Again, most welcome everyone. We hope that you had an interesting time before lunch to see our trucks and construction equipment in action, and also how they really should be operated. Obviously to have the chance to test it yourself and also to get behind the scenes when it comes to the new technology, is something that we will obviously explore more in detail during this afternoon and the sessions. Also welcome all of you sitting on, listening to the webcast. Sorry for missing beautiful Eskilstuna, and the sunny weather we have here. We will have a program that is going, so to speak, outside in.
We will start a little bit with the update from where we ended in London last June, where we lined up the future direction of the group, obviously move into the business through the brands, ending up also with the technology, et cetera. It is truly interesting times. I had a chance to talk with some of the journalists here, me and Anders, for example, we were talking about what is the situation today, obviously we are looking through the different regions, what is happening. Also in a more big context, I think we'll have the chance this afternoon also to follow how we will cope with the more mid- and long-term, both challenges and opportunities, obviously. We are into a fantastic sector because as I always start with, logistics will continuously be needed in the future.
We know that it will be growing, because that is closely related to population growth, also GDP growth, we know it must take place in a much more sustainable way. We know that urbanization continues. We know that the 2030 targets are getting more materialized that more demands are coming. We see that the consumption patterns are changing, that consumers basically, so further downstream in our value chain, are putting more and tougher demands on transport, which we believe is good. We see obviously also that the demand for new type of energy sources for the 2030 agenda, but also for the urbanization when it comes to noise pollutions, when it comes to quality of life, efficiency, automation, et cetera. I think here we should start.
A little bit to talk about from June last year, what we outlined, this is not in the material, we put it in, I think what we outlined last year was that we had a new direction for the group also saying what is our role in society in the longer run, so to speak. For us, it's the vision about driving prosperity through transport and infrastructural solutions is something that we see more and more coming through also through the business models that we are running. Also what is important is that we have very extensively, we're working with our values, what are we standing for? Today's program is obviously about improving performance, but how do you do that? Therefore the value base and how we operate the company is maybe the most important in order to have that improvement over time.
As you remember last year when we talked about it, the two, so to speak, endpoints of our values, customer success and performance, are, so to speak, the starting and the ending point why we are existing. Customer success, money is not falling down from heaven. It's coming from us providing very good competitive solutions over time, and also obviously the outcome in the long run performance, so we are delivering enough funds both for the company as such, for our shareholders, and also to maintain a strong and solid balance sheet. Also what we have been working with is the three values in the middle. Line management is an underrated asset.
Really to drive a company of our magnitude is about having trust, transparency, acknowledge deviations, improvement potentials, make sure that we are using the competence pools that we have in the full company, make sure that we are actually driving, so to speak, talent development, from all different aspects. Once you have trust also, we normally say that everything is based on trust, because then you can actually do the decentralization, you can run much quicker. Normally, you will run into smaller ditches than into big ditches, and then you can pull up again because that will happen. When you start to have that, also passion is coming into the company. We said that we are spending so much time at work as you do, so it must be fun for real. That is what we can provide as a company.
As a feedback also, we feel that our people are actually driving the company in a better direction. Obviously change, not so much because for change in itself, because that has no value, but the world is changing, and we see it very quickly in the transport sector, as I said. If I see only also in the new technologies, that is one of the targeted sectors, because waste along the logistical chain is still very present, and therefore the ability to disrupt in different forms, not only in technology but also in business models, is still a big option, together, for example, with MedTech that I see, and also in your sector, by the way. A little bit about the journey. This was also one of the starting points that we have said.
Since the core divestment in 1999, obviously geographical expansions, mainly through acquisitions in all different main business areas, scale and synergies. If we're talking about the scale and the synergies, maybe up to 2008, 2009, mainly related to the powertrain, in some cases to network and distribution, and some obviously of the headquarter functions. The big great recession came 2008 in October. Everyone knows that. Everything disappeared, and we saw that we had too many overlaps, need to come back to where do we really have opportunities when it comes to the cost situation.
It was a period from 2011, 2012, concentration, centralization, but also using the opportunities that the technology organization had been driven during the first decade of this commercial vehicle company that emerged after the core divestment in order to do the product renewal, get the base for what we call the CAST system, common architecture, shared technology, that you will hear much more about. Therefore, also having a product renewal mainly in the European system and also related markets on what we call cab over engine product platforms, based also on a new architecture. Also restructuring and cost efficiency, the famous SEK 10 billion program that we actually were concluding gradually during last year. Moving into this phase of improving performance through coming back to customer focus, using what we have. We have a very strong presence today.
We have strong brands, we have strong segment presence, but still we can drive this through organic growth, continuous improvement, and very close dialogue with the customers, not at least in the service business. What is this all about then? When we talk about reinforcing the performance culture. First of all, what we have said is that when you have a company of our magnitude, you must have a very clear decentralization, clear P&L responsibility, and clear leadership roles for all brands and for all business areas. That we actually installed in 1st of March again last year, and that has been running really well, and it's going according to plan also because you're gradually on board, so to speak, element by element in both the profit and loss statement, how we are measuring cash flow, and also when it comes to balance sheet and capital allocation.
What we also have said is that we need to start outside in. Those closest to the market must be empowered to take decisions. It's not only about the sales and service guys out in the market companies, but it's also along the value chain. Talking about our operators and mechanics in our workshops, the purchasers, the designers, et cetera. That we are making sure that we have a structure supporting them that is, so to speak, efficient and given the empowerment that we need. I think that is also going well, but obviously it is a step-by-step shift that we are going through, but in a very positive way. You also will hear more about that during this afternoon. More regional value chain, as I said, we have a challenging world today.
We need to be agile in setting up structures because we have an increased level of protectionism linked to the populism, but we also have the ability to use the regional value chain to be close, to be tailor-made, and also to have structures where actually our organizations that know about the markets work along that specific value chain with aligned KPIs. There also, we are reinforcing that the full value chain from sourcing, production, R&D, sales and services are aligned and empowered together. That gives simplicity and improves speed necessary, not at least because there is a lot of things happening in logistics and in infrastructure. In order to be competitive also in the future, we must iterate much more together with our customers, test new solutions. Some of them you have seen today. We will continue to develop that together with the customers.
We had some examples with Skanska and Boliden. You will hear more about Boliden this afternoon. The mindset, as I said, for continuous improvement. We are well invested, both when it comes to the product ranges now, when it comes to the industrial footprint, competence, and also sales and service network. We need a gradual upgrade, obviously. Before I let Jan talk about the development during the last year here, two principles to have in mind when we are talking about decentralized P&L responsibility for our business areas, for our brands, for our regions, and eventually for market companies or production units. Two principles. Principle one: everyone, every brand or business area responsible for their customer satisfaction, profitability, and growth. Principle number two: use whatever you like in the Volvo Group to improve number one.
You get pull and not push, that is the operating model that we are working with. With that, I will let Jan continue with some updates. Please, Jan.
Updates. Thank you, Martin. Driving improved profitability. To start with, when you do that, you have to have a structure. When you create the structure, transparency about how the company and the different parts are performing is of the utmost essence, so you know what to do and what to improve. I think we have, over the last couple of years, developed ourselves quite a bit into this area, which means that we can measure the performance, profitability on basically all levels of the company. Starting, of course, with the Volvo Group and what we present to you then, and all the different business areas, which of course creates a lot of focus also when we present the results and so on.
