experience, and that's that's kind of an amazing thought in and

of itself. But you know, the days of being anonymous anymore. I mean, you can't be in a Walmart parking lot without being on camera. And now everybody's gonna know where you're going when you're going, how fast you got there? Uh, my bank denied a credit card charge because it said I drove too fast across the state of Michigan on my way to my cottage and I got gas here and I stopped to get groceries there and they wouldn't take my credit card. I guess I have a lead foot.

But wow, we learned something new about you. Sorry, you have a lead foot and your your bank is schooled at you. I think, Well, thank you so much for being with us. I'm sure it took months and months of planning, So thank you so much. Sam Slaughter, chairman of the North American International Auto Show. Here on the show floor. All right, we are broadcasting from the North American International Auto Show and Our guest now is Alan Batty. He is the executive vice president and president of North

America for General Motors. Alan, thank you very much for being with us. Before we get to the cars, I want people, if you can, just to give them a very small capsule shot of your career to highlight the notion that this is a global business. And while we spend a lot of time and we will spend a lot of time talking about where products are made, your career I think highlights how global the business is and that's not going to change anytime soon, at least anytime soon. Yeah,

thank you for that. Nice too nice to be on. Um. Yeah, I actually started in the industry thirty seven years ago. Um, I've actually worked in eight countries around the world. Um, countries like Korea, the Middle East, all over Europe, Australia. So yeah, I have a very China perspective, and you have spent a lot of time in China actually on

the board of our joint benches there. So sticking with that kind of global theme, do you expect that going forward, China is going to account for a bigger proportion of business that General Motors does internationally? I mean, do you think that the international market will account for more and more relative to US consumers. Well, you know, the automotive industry at General Motives is really about building where we sell. So most of the vehicles that we sell in China

are made in China. Most of the vehicles we sell, for example, in North America are made in North America. Obviously, moving vehicles around the world, the logistics of that is

very expensive. So yeah, China is a very very big market, biggest in the world today, coming off of a very strong two thousand and sixty, we expect seventeen to be strong and gain so and and sort of to to speak to my colleague David Welch's point earlier in the program, he was saying that in China there's a very big emphasis on electric vehicles, much more so than here in the US. Are you seeing that as far as you know, Are you seeing that represented in the mix of cars

that you are selling in China? Yeah, David's correct. I would say that the future is going to be electric. I would say we're just beginning on that journey. UM. And obviously in China, UM, the regulatory environment is stipulating that we have to have a large proportion our vehicles which are electric and providing electric forms of transportation. So it is going to dramatically change, um the landscape over there. We think we're well equipped UM to be able to

adapt and to pivot into that environment. But yes, it's going to look very different in the future. The Bolt, the Chevy Bolt, and the Chevy Bolt e V. Tell us about both of those, and congratulations. I know the Chevy Bolt was named North American Car of the Year. Yeah, so thank you for that. Yeah. The Bolt ev UM is a vehicle now that we actually bought it here a year ago UM as a concept and said that

we would launch it in two thousand sixteen. At the time, we were saying two hundred miles of range at thirty thousand dollars after government subsidies. We actually over delivered on that. We delivered a vehicle with two hundred and thirty eight miles of range UM and we executed it at thirty thousand dollars after government subsidies. The really important thing is I think winning their motor trained carver the year, then

winning North America can carver the year. It's not just a great electric car, it's a great car period and so we're very, very proud of the team for executing that vehicle and it gives us a leadership position. So who is the buyer of this car at this point? Yeah, that's that's a great question. So the reason the thirty thousand dollars is so important is that is at the price of this car. And just to be clear, this is a long range electric vehicle and the objective is

to be in an affordable price. Correct. And the reason thirty thousand dollars is important is that hits the midpoint of the US consumer today. So the midpoint of the range where people are buying is thirty thousand dollars, So it's right into the mainstream market. That's why it's so important. And who's going to buy this vehicle? Um, we think that with that amount of range, it takes range anxiety off the table. We think there could be a widespread adoption.

Do you think about how many automobile companies and how many offerings there are. I believe there were over three hundred combinations you could get this year alone, and of course not everyone is a big seller. Do you see any consuler station increasing in the automobile industry? Um, that's a that's a board question. I would say a general motors, we're actually consolidating with ourselves were we were a big, big global company, but in fact in the past we've

operated putty independently from each other. But going back to the that's that's still relate to let's say the Buick division, which really is a success story in China. That's a great example. So you know, the things that we're doing in the US, like the bold E v Um, we're able to then use that and transfer that knowledge and

technology to give it global scale. And so no, I don't think there's anything on the cards right now from our perspective, but we're doing a lot of work to make sure around the world that we're staying as common and as as as similar as we possibly can. You know, we've talked to a number of analysts who said that the auto industry just in general has been plateau ing after a number of years of pretty rapid growth over

the next three years. Do you expect some kind of decline or do you think that we're just going to stay at the sort of plateau. Yeah. I always smile when people say it's plateauing. It's plateau ing at the highest level we've ever seen. Last year was another all time record, not a bad time exactly. So look as we look into seventeen, we think the market is going to be very strong again. Um, it will either be another record, it will be very close to it. So

we're expecting a very very strong two thousand side. And do you think that it will be largely composed of trucks the way that it has been Obviously trucks and SUVs have obviously been driven by the lower fuel prices. We expect fuel prices to stay pretty much where they are today through seventeen. So yes, we think that you'll see that continued growth. All right, Thank you so much.

Alan Beatty, executive and vice president president of North America of General Motors, here with us at the International Auto Show in Detroit. Thanks for listening to the Bloomberg P and L podcast. You can subscribe and listen to interviews at iTunes, SoundCloud, or whatever podcast platform you prefer. I'm him Fox, I'm out there on Twitter at him Fox. I'm out there on Twitter at Lisa Abramo. It's one before the podcast. You can always catch us worldwide on Bloomberg Radio