Business Irish

Wednesday 18 January 2017

From being spun out by Ford to challenging the Germans on their home turf

Adrian Yeates has overseen Volvo's rise in Ireland from a Ford reject, to a genuine competitor to the Germans.

Published 15/05/2016 | 02:30

Adrian Yeates by Jon Berkeley
Adrian Yeates by Jon Berkeley

It's fair to say the motor industry did not fare well following the financial crash. Granted, few sectors did but the idea of buying a car at a time when household budgets became tighter and companies were laying off huge swathes of workers seemed unthinkable.

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Nowadays there is an air of optimism about Volvo Ireland boss Adrian Yeates.

Last year car sales in Ireland reached what would be considered "a year of normality". Over 155,000 new cars were sold in Ireland in 2015.

However, after witnessing Volvo sales in Ireland plummet by as much as 75pc in a two-year period following the crash, some caution still remains.

"There is a sense that a normality has returned, but I would put a flag on it and say it's still very fragile. We would want to see at least two more years of 150,000 plus before we would say it's stable.

"Our best year on record in Ireland was in 2007, just before the bank collapse where we were north of 3,000 units. In 2009 we delivered 780. So that very much mirrored the collapse in the total industry.

"We've slowly built from that. Last year we exceeded 1,590 new cars. This year we'll do about 2,200. Our plan for 2020 is to be at around 3,500 units."

Volvo has always been about safety, consistently scoring high in the European car assessment programme (NCAP). While health and safety has never been at the forefront of some company's sale's processes, Volvo has relentlessly pressed it ahead of almost everything else.

That dedication to the safety of its customers is not something that has waned.

The company has recently gone on record to say: "By 2020, no one will be killed by or seriously injured in a new Volvo".

A brave statement by any stretch of the imagination.

It's Volvo's positioning that allows it to put such a feature at the forefront of its marketing.

Mr Yeates jovially suggested the Swedish firm likes to consider itself "boutique".

In context against its larger competitors like Volkswagen or BMW that may be the case, but you would be hard-pressed to find many "boutique" brands that are shipping 500,000 new units a year.

Despite its strong stance on safety, one wonders how many will be able to afford to shell out the bones of €70,000 for Volvo's flagship XC90.

Yet the XC90 has endeared itself to many for its intelligent, sleek design that's offering a genuine alternative in the luxury market to a space dominated by German buyers.

Last year, the XC90 was awarded the 'Best of the Best' award by the Red Dot awards, for the car's overall look.

"Group-wide we had our best year ever last year with over 500,000 new car sales. It's the first time we've ever broken through half a million cars and we had also trebled our profit between 2014 and 2015."

Last year's sales and indeed the beginning of this year's sales reflect the turnaround from the dark ages for the firm.

To deal with the financial crash, Ford, its then owner, sold off its non-essential brands to adapt for a contracting motoring market.

Volvo was deemed as one of those non-essential brands and in the build-up to its sale in 2010, Ford stopped investing in innovation within the firm.

A time Mr Yeates described as "scary", saying it is a dangerous industry to stop innovating within.

However, after drawing out a road map to 2020 with new Chinese owners Geely Group, the Swedish brand is now back on track.

Like all car companies in Ireland, Volvo has had to deal with a lot of changes to road tax schemes, usually based around emissions.

Between the years of 2005 and 2009, two large tax-based alterations were brought in by the State, encouraging drivers to buy bioethanol and then diesel, all in the name of reducing the country's carbon footprint.

The 51-year-old largely attributes this to a lack of joined-up thinking amongst government departments.

"When it comes to managing the car business, it's a little bit fragmented. Because the car industry in Ireland is affected by the Department of Transport, the Department of the Environment, and the Department of Finance. And with the best will in the world, they don't always talk to each other.

"In the beginning if I were to be very crude, I would say it was seen as a very blunt tax collection."

Mr Yeates was chatting in Volvo's head office in Tallaght ahead of the launch of its latest model, the S90.

The S90 is part of the "new direction" Volvo is going, shifting very much towards a focus on profitability, rather than volume.

"For a small brand like Volvo we had eight different engine blocks, which is over the top in terms of the volume we produce.

"As part of the transition programme we decided to cut the number of engine blocks from eight down to two.

"One is petrol, one is diesel. It's as simple as that and then we can dial up the power and the Co2 out of that, so that gives us tremendous efficiencies."

It seems little to no industry can escape the potential effects of a British exit from the EU, and sure enough the Irish motoring sector is no different.

"When there is uncertainty in the market, the normal consumer reaction is to do nothing. That's a problem when consumer confidence is negatively impacted - they don't go out buying cars.

"Therein lies my concern, because a lot of the companies that we would deal with are either strong export Irish businesses or they're either part of multinationals.