We have the ability today to drill down in the company, down to certain product ranges, to certain models, variants, down all the way to the specific markets. This is, of course, then you can say the base for how we attack and improve the performance in the company. We also showed this graph in London last year. I can tell you already today, this is a kind of schematics. I will not talk about the six red points and tell them who they are because they are not there. They are just there for illustration. Basically when we then attack it, you can say the green ones, develop them going forward, obviously, preferably with growth and continued and improved profitability.
The red ones, the ones that we have seen that they haven't performed, we maybe have tried a couple of times before to make the turnaround. We should not be afraid to exit that. Maybe you think that's what you see all the time in the newspaper when we decide maybe to leave a product range or something like that. That should happen every day in the company when you talk about the variants or whatever. If you have a certain product model or a variant that's not profitable in XYZ country, you take it out, and that should be the way, the mentality and the culture in the company to do every day. When we have the red ones, sorry, the yellow ones, that's where we see that. Of course, you develop a plan. You look into that. Is it possible to make a turnaround?
You actually follow up that very frequently. It's not just to make a plan, not following it up, but as long as it goes according to plan. The plan might not be that you turn it around in one year. It might be a three-year plan or a five-year plan. As long as it goes according to the plan, you continue. Maybe it turns green or it turns red. That we don't know when we start. I think we do have, and you will hear a little bit more about that today. Joachim will talk a little bit about UD Trucks, which is a turnaround case. I think when we talk about also, Martin will come back to that when it comes to our Group Trucks Asia and the [JAVIS]. It is a very structured way of actually improving profitability.
Cannot be steered only from the top. It has also to be a part of the culture that this is the way we behave and act in a very structured and disciplined way. Of course, what you have in such a big group like we are and also having been on this growth journey, the acquisition-driven growth journey, we have also seen, you see some of the examples of things where we have exited. Some of them are actually not due to the fact that being a poor performance, but also that it may be from a focus point of view, really do not belong to the group anymore because we want to have a more focused company that focus on what is core. We always show this one, the famous parking lot. It is a little bit developed, but in essence, it's the same principles as before.
We have made a little bit the areas. They are now a little bit, it depends on the size of the business compared to before. Before they were all equal. I think what is good right now and what we see in the group happening, this is for our Group Trucks business. It is, as you saw in Q1, the same for the whole group, is that we have a broad-based improvement in the group where basically all of the different business areas are improving themselves. We do the same type of methods and measurements in the other business areas as well. Looking into the Group Trucks, we can see here that with the exception of North America, we can see here that we are improving because they turn either from kind of reddish or orange into yellow or from yellow into green, or they keep their colors.
Of course, there is a spectrum within these intervals as well. I can tell you the ones that were green last year, they are a little bit deeper green today than what they were last year. That's also one thing to bear in mind. North America, I think it's actually pretty close to being green if I remember correctly. We want to be very disciplined how we mention. It is actually yellow. I think given the circumstances with the downturn that we saw in volumes last year, I think we should be fairly satisfied with how that was managed, and to keep it on yellow or almost green is I think pretty good. This is the 2016 over 2015.
If we look into then the first quarter of this year, you can say that all these areas have also then improved compared to the first quarter 2016. We have seen now, I think we are up to almost two years, I think it's eight, nine quarters now, where we have gradually built this improved performance in the group. It starts with, of course, with the restructuring programs that was kicked off in 2011, 2012. End of that period was actually this 10 billion Program. Of course, we are helped by the fact that we have taken out SEK 10 billion in structural cost. At the same time, with the structured way of working, what I talked about before, how the red, yellow, and green dots, how we actually work with that also gives an effect here in this one.
The last year, or maybe a little bit more than a year, we have also turned into this latter phase, where we are actually into what we call continuous improvement, where we want also to have selective organic growth in the company. Of course, as being the CFO of the company, I can tell you that's a little bit shaky, going from cost control, decentralizing, believing in continuous improvement. You can be a little bit cynical about things. Does it work or not? I think what we see now, and also with the new values and the new culture that with new, we build on the old, but also a little bit new, with a lot of energy in the organization. I think we start to see that that also gives an effect.
Areas of improvement there is obviously the service business that we will talk a little bit later on as well. As a consequence of improving profitability, you can also see that we are down through cash flow, an area that we still can improve, by the way. We were not very satisfied with that in 2016. You can see that our balance sheet is actually strengthening. I think that to have a balance sheet that is slightly stronger is definitely not a negative thing. We are in a cyclical business. We will become better in managing that. We are in a cyclical business. We are in a capital-intensive business. Furthermore, we do have also a financial services arm that is of big importance for us, how we approach the customers, for the total solutions we give to them.
We have to have a competitive offer on that part as well. Having the right rating and so on is of importance. We're quite happy to see that that area is also improving. Basically, the journey that we are on, I think the first priority has been on actually gradually improving the profitability in the company. That is priority one. The second priority is actually to manage the volatility in the markets that historically have had too much of an influence on our P&L, but also on our cash flow. Basically bring down the volatility in earnings when we see the changes in business cycles, globally or regionally, is important. Of course, also have a high discipline when it comes to the capital allocation.
That we invest in the right things, also there, as I said before, to divest things that we see is not performing or is strategically not the right fit for the company. These are the three areas that we work on. Coming a little bit, I would say, from the left-hand side, going into the right-hand side of this chart. Strategic priorities. This was also something that we launched, you can say, last year. I think launch is maybe to take a little bit too far because I think the core in these seven priorities, they have been there in the Volvo Group for quite some years. Maybe to phrase them a little bit clear, it is not only to the external audience, it's actually as much, if not more important internally as well.
Of course, from a group perspective, this is what we in the group management work with. Today, you will actually get more of a deep dive in each of these areas. We start with what we have said about our truck brands, the Volvo brand, the global brand, and to actually secure that we continue to develop that brand. We cannot take it for granted. Make a little bit of a turnaround when it comes to Mack, Renault, and UD, which have actually lost market share more or less since the day we acquired it, actually. That is important for us because we see a big potential in these regional brands going forward. The growth area that we have is obviously the Asian activities. Martin will come back to that a little bit later. How we develop products and services.
I think you will have some examples of that when it comes to products. Lars will talk about that. You will see numerous example, Martin Merrick will talk about how we develop that as well. How we work along the value chain based on our, you can say, lean principles, what we call the Volvo Production System. Of course, as the fifth point, we have the retail excellence service. You see, services comes back on quite a few of these lines. We will, you have seen here today also how, Lars will come back to that a little bit later, also how we leverage the fact that we have Group Trucks, we have Volvo CE, we have Buses, and how we have Volvo Penta as well. How we leverage these effects, especially on the technical areas, will come back.
Of course, the culture journey that we're doing in the group. Taking the good things of the Volvo culture, develop a few things on the negative side. That is a real important foundation for us going forward. That is also what you hopefully feel a little bit going forward. Absolutely. What we have said also, as we made the presentation, that we wanted you to meet as many of our senior executives as is possible during a day like this. That's the reason also, given where we are on the truck side, that our four EVPs running the four brands are here, and also, obviously, Martin Weissburg.
Lars and Jan Ohlsson then for our industrial system and R&D system, Martin Merrick for services. Again, I just would like to remind you about that. Take the time network where you have specific interest, use also the breaks to have those discussions to get the best possible use out of it where we are with the strategic initiatives. We have said that in the executive board of the group that this is our agenda. We are running that as a team, obviously then we have very clear responsibilities of the execution of it. The success of these seven strategic options are joined, so to speak. Here you see then that we will start with improving performance, make a walk through the business areas, then have one block on the services.
