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Volvo Cars to build U.S. plant to spearhead sales recovery

2016 volvo XC902016 volvo XC90
The XC90 SUV is Volvo's big hope for 2016.Courtesy: Volvo

Volvo Cars will invest $500 million in its first U.S. assembly plant under plans announced Monday, plugging a long-standing gap in the Swedish carmaker’s manufacturing base as it pursues a global comeback under Chinese ownership.

Volvo is in advanced talks with several U.S. states and will announce a location within weeks, Chief Executive Hakan Samuelsson said in embargoed comments made before the announcement. Production will begin in 2018.

Following its sale to Zhejiang Geely (GELYY) by Ford Motor Co. (F) in 2010, Volvo has stepped up investment in new models and production, adding a pair of Chinese factories to its two older European plants.

North American manufacturing is “the last piece in establishing our global footprint”, Samuelsson told Reuters.

The plant will serve export markets as well as the U.S., where Volvo is aiming for a return to annual sales of 100,000 vehicles.

While the carmaker’s global deliveries rose 9% last year to almost 466,000, largely thanks to China, U.S. sales fell another 8% to 56,000 vehicles.

The choice of the U.S. over Mexico–where rivals such as BMW AG (BYMOF) have announced a series of plant investments–underlines Volvo’s determination to “rebuild the brand” among American consumers, the CEO said. “We want to give a clear signal that the U.S. is a home market for us.”

He declined to identify the short-listed sites but said the decision would reflect the availability and cost of skilled workers and logistics including the export of finished cars.

Samuelsson said he was neutral on whether U.S. staff are represented by the United Auto Workers union–a politically divisive issue that has dogged plant decisions by Volkswagen AG (VLKPY) and others.

“It’s up to the people who work for us to choose how they want to be organized,” he said. “We have no opinion on that.”

Volvo said production capacity would be close to the 120,000 vehicles at its larger Chinese plant, with model plans still under wraps. The arrival of the new XC90 flagship SUV as an import is counted on to halt the U.S. sales slide this year.

Volvo may find the going tougher than in its U.S. heyday, which saw 2004 deliveries approach 140,000. Since then, BMW and its German rivals, VW’s Audi and Daimler AG’s (DDAIY) Mercedes-Benz, have grabbed a bigger share of the luxury market.

Toyota’s (TOYOF) Lexus brand is also gaining ground, and a product offensive by Ford’s Lincoln and General Motors’ (GM) Cadillac offers more non-German options to U.S. premium buyers.

Volvo’s plant investment nonetheless demonstrates confidence that it can claw its way back under newly appointed Americas chief Lex Kerssemakers.

“We’re going after a market share of 1% with a clear identity that we know is very attractive to some customer groups,” Samuelsson said. “It is a tough market – but I wouldn’t say it’s tougher than Europe or China.”

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