Volvo unlikely to sell entire bus unit

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Anders Hägerstrand, Dagens Industri  /  September 9, 2016

Volvo Buses' profitability over the past decade is an almost tragic story, the operating margin has often fluctuated around zero percent.

With these conditions, Volvo CEO Martin Lundstedt would be derelict in his duties not to plan for significant changes in the bus business.

But, Volvo selling or separately listing its bus business is not realistic, although there certainly are Asian players who are prepared to pay good money for access to Volvo's hybrid technology and electromobility.

The synergies with the truck business are so great that holding on to the bus unit is justified. Moreover, it would be hardly sensible of Volvo to sell the entire bus unit, thus forcing the company to share the Volvo marque with yet another foreign player in addition to the Chinese car manufacturer Geely.

What we can expect, however, is for Volvo to sell the parts of its bus business that are performing worst, so as to lift the operating margin for the remaining portion.

In good times, Volvo’s bus business has had significantly higher profitability of around 10 percent.

This all points to two reasons for Scania's bus business being far more profitable than Volvo.

One is that Scania has been better at staying away from business which does not provide benefits of scale.

The second and probably most important reason is that Scania manufactures fewer body variations for their bus chassis than the Volvo.

According to the companies, Scania manufactured bus bodies for about 10 percent of its bus chassis in 2015, relying mostly on body builder partners.

Volvo on the other hand internally manufactured 62 percent of its bus bodies.

Bus body production requires a significant amount of manual labor and it is challenging to employ assembly automation.

Therefore, it appears obvious that Martin Lundstedt will soon be either selling Volvo’s bus body manufacturing unit, or at least subcontracting out the majority of the manufacturing.

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"No smoke without fire"

Karin Olander, Dagens Industri  /  September 9, 2016

China bus maker in talks to acquire Volvo’s bus business.

Rumors about the Volvo buses have been circulating for some time and got new impetus yesterday when several international news agencies quoted the Italian newspaper Il Sole 24 Ore on reports that a Chinese player would have made a bid. The newspaper also said Volvo’s advisors and banks are evaluating different options for its bus division, including an IPO.

Last month, there were media reports of Chinese interest, especially for Volvo's hybrid and electric buses. One name mentioned is China's largest bus manufacturer Zhengzhou Yutong Bus.

Volvo has remained completely silent.

"We never comment on any rumors. When we have something to say, we will talk about it, "said Volvo media relations spokesperson Joakim Kenndal.

Volvo's bus division is a small part of the group, about 7 percent, but is well integrated. This suggests the possibility of a sub-division, says Hampus Engellau, an automotive analyst at Handelsbanken.

"I do not think that Volvo intends to sell the entire bus operation, because a big part of Volvo's strategy has been to build economies of scale in terms of engines, transmissions and chassis," he says.

There is a history of persistent rumors that has since resulted in actual sales. This applied both to the sale of Volvo Aero to GKN in 2012 and last year's deal in which the external parts of the Volvo IT was sold to Indian HCL Technologies. Recently, it has also been speculated that the company will sell its Volvo Construction Equipment unit.

"There usually is never smoke without fire," says Hampus Engellau.

Both he and John Hernander emphasize that there are parts of Volvo Bus suitable for disposal, especially body manufacturing which is difficult for Volvo to do profitably as it is time consuming to build custom coaches.

"Scania has a history of focusing on bus chassis production. If there is substance to reports of an impending Volvo bus sale, I believe that it is about doing away with bus body production to boost profitability, "says Hampus Engellau.

Volvo Bus’s numbers have improved considerably since a big loss in 2013, but margins are still lower than for trucks and construction equipment.