Volvo to Open Plant in the U.S.

Volvo to Open Plant in the U.S.

State to be chosen in a month; car maker says labor rates are just part of it

By John D. Stoll in the Wall Street Journal

After years of losing out to Mexico in the race for new automotive assembly plants, the U.S. is about to notch a victory.

Volvo Car Corp., owned by a Chinese company, will spend $500 million to build a new vehicle plant in the U.S. The decision comes weeks after Daimler AG plans to spend a half-billion dollars to build a Mercedes-Benz van factory in South Carolina, a move that followed a string of auto makers choosing to locate new factories in Mexico instead of the U.S.

In an interview, Chief Executive Håkan Samuelsson said Volvo is making the move to smooth out its international presence. With plants in Europe and China, the executive wants a North American factory to be closer to one of its prime markets, take advantage of attractive labor rates and protect against currency fluctuations.

“This will complete our industrial footprint,” Mr. Samuelsson said. Volvo is also aiming to reiterate its commitment to the U.S., a market it has been in since 1957. In recent years, Volvo has struggled to sell cars in the U.S., forcing the auto maker to adjust its strategy several times.

Mr. Samuelsson said Volvo is still considering a handful of states for its new factory, and will announce its pick in about a month. The plant will build vehicles off the company’s new “SPA” platform, an engineering architecture that will serve as the blueprint for several vehicles, including the new XC90 SUV hitting the market this year.

Volvo, bought by Zhejiang Geely Holding Group Co. in 2010, sold 466,000 vehicles in 2014, a record amount of cars globally. But momentum has come from gains in China and Europe; U.S. sales fell 8% to 56,000—short of the 100,000 vehicles Mr. Samuelsson says the brand needs to prove viability.

Mr. Samuelsson said there is no current plan to share the plant with Geely. Volvo is, however, working with its partner on developing small cars, and the factory could eventually be an avenue for the Chinese auto maker to distribute cars in the U.S.

For now, Mr. Samuelsson is working to freshen the product lineup, boost marketing spending and offer better financing options.

Some European auto makers have been successful at capping labor costs in the U.S. Volkswagen recently opened a plant in Tennessee, and its hourly labor rate—including benefits—equals $38 an hour, $10 less than Fiat Chrysler Automobiles and $20 less than General Motors Co.

Volvo’s move stems the tide of investment aimed at Mexico, where labor rates are a fraction of the U.S. costs. Auto makers and parts suppliers have earmarked more than $20 billion of new investments, with many executives citing an array of free-trade pacts as the reason for the decisions.

Mr. Samuelsson said Volvo considered Mexico, but the benefits of building cars in the world’s most-profitable market tipped the decision in America’s direction.