Some very specific examples where we are gaining traction and why we are doing that. That is important for the future, how do we make sure that we have the right technology to also create the business models for the future? I think with that, we leave the word to Claes Nilsson, who is the president for Volvo Trucks. You will, in addition to that, also give a little bit update on the state of the world when it comes to trucks.
Thank you, Martin.
Please, Claes.
Thank you. Good afternoon, everyone. Pleasure to be here and spend a few minutes to talk about Volvo Trucks. I'll actually do that by taking you around the world, our four sales areas in Volvo Trucks, and give a little bit of perspective of how we look upon the markets, but also what our focus is in these different sales areas. Let's start with this one. We have a very ambitious wanted position or aspiration to really strive for being the most desired truck brand from a customer perspective. To be able to do that, we of course need to have a better offer than those of our competitors. Our customers needs to make more money than those of our competitors. Not only that, we need to be efficient, flexible, and trustworthy. Our processes needs to be first class.
On top of that, what makes this industry so exciting is that we are still in the relationship business, and we need to have people that goes that extra mile and do that extra thing for our customers so that they want to do business with us. I think we have a good position. It's a bit different in different parts of the world, generally speaking, we have a very strong image. If we look upon segments, our main priority is really to reinforce and secure that we keep that leading position in long haul, this is a global ambition, actually. Regionally and in many parts of the world, we are also going for growth in the so important construction segment, and I'll come back to that in a minute. Let's start to look at Europe.
2016 was a very successful year for us in Europe, both in terms of being blessed with a very strong total market, also our performance as such was very good. We also see this continuing into this year. Beginning of this year, we see continued very strong demand, continued very strong Europe, we also see our performance moving in the right direction. We have increased our market shares, especially in the selected segments we are targeting for long haul, construction again. We also extremely pleased to see that Russia is coming back strongly, both from a total market perspective, we are regaining market share. Actually, the first quarter this year, our market share in Russia was 23% versus 17% corresponding quarter last year.
Another very important area when it comes to Europe is to secure that we take a bigger share of the aftermarket, the service business. There we have more to do. We now have a population in Europe, 10-year population, which exceeds 400,000 trucks. It's a huge potential. We are taking steps in a good way. For example, just one area, service contract penetration is now, for the first quarter this year, 47%. 47% of all the trucks sold have a service contract. Over 80% of those service contracts are actually gold complete contracts, including service and maintenance and repairs and everything. Again, we have more to do in this area, and we are working hard to secure that we can continue to increase that service business. A key element here is, of course, the quality and the performance of our retail network.
Here we are continuously working. We have special programs to secure that we are improving both customer satisfaction and profitability in our network, wholly owned as well as private. Martin Merrick will come back later to talk more about retail development and some specific things we are doing in this area. Last but not least, when we talk about Europe, construction. Our sales of construction vehicle, actually 2016 versus 2015 increased with 40%. Our efforts in construction pays off. Of course, the key element to make that happen is that you have competitive products. I would dare to say that we have never had a better or more competitive range when it comes to construction. In some pockets of Europe and in the world, we have always been very good in construction. Nordic, U.K., some countries actually in Latin America, in international as well.
Actually in continental Europe, we have been quite weak in this segment. With the products we have and with the features that you can see on this slide, I-Shift with crawler gear, which was on one of these trucks that you saw outside there. We have automatic all-wheel drive for FMX together with automatic traction, which we are the only one in the industry actually that has. We have a liftable tandem axle, the Volvo Dynamic Steering, which we have had for a little while, and we now can combine air suspension in the rear with a driven front axle. Those are just some examples that takes our construction products to a level which I think is actually recognized by customers now that it's a very good offer and probably the best offer in the industry.
We launched the first FMX in 2010, and since then, we actually sold more than 60,000 FMXs, and more than 50% of those are actually sold outside of Europe. We'll continue to work on construction, and construction is so important in terms of also creating an even better service business for us. Now, let's look into Latin America. Brazil continues to be on a very low level. Actually, our view is that this year is going to be on the same low level as last year, some 30,000 trucks total market. We see some signs of actually improved order intake, but we also know that the situation, especially the political situation in Brazil, is very fragile. Even though we see some improvements, we are a bit cautious on exactly how quickly that is going to move.
We have focused on price management, thus, we have lost a little bit on market share, especially in the medium heavy duty segment, while we are still keeping the leading position in the real heavy duty FH and FM segment. We are also focusing on cost cutting and adapting our organization to the current business. With those measurements we have taken, we are profitable even in Brazil as a country. We're also focusing now in these difficult times, even more on the service business in Brazil and the rest of Latin America. Actually, if you look in the history, maybe that's being a little bit neglected compared to some other markets around the world. It is very positive to see, though, that the countries around Brazil are doing extremely well. We're doing well in Peru, Argentina, and Chile.
We have also very good profitability in these countries. For the first time ever with an improved total business in Latin America or in these countries that we talk about here, we actually have more than 10% market share in Argentina. Peru is consistently a shining star among our different markets, we have more than 25% market share in Peru. What we also can see in these surrounding countries, actually also in Brazil, is that mining is starting to come back, we see more and more requests and demands from the mining industry in these countries. Sales Area International, that's the sales area covering Africa, Middle East, Asia, Oceania. With exception from the oil-dependent markets in Middle East and Angola, other countries are doing very well, generally speaking, International is actually the fastest growing sales area we have and should be so for a long time.
Our core markets here are Australia, Korea, and South Africa. Strong market shares, strong total market, very good profitability for us. In addition to that, we see some segments in some markets where we are now increasing volume considerably. China, for example, we see a fast-growing e-commerce segment where we have been able to take a very important position. Thus, our sales in China has gone from 1,000 units 2014 to 2,500 units last year. We see that business growing. In International, we are focusing on selective countries, we are focusing on profitable growth in the sales area. Now let me turn to North America. We believe that the market has bottomed out. We see signs of recovering order intake.
We see that the industry inventory has actually come to a much more healthy level, certainly our own inventory are at healthy levels. Still an overhang in used trucks, even though we don't ourselves have a specific inventory problem of used. A very important point in North America has been for a long time to increase our penetration of our own driveline components. We can now see that so far this year, more than 90% of the Volvo trucks sold in the U.S. have a Volvo engine, more than 90% of the trucks sold in the U.S. have a Volvo I-Shift. That, of course, gives us a very healthy aftermarket and service business. Therefore also we can see, even though we have a pretty substantial decline in volume, we are making decent profit, as Jan Gurander just said, in North America.
We can also see that we are continuously building a stronger and stronger retail network. I think it's fair to say we have never had a better retail network. We're working with that as we speak. It is important that we are developing the retail network in a very healthy way. When it also comes to North America, we are entering a phase now on the Volvo Trucks side, where we are launching new products. Actually, the 20th of April, we launched this beautiful VNR, which is a regional haul truck. The response from dealers and customers are very positive, overwhelming. We'll start to produce it after the summer break. This is just the first introduction of several, where we'll actually renew the whole product range during the course of this year.
I think we have a very exciting future in front of us when it comes to North America. I believe that with this renewal, we can claim that we have a very strong product offer and service offer around the globe, and I really look forward to secure or see to that we can continue the very positive trend and profitable trend, and that Volvo Trucks can continue to generate a good profit for the group as a whole. With that, I'd like to hand over to my colleague Dennis Slagle, President of Mack Trucks, and he will talk more about the development of the business in North America.
