Volvo Penta's construction push

Volvo Penta, the diesel engine manufacturer which is a sister company to Volvo Construction Equipment, is best known in the marine segment, where it has a pre-eminent position. However, the last few years have seen it make a concerted effort to diversify into other areas, and the construction equipment segment is one of those, along with other industrial applications like gensets.

On the one hand, it makes sense to find new markets, but it is also a challenge in a crowded industry like construction equipment, where there are already plenty of engine suppliers. Sop with the area well-covered, one of the first questions to Volvo Penta CEO Björn Ingemanson is what can the company bring to the party?

“The solutions we have picked for Tier 4 Final is an area where we see a strong benefit compared to many of our competitors,” he said, referring to the company’s use of a selective catalytic reduction (SCR)-only design for its engines, which does not require other aftertreatment like a diesel particulate filter (DPF) to meet the latest strict emissions laws in Europe, North America and Japan.

He added, “Of course we need to differentiate and work on other solutions. We offer a start-stop option on our engines and we are working on other ‘soft’ areas that make us different. But I think with the Volvo Group’s strong brand in this industry will help us to grow into the construction business.”

A complicating factor is that Volvo Penta has agreed not to supply any engines in areas that would compete with Volvo Construction Equipment. That closes off the vast majority of the market, leaving only a few areas where the company is not present, such as crushers, cranes, compressors, gensets and so on. It is a tough fact of life for Mr Ingemanson.

“If Penta had been a totally independent company, the market would have been much bigger and that would have been interesting. But we are a part of the Volvo Group, with all the benefits that gives us. That is just the way it is.

“I agree that competitors to Volvo Construction Equipment should not have Volvo engines, but it does mean there is a big part of the industry that we do not have access to. There are also borderline cases, where we have to have a discussion, and sometimes we can go into a different division of a company. For example, Sany in China is a big competitor to Volvo Construction Equipment, but we work with them in other areas,” he said.

The initial focus for Volvo Penta is in the more heavily legislated developed markets of Europe and North America, but that too will change over time according to Mr Ingemanson

“So far, our engines have mainly been developed for the Western World – Europe and the US and those types of markets. We have not had the sort of engines that will compete with locally produced or joint-venture engines in China and so on.

“But now with the Volvo Group’s activities growing a lot in Asia and South America, we see that we can benefit a lot form that, with local production and a service network in place. As a small player, we could not start our own engine factor in China with the kind of volumes we have. But if the group could supply engines form a factory to be fitted in trucks, busses and construction equipment, and then it makes sense to add more volume on for Penta. That will help us grow in these markets,” he said.

But unlike other parts of the Volvo group where there are different brands to address different market segments – Volvo Construction Equipment as a premium brand and SDLG as a mid-range producer, for example – the focus for engines is to keep everything under the Volvo Penta umbrella.

Mr Ingemanson said, “We are a premium engine producer, so we only compete today in Asia in the top part of the pyramid with Western producers. What we will now do is come down in cost so we can compete in the top end of the JV market as well. That will definitely help us.

“We believe being an engine supplier to different applications and segments, you cannot really have a multi-brand strategy positioned at the high-end, mid-range and so on. We are here to grow the Volvo engine business. If we bought a small engine manufacturer in Asia, for example, their product would not fit in with the rest of the Volvo range. We are here to make engines that fit into the Volvo Group range and then see where we can go after that.”

And where does Mr Ingemanson see this strategy taking the company over the next few years?

“Growth is the key for Volvo Penta. We have a strong operating margin even though the sales volumes are not as high as we would like. We see there is a potential for us to double our sales volumes in industrial engines. We have a plan surpass 10,000 engines in the year 2015 – that’s not only construction, that’s all industrial areas like gensets,” he said.