When Volvo’s first American-made car reaches dealerships later this year, the Swedish automaker won’t flaunt the homegrown angle to U.S. consumers.
Owned by Chinese auto conglomerate Geely since 2010, Volvo Cars is gearing up to build its revamped S60 midsize sedan at its new U.S. factory, a $1.1 billion plant in Ridgeville, S.C., 35 miles northwest of Charleston.
But Anders Gustafsson, president and CEO of Volvo Car USA, told Fortune that the car’s marketing message won’t emphasize its Made-in-America credentials when it arrives in showrooms in November. “We will take away focus on where the cars are built,” he said, citing a sensitive political climate amid the Trump administration’s efforts to revamp North American trade relations.
Instead, the company plans to highlight the sedan’s safety, comfort, and status as the only car in its segment to include massaging seats. “A Volvo is a Volvo no matter where it is built,” said spokesman Jim Nichols.
As President Donald Trump seeks to overhaul the North American Free Trade Agreement and bring jobs and industry to the U.S., automotive companies that rely upon complex multinational supply chains remain especially vulnerable to policy changes. The administration’s latest proposal requires that 75% of the components for vehicles built in Mexico and Canada come from North America, up from 62.5% under the current NAFTA agreement. The plan also caps the number of vehicles that can be imported from Canada and Mexico without tariffs and requires that a certain share of auto parts comes from factories that pay workers at least $16 per hour.
The proposed changes leave manufactures in a catch-22: Moving production to the U.S. could increase costs and erode profits, while tariffs on vehicles exported from Mexico and Canada could eat into their market share as they lose sales to American-made models.
The specter of rising costs and showroom retail prices is designed to incentivize European and Asian car companies to set up production in North America. Though companies including BMW, Mercedes-Benz, and Nissan have moved some overseas operations to the southeast U.S. over the past decade or so, recently about a dozen automakers have also opened plants in Mexico to cut labor and production costs.
Starting at $35,800, the third-generation Volvo S60 is priced to compete against other midsize sedans such as the BMW 3-Series, Audi A4, Mercedes-Benz C-Class, Infiniti Q50, and Lexus IS.
Half of the vehicles made at Volvo’s South Carolina factory will be exported to markets including Europe, China and South America. The automaker plans to expand production to begin building its V60 wagon in 2019 and XC90 full-size SUV in 2021.
But setting up shop in South Carolina, not far from BMW’s largest global plant in Spartanburg, isn’t a cure-all. The Trump administration’s proposed 25% tariff on Chinese imports could also prompt a backlash against U.S.-built vehicles exported to China, Volvo’s largest market.
“Because Volvo planned and built this factory long before Trump started a trade war, the fact they are now rolling cars off the line doesn’t signal much about their optimism or lack thereof,” said Kyle Handley, assistant professor of business economics and public policy at University of Michigan’s Ross School of Business. “If there are any effects of the trade war, it will be on the scale of current and future production.”
Volvo, which began refurbishing its lineup three years ago, is undergoing a growth spurt, with U.S. sales up 30% for the first nine months of the year.
Its new Care by Volvo subscription service has also proved popular. The program offers a flat monthly rate that includes insurance and maintenance and allows customers to trade in their car after 12 months. The plan, which is currently available only for S60 and Volvo’s XC40 compact crossover, sold its projected annual volume within the first four months. Volvo says most Care by Volvo customers are new to the brand.
Though the S60 will not be sold under the subscription model initially, Volvo plans to load it with enough luxuries to keep it out of bareboned rental fleets, which can lower a car’s prestige and resale value, according to Gustafsson. “We have a strategy that this car will absolutely not be a rental car.”