Thank you, Claes. Great to be here in Eskilstuna and have the opportunity to talk and do a deep dive on the transformation that has taken place for Group Trucks in North America. For the purpose of this presentation, I'm going to include Volvo with Mack Trucks. The platform, obviously, a conventional platform sort of goes together, and we did our work together. I joined the truck side of the business in 2008, and I don't have to tell you how tumultuous that time was. The market had disappeared. There were headwinds everywhere. There was a surprise under every rock, and our dealers were losing confidence in the brands and the direction of the business. The good thing is that we used the benefit of that tough time to sit down and do a thorough review of the group's business in North America.
Out of it came a plan, a new business model, and a new way of working. What you see up here is the, let's say, key enablers to the plan. The objectives of the plan, the three objectives we have was to get profitable because we weren't. The second objective was to stay profitable through future business cycles, and the third objective was to build a platform for sustained growth in the future. By looking at this and hearing those three objectives, I think you can sort of weave in, and there's nothing too tricky about this list. The tricky part, believe me, was executing. Yes, we downsized, but we at the same time downsized and combined back room operations to Greensboro and closed facilities. We preserved and protected the value of the brand.
For example, the brand unique production, where we made everything that was built Mack in Macungie and everything built Volvo in NRV. Since then, we've developed customer centers at each location, test tracks, and those two facilities have sold a lot of trucks. We kept, of course, the sales functions, sales and marketing functions separate, and the product management separate. The things that the customers touched and saw were still brand unique. We were careful with that. I've had the benefit of a fantastic team around me. Most of that team has stayed with me over the last six or seven years. We've had a consistent strategy. We've agreed on it. We can finish each other's sentences. We're a good team, and there are good people coming from it. Obviously, we did a lot of work on price realization. We selected customers.
We were overly dependent on a few large fleets that weren't that profitable. We moved our resources, our attention to the regional and smaller guys, still holding on where we could and where it made sense to the larger fleets, and we really turned that around quite nicely, increasing share and obviously increasing profitability. Those first four, you could say, were very necessary to achieve that first part of the objectives. The second and third part, being profitable through the cycle and building that platform for growth in the future, really came in the next four. That's what I want to spend a little bit of time on now. The first thing is, as Claes said, is distribution. You can measure how far and how high you can go in North America based on the strength of your distribution.
It was not the best distribution network when we found it, through hard work and regaining the confidence from the dealers, we were able and still continue, obviously a work in process, still continue to build a great network. The dealers are investing. Almost any qualitative or quantitative analysis you do of our distribution, it has improved dramatically, whether you're talking about the number of new facilities, number of bays, the number of trained technicians, the number of master mechanics, all of those have risen by very impressive amounts, even in the last two years. We're quite proud of what's happening with the dealers. The important thing, of course, is out of the past five years, the dealers sequentially had record years taken as a whole in four of those.
In 2015, there was a bit of a correction, nothing serious in terms of their financial well-being. They continue to have the faith. They're excited about the new products from Volvo, excited about the new products coming from Mack. We're in much better shape there. We have, again, as Claes mentioned, the proprietary driveline. I like to say Mack was the original disruptor there. We've always had proprietary hardware on our trucks, it does feed the service side of the business, which, again, was a focus here. We knew that in order to remain profitable, the best bet we could make is to be very successful on the service side of the business, the most profitable side of the business.
We worked hard not just to sell parts, but to expand that business, go after all makes, go after reman, go after even the second and third tier or second and third owner type of parts through DEX and Road Choice. We built that, focused on it, and organizationally, we put an SVP totally responsible for the service business rather than fold it up under the sales captains. With that focus, you can see on the next couple of slides how well we've done. Finally, productivity and quality. These two are symbiotic. We've had unfortunate episodes around quality the last few years. It is getting better, and with it, productivity will also come for us and the customer. With that, I talk about a quality dividend.
I think our cost of poor quality will continue to drop, and again, that'll even improve the bottom line even more. This was the graph that Klas referred to. You can see if someone had said in 2010, coming out of an era where in the U.S., you build a truck by picking the engine Cat, Cummins, Detroit, or the axles and the transmissions, et cetera, and then you put a shell around it. If you said to people then that proprietary engines would be the norm in the business by now and that automated manual transmissions would be 70%-80% of the market, I think people would've laughed at you. We're quite proud to have been the change agents there. These relationships were laced in with minimum buy arrangements, and we had to have the courage to break those minimum buys, end them, and then make our gear standard.
With that, you can see the great increase we've had both in engines for Volvo, as I said, Mack's always had its own engine, and the captive transmissions, which started with Volvo, but has quickly been caught up with Mack on the highway side. We're now moving into the construction side with creeper gears, and that's been a big success. That's 37% of our vocational orders at the moment. You see what's happened as a result, dramatic improvement from the date we started this new strategy. The parts per unit in operation, even though the overall population of trucks remain fairly level, we've exceeded, I think, even our own hopes and the industry expectations on this. Again, the profitability of that is quite important to the overall plan. 2016, despite volumes being down 34%, we were profitable, I think reasonably profitable. We've lowered the break even.
We're saying 40%. Technically, it's infinity because we're almost absorbing all of our operating expenses and most of our R&D right now with our service business. That has been, as you can see for the next bullet point, one of our key drivers. We, of course, through the process, also established a very lean organization mindset throughout the company. We pursue growth opportunities aggressively, but we do it in a frugal way. With that, I think I can now turn it over to Bruno Blin, who will talk to you about his efforts to recover market share in Europe. Thank you.
Thank you, Danny.
Here you go. Bruno.
Thank you. Good afternoon. This is really great to be here together with you and to talk about something which is taking a big part of our time, taking a big part of our focus, how to regain profitable market shares for Renault Trucks. If we look back little bit what has happened for Renault Trucks these past years. First, we have invested to renew our range of vehicles, launch in 2013, 2014. We went through a quite major restructuring activity, with two social plan, having 1,000 people leaving the company in Lyon. Starting last year, we have reorganized ourself according to the brand-based model that we decided to put in place in our company. That, I think, gave us quite a pretty good fundamental that are now in place. Yes, we have a lean and dedicated organization.
Lean because of this restructuring plan that we have put in place, but also very dedicated organization towards Renault Trucks. We have our right-sized cost base, we have a quite high service network density because you know that we have been gathering our network in some countries, especially North of Europe and Eastern Europe. This is giving us certainly one of the best network for our industry in Europe. We have put in place a new model, operating model to manage our market in Europe, which is, in fact, giving the same interest for our market companies to sell vehicles and services from our two brands. Martin will come back on that. Of course, extremely important, we have a very competitive and very well received product range of vehicles. That, of course, is extremely important to start.
We are continuing to improve these vehicles, especially on the cost side. Basically, what we want to do, we want, of course, to get in this positive momentum by increasing our sales. Clearly increasing our sales, more volume through this new cost structure will give us a good operating leverage and, of course, higher profitability. That, I think, will also help us to grow our population, and growing the population means, of course, increasing the need for services and parts. By that, we will, of course, increase our market presence. Increasing our market presence will give us a better image in each of the markets where we are present. Improving the image, improving the result will, of course, give us a great engagement from our team, which is absolutely key to be successful. We have key levers to be able to increase our sales.