"And we know from the very successful strategy that has been employed around foreign direct investment that there are a lot of particularly American-based companies that use Ireland as a foothold to get into the European market and very often the first market in is Great Britain.

"If they do separate from Europe, I do think it will have a short-term negative impact, but then you'll find a rebalancing and over time it will sort itself out."

Commercial car churn will stand as one of the biggest threats to Volvo in Ireland from a Brexit. It isn't the direct effect of Britain leaving the EU but rather the knock-on effect it will have on its commercial customers.

"That car churn has changed a lot due to the recession. The reality is between 2009 and about two years ago, cars were being held much, much longer.

"A lot of businesses were laying off people, so they didn't replace cars. It was a very unreal world we lived in at that time. However, we sense we are coming towards a normal situation again."

The general lifespan of a company changing its car is usually about three years.

However, despite the commercial churn downturn, there may be some solace for the car industry in the case of a Brexit.

Importing cars from the UK has been an ongoing trend for years with many second-hand buyers availing of lower cost prices and tax rates. Even after paying the import vehicle registration tax (VRT), cars can often be bought at a much more reduced cost.

"That would be one of the more positive effects from a Brexit. Because the difference between Ireland and the UK is predominantly on the VAT and the currency. Because the car has already been taxed at the lower VAT level in the UK, you only pay the VRT when you're bringing the car in.

"But if sterling is in a strong position then it makes an awful lot of sense. However, going forward, you're now taking it from a non-EU country into an EU country.

"It could very well wipe out the benefit of sourcing second-hand cars in the UK."

Car ownership in Ireland is undergoing a significant change. Rather than saving up for deposits and aiming to "own the car", Irish customers are being incentivised by personal contract plans (PCP).

As part of these plans, car deals give a guaranteed price to buy the car back off the buyer, usually after three years, with the aim of upgrading the purchaser into the next model.

"It reflects a change in society and the younger generations being more aware of what their monthly incomings and outgoings are, that they don't actually have to save up all of the money and pay cash for the car.

"What they prefer to do is calculate the cash they can afford and then see what fits into that bracket.

"The key thing about the PCPs is there is a guaranteed minimum resale value put on the car for the end of the programme, generally three years."

Mr Yeates is passionate about his cars, it's obvious from speaking to him the thrill of pushing the company to new grounds in Ireland is a personal goal that he shares with his firm.

A firm he has been at for some 20 years.

The DCU graduate also does not see a huge threat looming from Silicon Valley.

"My initial gut reaction is no. If Volvo tomorrow decided to go into laptops and designing cloud systems I'm not sure we'd have the ability to compete.

"Next year, Volvo will be 90 years old - that's quite a long time in the car business. We're one of the longest established car brands in the world and I think the thing about cars is that they are so much more than a mode of transport.

"I think the solutions that Google and some of those other guys out there - it's literally like the Dublin Bikes scheme, it's about getting you from A to B.

"When you look at the vehicles they have, would you feel comfortable going from Dublin to Cork in one of those?

"They have a place and I think again it will be quite niche what they can do. Particularly in urban environments it makes an awful lot of sense to get from A to B in a small car.

"On the mainstream end of it, I can't see how it could make any sense for them."

There are undoubtedly new challenges on the horizon of traditional car manufacturers, whether Mr Yeates is happy to accept it or not.

Apple has reportedly been turned down by Daimler for the construction of its proposed car, but that's unlikely to stop a firm that has dominated so many fields.

The future of any industry is difficult to predict and cars are no different.

However, a period of "silly business" is one chapter the Volvo chief is happy to close.

"If you look at the recent history of the car market in Ireland, it was incredibly competitive. When you get a situation from 2008 to 09, over 60pc collapse in the market.

"Then you have a lot of players essentially looking to survive. There was a lot of competitive activities, what at this stage was probably silly business, but it was all about survival.

"You can probably use the motor industry along with residential property to see where the economy is going and we would have seen a lift in the car market about 18 months ago.

"I think you could see it wasn't the lowest price wins," Mr Yeates said.

'Home cooking, Taekwon-Do... and Jo Nesbo'

The best advice I got was... "Protect and nourish your integrity. Lose it once and you'll never get it back."

Am I a spender or a saver? "To support the economic recovery, I'm currently in transition from saver to spender."

I was at my most skint... "In my mid-30s: I had a mortgage and three kids in pre-Celtic Tiger Ireland."

My proudest achievement is... "Representing Ireland at the 2010 World Taekwon-Do Championships in Seoul, Korea."

The last good meal I ate was at... "Chez nous! Delicious home cooked by my talented wife Liz."

At the moment I am reading... "The Redbreast by Jo Nesbo."

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