First, we have been working on, or we are working on partnerships. You know that most of our business is done through partners. A key point for us is clearly to select the right partners and to manage them in a right way, in a good way. Here comes some example. In Iran, for example, with Harya Diesel, where we feel that we have a great opportunity when the Iran market is reopening, start to reopen. Renault Trucks was selling 2,000 vehicles a couple of years ago, before 2012. Here we have signed a new agreement with Harya Diesel. On this picture, you can see Hirbod from Harya Diesel. A good guy, having a very good understanding of the Iran trucks business. That, of course, will give us a great opportunity.
On the other picture, you have another example in Algeria, a very important market for Renault Trucks. Certainly, the second market for us and where we have signed an agreement with Sokri Group to build a factory, a KD factory. We were together with Jan Gurander in December for the first stone ceremony. We plan to open this factory beginning of 2018. In Algeria to have a factory, it's a key factor to be able to sell vehicles in this country. Two examples of partnership. Resale value. You know it's a key point for Renault Trucks. The resale value has always been an issue for us and for Renault Trucks. Things have changed. Today, we are talking about a new range of product, much more suitable for the secondhand market. With a better cab, of course, more space in the cab.
We have taken some very important activity. Basically, in used truck market, what we want to do, we want first to increase the level of vehicles, we want to make the flow of vehicles much more efficient. To increase the level of vehicles, we are working with the selection used trucks dedicated level, sorry, what we call Used Truck by Renault Trucks. Really trying to increase the level of vehicle, the level to repair and to refurbish some vehicles. We are trying to make the flow of vehicles much better. This is why we have opened, in Dubai, a used truck center. We are going to open one in Algeria, because to have a flow of vehicle, it's extremely important to have a very good market. Here you have a picture of our used truck operation in Dubai, recently opened.
Just to tell you that we have already got a first deal of 100 vehicles for Sudan from this place. Very important place for used truck business because it's a way for Middle East, but also for Africa. Another very important area for us, it's really to go deeper in the market where we are already operating. What does it mean to go deeper in the market where we are already operating? It mean really to increase first the number of salesmen. Since the beginning of the year, we have increased the number of salesmen by 7%. Our target is to increase it by 17%. It's also to manage, in a very deep way, our dealers and the sales forces, really looking at the performance. What we want, in fact, is to have a close monitoring of what we call the commercial presence.
That mean to really measure on how many deals, on percentage of deals our dealer are on, to make sure that they are making an offer to a bigger percentage of deals. A very important area to be able to reach this kind of performance is, of course, to work on training, to train our sales force to make sure that they are well updated about the different vehicles, but also on the techniques, how to sell our vehicles. For example, in two weeks from now, we will have 500 sales rep in Rio, where we will together go through the different type of vehicles that we have, but we will also go through the vehicles of the competition. This is really what we are doing to increase our sales in a profitable way because we are not in a hurry.
We want to go step by step in a continuous improvement mode to make sure that, yes, we are increasing our volumes, but in the same time, we are increasing our profitability. Thank you very much. Now I would like to invite on stage Joachim Rosenberg, head of UD. Thank you.
Thank you, Bruno. Good afternoon, everyone. It's great to be here in Eskilstuna and drive some yellow machinery with all of you. I hope you enjoyed it as much as I did. Before talking about the turnaround of UD Trucks, let me take just a few minutes and speak a little bit about the second priority, about capturing growth in Asia on behalf of the whole group then. I think one of the questions to ask first is, of course, why is Asia important at all? Of course, the size and the growth. As we all know, we are working in an industry where the size is determined by a few factors, and a few of those factors are population and distance. Asia is a place which holds 60% of the people in the world and large distances. Of course, it is going to be big.
Speaking about growth, of course, as we know, it's correlated to GDP growth, and we know that GDP growth in Asia is on the higher side in the world. Also, there are a number of very specific initiatives happening in Asia right now. You have the whole infrastructure renewal from China down to Singapore through Indochina. You have the golden quadrilateral, difficult word, in India going on. You have, of course, the One Belt, One Road in China and with everything that is linked to that. There are a number of reasons why this growth, specifically, is going to happen in the industry where we are. Another thing which is very specific to Asia is that by far most trucks in Asia are Asian.
That is different from, for instance, Latin America or Africa, which is under the influence of brands from the outside. If you take China, the clear majority of the 1 million trucks or so in China this year are Chinese, and 98% or so. If you take the same number in India, I think it's more than 99% of all trucks in India are Indian. More than 99% of all trucks in Japan are Japanese. If you do the same math for Southeast Asia, it is also predominantly Japanese. Of course, there are segments, demanding segments, like mining in Indonesia or over-dimensional cargo in India, or, as Claes was talking about, the e-commerce segment in China, which is more mature and requires productivity solutions with higher features. We are well-positioned there, very well-positioned with Volvo Trucks.
In fact, we are the leaders, generally speaking, in those segments. The clear and vast majority in Asia, region by region or country by country, are localized. I think that's an important thing to remember over time. In the end, of course, which Martin will come back to, we need to secure that we have the same kind of ecosystem in this area of the world following the same kind of principles that we have for the more mature markets and mature products, but of course, at a different performance step, because that is the reality in these markets. Talking a little bit about UD Trucks then, the company that was acquired in 2006, 2007, I think the starting point is that UD Trucks is a company which for a substantial period of time has been insufficiently profitable.
That was true before the Volvo Group acquired it has been true also for the past decade. Therefore, we have taken the decision to create an integrated value chain since last year. That means that both the technology part of the operations, some 500 engineers, as well as the operations part of the business, some 1,200 people, together with sales, service, Marketing and all the other important functions in the company are working together hand in hand. That means a much stronger accountability, a much stronger feeling of that we are taking decisions for us. Of course, being part of the Volvo Group and pulling on, but not being pushed by, pulling on the Volvo Group where and when it makes sense.
The way we have approached that is, of course, also creating then a turnaround program with all the bells and whistles that you would expect. There are, of course, a new governance, a new strategy, a new priority set of roadmap. There are all the control tower follow-ups, well-defined initiatives, activities, et cetera. All of that is in place with a monthly pulse. It is giving the results. What is even more important, perhaps, is that we are also working, as Martin alluded to in the beginning, with why are we doing this? What's our ikigai? What is our reason for doing this? What are our values? How do we work with competence development? How do we secure the motivation and the energy of the people?
Having been through that for the past year or so, I think both parts are equally important. I would probably lean to say that the second part with the energy and the motivation and the ownership is perhaps even more important. I know that you are very focused on the components of the turnaround program, so I'll take a few minutes and talk about that. On the product side, we have been focusing on heavy duty. We have been investing in heavy duty. It means conversely then that for light duty and medium duty, we are using OEM solutions then. This focus on heavy duty means also that we have been able to invest to modernize and upgrade our range. On this picture behind me, you can see our new Quon truck, which was released only last month.
So far, we have received very good feedback from more than 1,000 customers that have been test driving the truck. Before this year is over, more than 10,000 customers will have been test driving the range of trucks that the new Quon is. Being part of the Volvo Group means that we can pull solutions to this range of trucks that we could not afford being standalone. The cab is upgraded completely. It's a completely new electronic system that builds on the common architecture shared technology CAST of the Volvo Group. The whole chassis follows the logic of the Volvo Group, the suspension system, the brakes, et cetera. I'll just take one example.
By using the disc brake solution of the Volvo Group, we have been able to pull that at, let's call it a very reasonable cost then, of course, because it was available in the group, install it on this truck. That is then a unique selling point because we are the only truck in Japan that has disc brakes. It has a lower weight, which means that the customer can transport more goods. It's a better product at a very reasonable cost then. That means that we get, of course, an improvement in the margin of this range because we can pull solutions that we couldn't afford ourselves. The customers are valuing it. That's extremely helpful then, of course.
It also means being part of the common architecture shared technology that we can broaden coverage because we have access to the full group solutions in the different areas. That means that we can go after customers that we could not go after before. For instance, we now have the rear engine power take out. That means we can connect the refrigeration unit directly to the engine. That means a much simpler, cost-effective solution for the customer, and of course, much less maintenance separately on the refrigeration unit, but more business for us. It also means, of course, that we can take that logic going deeper in the market to other markets. We will, of course, be very selective as we do that because in a turnaround situation, as we all know, we need to first focus on profit.
When it comes to R&D, in the situation we have been in, it's important to make sure it's affordability, to make sure that we can afford the R&D that we put in, and that has not always been the case for this brand in the past. It allows us also to go after, as I mentioned, the niches that we were shooting for. Since we are a Japanese-based company with operations in selected other markets like Australia, Singapore, South Africa, and New Zealand, et cetera, quality comes very high on the list.
The quality level of these products is among the best that we have in the Volvo Group, and therefore, being part of the group, as we can pull on the group to UD Trucks, there are also areas where UD Trucks contributes to the Volvo Group and where the whole Volvo Group can and will benefit. Services. This is an area where UD Trucks is very well exposed to, if I put it that way. We have a very big service business. In fact, the group's largest retail business is in Japan. We have around 250,000 UD Trucks on road in Japan, and we own around 80% of the service network, generating some 3 million service hours per year. We can, of course, become better, and we are becoming better, and we measure, of course, the market share or the penetration, as we call it, per truck.
How much activity of the service need per truck do we do with the, let's call it the regular parts and service business? In addition, in the world that we are living in, connectivity becomes more and more important. This is an area where we have been, let's say, working since 2010, roughly. All the units since 2010 are connected. We have some 50,000 trucks or so on road, which are connected. This is an area that we also need to improve even further going forward. When it comes to the industrial side, we have been making sure that we increase our agility for 3 main reasons. First of all, managing volatility in an industry which is inherently volatile is a prerequisite to be profitable, of course. Secondly, it allows us to hunt opportunities because in our business, one truck is not one truck.
One truck is a unique tool for the customer and normally needs to be adapted to that specific customer needs. If we are a little bit quicker, a little bit better than the next guy to do that, we will win that deal. That is something we are measuring in terms of lead time, and we have been improving also there. Thirdly, being close to the business in this integrated value chain where everyone is cross-functionally working together, means that we can address the continuous improvements in an even more stringent way. We are also among the leaders in the group in terms of how many ideas we generate and implement in UD Trucks to continuously improve. That is something that Jan Ohlsson will come back to very soon as well.
The market share in Japan, you can see on the page, is around 17%. Year to date, April, in Japan, we are at the same level as we were next year. Of course, we are increasing our ambition level then to try to improve that number going forward, of course. From a financial standpoint, we are improving and as Jan Gurander was talking about, we are, as you understand, in the yellow category, with high-frequency follow-up. Let's just say that we are following the plan, and I think hopefully when Jan speaks later, he might even say that we are a little bit ahead of plan. At least that is my interpretation of things then. With those words, I'd like to invite Martin on stage, who will talk a little bit about the value range of UD Trucks as well.
Thank you, Joachim. Before maybe you leave, you were talking about Quon.
Yes.
You launched one month ago, and also that the Quon is mainly serving, if I may say so, a little bit more mature logistical markets such as Japan, South Africa, Australia. We also had a launch also very recently here that was also UD.
Absolutely.
The UD Croner.
The Croner.
Your guys were in Bangkok together with a lot of customers. What is the feeling about that?
It was a fantastic feedback. We were in Bangkok. This was in March, and I think it was a great day, great feedback. Clearly, the all-new Croner serves the medium-duty segment in a, let's call it, more targeted way that we have done before. Since the launch in March, we have also launched it in Middle East just a few weeks ago. In a few weeks' time, I think it's June six, seven, eight, we will be launching it in South Africa as well. We're getting really good feedback from the customers on that as well.
It's full steam ahead.
Full steam ahead. Thank you.
Thank you, Joachim. I think this is important to talk about because often when we talk about the different parts of our portfolio and product ranges for UD and UD Trucks, it is also about the starting point as Joachim had regarding Southeast Asia, obviously, where you have a very strong Japanese heritage when it comes, so to speak, to the volume part of the market, and where we are using both knowledge, product platform, coming out from UD in Japan, actually. Also how we actually can use that platform together with our joint venture partners, something that I will come back to. Before doing that, just a couple of words on the two products that we are making out from Bangkok, the UD Quester and the UD Croner.
In this specific setup, for, so to speak, Southeast Asia and also some of the emerging logistical markets in Africa, Middle East, et cetera, we are having also integrated the value chain setup with a specific market organization in order to really drive, dream, and think about those product ranges every day, and also in close cooperation with our markets and customers. As you can see, the main priorities now is that we are getting traction on Quester that has been into market now for a couple of years. Good quality level, well-received. We have launched, so to speak, the product segments and the range we need in order to also gain volumes.
I think it's important to say when we talk about the service business, as always when you're launching a new range and a completely new range, because both Quester and Croner are relatively new, it takes time to build the fleet. It is an investment case that you have to believe in. Therefore, it has been extremely important to Jan's point, that we have set up, what does good look like in different stages of the ramp-up here? That we are also following in a good way. We are ahead of that plan for the time being, both when it comes to the volume development as we put it when we installed the Group Trucks Asia and joint ventures, also when it comes, so to speak, to the business case as such.
We are ramping up, as you can see now, the Thailand volume, that is also good for the absorption. In a frugal and lean way, we are also putting in place the KD operations where we need it, not at least in Indonesia, then with our partner that is Astra International, a very seasoned and competent player in the whole Southeast Asia and primarily in Indonesia, also then in South Africa where we are running our own operations and looking for the other KD operations that we need. We have a good setup for that. As you can see then on the sales volume developments, is now going according to plan. We are complementing now as we speak with the Croner. Medium-duty is very important for those markets.
We are also working then obviously with the product costs from a platform now that we have installed. We have obviously a negative operating income, one has to understand also that this, again, is an investment case for the future, we are following the plan that we have set up. Services will gradually also come into play as we are building the fleet and that we are getting a little bit more distributed population when it comes to age as well. So far so good on that pace. Also happy to see together with the Group Trucks Technology that both the Croner and the Croner installations when it comes to initial product quality, always protecting the customers. The internal product quality has been very positive as well here. Coming to our joint venture partners, starting then with Dongfeng Commercial Vehicles.
As you know, even if we have had a long relationship in a way and a lot of discussions with Dongfeng, it has really got started a couple of years now. For me, it's important when you talk about joint ventures and the companies, that the starting point is that both Dongfeng Commercial Vehicles and Eicher are proud brands. Because often when we are talking about joint ventures and seizing new opportunities, et cetera, it is more like a play of a game and say, "Okay, how can we capture volumes?" Dongfeng will celebrate in 2 years now, 50 years, have had during the whole journey and the evolution of China and the new China, if I may say so, a very important role together with a number of other players. That's the starting point.
In order to make this successful, it's all about, as I said, from the start, trust and to have a situation where it's a true win-win for the two mothers of the joint venture. Normally, I've said, and I've said it many times also to you, the equity share of any partnership is relatively unimportant. We have seen, and we have gone through that also, where we have had an equity share of 100% and it has not been successful or more or less successful. It's all about we can have 20% that's been successful or zero because it's a true partnership. It's about trust and true win-win. If the two partners don't feel that this is a win-win that will grow the business from the different angles, you will never succeed.
We have been spending a lot of time with the management of Dongfeng Motor, that is then holding the 55% together with the senior executives of Volvo, and Jan is the vice chairman of the joint venture, to really build that trust when it comes to what do we want to do for the future? What is the leverage and what are, so to speak, the inputs that the two organization can do? We have a strong market presence. We have a strong network, primarily in some of the areas in China. We are strong in rigids, in medium duty. We also have a common view on the industrial footprint, how it should look for the future. We have a good plan together on the Xi'an setup, where we have the main operations now.
Also about both the technology coming into Dongfeng, but also how we are building up a technology in order to have a decent carry back, not only for the Volvo Group, but also to make Dongfeng more competitive based on their knowledge and experience in production and also in technology. We see now that both China and India is accelerating when it comes to the emission legislations, and thereby also that you need the scale and knowledge and in-depth, so to speak, cooperation, both for CN5, Euro V, and CN6 coming pretty soon here, but also for other type of technologies. The good news, I think, is that our competency in tractors, that has been not a weak but weaker spot in relation to rigids, is also a good combination. Here you see that you have different competencies combined together.
Already now we see actually good traction out of the activities we are doing together. We concluded now also the engine agreement on that part. The focus now is really to make sure that we are gaining ground on the heavy duty and primarily in the tractor segment, because that is moving quicker than the rigid segment, and that is related also to new legislations on total weight and also the upgrade of logistic as such, and then you're always getting more tractor-trailer combinations. Net income margin and improvement 1.2%. The start of this year, obviously strong market, but also through self-help, has also shown that we improved, as you saw in quarter one reporting. VECV is a good example of that. It's longer down the road, 2008. It's almost 10 years now.
A strong cooperation in many different forms, where the two organizations also feel that we are benefiting from the competencies and resources that we have, both in Volvo I-Shift, but also in the Volvo Group. Our primary focus right now is to grow the heavy duty market shares. We are already strong, as you can see, in medium duty with 30%. We are continuously, in small step now, growing the heavy duty. By really making sure that we have the right competence, feet on the street, selling heavy duty solutions. We are all, as Jan said also, that was red, turning to yellow now. The Pro 8000, that's the sister of the UD Quester that we have moved from our Hosakote. We are about to move that from our Hosakote operations outside Bangalore to Pithampur, where we have the main operations for worldwide here.
Very good cooperation, as you can see also, the component side, where we are carry back now a number of components, both when it comes to the five and eight liter engines, and also in the future on transmissions. In total, this is why it is important with the starting point, as Joachim said. We have different flavors of the market, but a lot of similarities also. Based on the main common architecture of the Volvo Group, that we have the main standardized interfaces of our components. We can actually, in this ecosystem, leverage what performance steps in terms of components and systems we should have in the Asian ecosystem for China, for India, for Southeast Asia, Middle East, Africa, in the emerging segments. Getting the right scale, both in technology and in production, so to speak, and in also in sourcing.
With that, I will leave the word now to Jan Ohlsson, who will continue to make an update on where we are in our operations. Please, Jan, the floor.
Thanks, Martin.
is yours.
Thank you. Good afternoon. Nice to be here. We are on a journey, I could say, a transition journey, inside the GTO, the operation side of the company. Some of you, I guess, visited the Ghent plant two years back, I think it was, where we presented a major structural program that we have been working with. You could say this has been a program, closing, moving, right-sizing, consolidating, or whatever word you put upon it. I dare to say now, after these four, five years, that it has been a very successful program. I'm a bit proud, Jan, on the contribution we are giving into the total result from this program. We also launched during that period what we call our Volvo Production System.
Now it is time and for the next step. You could say from the end of last year, we are entering a new phase, a new sort of say, lineup in the way of working and more emphasizing than the continuous improvement work. Less of structural changes, much more of continuous improvement. I collected this into what I call the focus four. It is a little bit back to what you have heard from my colleagues here earlier. How to connect now the plants, the distribution centers with the customers and really get relevant input into the system. What should we work with and what is the need of the different brands? What should be improved? That we call the focus four. You could say it's highlighted in then the area of quality, delivery, flexibility, and parts availability.
Of course, we want to have the customer perspective into this work. We want to have results based on what is the need of the customer. We move in, for instance, now the heavy track surveys results all the way into the plants. On the quality area, you could say that we touched a new product in U.S. Of course, to connect improvement work with a product launch and be on the right topics to make sure that we are launching the right quality out into the market. I think that is a very strong combination, and we see that. It is about everybody's involvement in that question. We also want to use, of course, all facts and figures. We follow up on month one, we follow up on month 12. We have internal KPIs and audits and things like that.
That we want to address back into the system. We want the teams to work with and start to improve from and use in their way of working. Competence training of the people is of course crucial to have a drive in the quality work. I am pretty proud in this area too. We have a good, stable trend when we talk about assembly quality. Yes, we can always improve, but we have a good starting point. Delivery and flexibility is well connected, I guess. It is a challenge for us, and it is a key task for us to meet up and, of course, to be quick in response. I think our main task is to be agile and brand-oriented, regional-oriented, what happens to meet up and take care of the different swings.
We will have ups and down, and that is coming even more often. It is, of course, crucial to be on the topics, not in a reactive way, I would say in a more proactive way. When it comes to deliveries, you could say that we are working together now with purchasing, and as I said already, we want to emphasize the more regional approach. We want to have regional value chain supporting, and we want to have regional decisions all the way into customer adaptation and the full delivery of a truck. We also want to be even more involved, of course, in the program, the planning, and meet up and have a proactive approach into what is coming up into the next quarter and the quarter after that, and to prepare ourself upfront in this work.
Flexibility, hand in hand with that, and it is about capacity planning. We have a toolbox today. Could be further developed, but it is a toolbox. It could be time banks. It could be moving working hours in the systems, using flexibility workforce. Other tools linked to, you could say, the heritage, the legal demand, and what it looks like on the different sites, on the different continents. It is important to be quick in response. I think we have touched the figures here, Martin, or Dennis, in U.S., we have gone down with some 30%-40% in U.S. I dare to say we have also done that in the operational system, keeping a good cost control and deliveries out of the system.
I think we have shown that we have a good system, but it is to be further developed and further spread out into all DCs and all plants we have. Parts availability, it is about doing more business. I think that has been said several times during the afternoon here. We are not a distribution center. We are a tool to support our brand colleagues and the [VAs] to do more business, to grow their business by having a good parts availability all the way out into the dealers and into the different workshops. It is a lot of things changing linked to connectivity, uptime, and things like that now that we also have to apply into the parts availability machine supported by the DCs. Do more business, drive more business together with the brand colleagues is what we are driving through the parts availability.
We want to have the best out of two worlds inside the operation. In one end, of course, we want to have brand and brand applications, to be agile, meet up on brand solutions, very specific demands on different markets. The other end, of course, GTO technology and purchasing, we have to drive what should be commonality and what should be common. It should be, of course, common solutions where scale matters. You have touched engines, gearboxes, but also inside GTO, it could be about IT systems, it could be about material call-off system, it could be about training, it could be about investment tools. We have to balance this, what should be common and what should be scale of economy and what should really be adapted to the different brands.
To do that, we are decentralizing the responsibility more and more want to have a more regional, local approach to this work and use the common solution where it fits. Continuous improvement and the Volvo Production System, I dare to say it is a very strong system we have in place, it has really matured now the last one, two years. I dare to say all sites today are on board in this journey. We have a good program, we have a good training, we have a good environment to really grow and take the responsibility. The base in this is the team structure. To belong to a team have a strong team leader, a leader driving that journey, bringing the toolbox on board, involving people, what you touched, Martin, trust, creating passion, bring people on board.
We think it's quite fun to be part and develop and change and be part of that journey. Of course, we want to have everybody's involvement in this journey. We want everybody to be on board. The driver is, of course, to generate ideas. The pace we have right now, small and big topics, is on the level of 300,000 through 40 plants and 55 DC centers. That is the pace we have right now. I'm really proud of that pace, and we can see the contribution now coming into the results. We also have a strong support into this. We have assessments, I prefer to call it coaching training, supporting with benchmark and bring people together and boost the enthusiasm in that work.
Targeting then in this journey now to stay above 5% productivity in the operation side of the business over a business cycle. Yes, we have some very strong proof of that this is really working, we could go to Ghent right now, where we have done major changes right now we are pacing strong over 6% productivity. I believe in what we are doing. Thank you very much. By that, I hand over to Mr. The Host, Weissburg, please.
Thank you, Jan. We shift now to some words about Volvo Construction Equipment. From me also, welcome to Eskilstuna, and I know some of you had the opportunity last night to visit our Volvo Construction Equipment Museum just across the river. Not all of you did, but some of you did. You have seen also the rich and deep history of Volvo Construction Equipment. Then at the machine show today, and from the comments from my colleagues and the ones to come, we'll show you also the very bright future of Volvo Construction Equipment. I hope that you did indeed enjoy the machine show. The comments that we got, Martin, Jan, and I, from some of you, that it's almost a bit of an emotional experience, right? It's very high energy and it's emotional.
When we have debt and equity analysts sharing their emotions with us at Capital Markets Day, that's a good sign for us. Thank you and welcome. Since 2014, we have been on a transformational journey, a turnaround at Volvo CE. This has been needed, not just because of the continuous decline in the markets that we serve, but also to repair, to fix, to change inefficiencies internally, some incorrect ways of working internally, and a too high of a cost structure. Our focus has been very much on our core products and segments. I'll give more information on that shortly, and continuous work with our product portfolio. This comes in big steps and little steps.
Some of the big steps were back to 2014 and 2015 when we exited some of those reds that Jan was referring to, which was Volvo-branded backhoe loader, milling machines, and motor graders. Some of which we shifted, backhoe loader and motor graders to SDLG, and now with some export products. A Volvo-branded product exit. Product portfolio work is also the daily work. Again, as Jan said, reduction of the variance and reduction of product cost while maintaining reliability and durability as you see in the field. Also a rebalancing of the product offering within the existing lines to make sure that we are each day improving on how we address our value proposition to all customers in mature markets and in developing markets as well. By doing this, we have been able to take market share in select markets and segments and grow our field population.
What I would say is that this transformation and this turnaround has been a journey and an effort of self-help. At no point in this journey, which continues by the way, have we relied on the market to fix our problems. We've been looking at ourselves in the mirror, realizing that we were too heavy, too heavy with cost, and needing to drive change, which we have been doing. This transformation is starting to yield result. We've now turned the corner. Let me orient you to this slide. The vertical bars are our volume, Volvo CE volume in units quarterly 12-month rolling. The horizontal line is operating margin 12-month rolling, again, quarterly. You can see as the market continued to decline significantly over the recent years globally, our transformation efforts started to take hold.
Even as the market continued to decline and declining quickly, sometimes even more quickly than we are able to transform, not only did it feel, in reality, we will still be able to hold, even in a declining market, operating margins in that 4% or 5%, sometimes 6% range. Not good enough, but keeping our head above water. Now as you see, as the market starts to come up a little bit, still way below historic highs, starting to come up a little bit in Q4 and in Q1 that just ended, now you see the operating leverage, the good operating leverage as planned. We are just now starting to turn the corner. How have we done this? Again, it is the transformation. It is self-help. It is cost reduction. It is focus on reducing the cost of poor quality. It is strengthening our distribution networks around the globe, right?
It is focusing on quality of earnings throughout a business cycle, it is by getting closer and closer to the customers, listening to them, being a little less Volvo CE-centric from a product development standpoint, but taking the customer's input, giving them what they want, and by doing so, driving increased share. That, plus we are very, very good at our core products. As a reminder, you saw these this morning, as a reminder, as a bit of backdrop, in our served market, Volvo CE, excavators and wheel loaders represent 70% of unit sales in our served market, okay? In wheel loaders, Volvo brand, we are number 2 if you exclude China domestic marketplace and our SDLG brand, which is primarily a Chinese domestic wheel loader company.
If you include Volvo brand wheel loaders and SDLG wheel loaders, we are number 1 globally in wheel loader share, with room to grow and improve both brands. With some upside there. In articulated haulers, which is a much smaller segment, but a very profitable one, we have been number 1 or 2 for years and will remain in that position. Perhaps less upside in that because of our existing strong position, but very strong sales, reasonable growth, and good aftermarket. In excavators, which is 50% of our served market, we have a solid platform and outstanding products, but not the same command of the market share as we will have in the years to come, and it is improving. In excavators, we have significant upside, and this is one of our key points of focus as we focus on the core products and the core markets.
Excavators, we have an outstanding product. Recognize not just the words of me, because I am a Volvo CE person, but from the marketplace and competitive comparisons, we just do not sell enough. Our focus commercially, and from a product support standpoint, is to continue to drive that excavator business, because this is the core of our core. Not shown here are pavers and compaction equipment, which you also saw outside, just for the interest of the presentation. Also these are core products to us, and important entry or lead-in products for many of our customers. Very large contractors, rental houses, especially on compaction equipment, et cetera. By doing this now with this focus, we are gaining shares while maintaining good pricing on our Volvo brands and SDLG and growing the field population. It is an easy strategy.
Grow the field population as much as you can, stay close to the customer, sell more parts solutions, attachments. That's where the good margins continue to come, and customer retention comes. Growing the service business for the Volvo Group, for Volvo CE, this is our focus. Okay. Because it's about customer uptime. It's not just about selling parts to make money, it's about being there with the parts availability, delivering the uptime promise, right? That brand guarantee and promise, retaining the customer so we can sell them as their fleets grow and their replacement cycle. Claes spoke about also good improvements on customer support agreements. Similar situation in Volvo CE, where we've almost over the years doubled our penetration of CSAs. Why is this important? Same comment as for trucks, buses, et cetera.
It gives us a captive, positive flow of parts sales, parts service, and other activities and relationships with our customers for years to come. It's good solid business and brings us closer to our customers. Also, as announced in the Q1 release, we'll be phasing in to Volvo CE the in-house eight-liter engine starting in a few years, which will allow for us and our dealers then even more and more profitable aftermarket business on the engine side as well. While we're transforming, while we're getting more lean, while we're taking share, we're not losing sight of industry leadership when it comes to innovation. You've seen some of the examples out there today. While these are prototypes, and I'll talk about them in a second, please don't think of these just as Volvo CE machines.
Think of these as Volvo Group machines, because the technology is shared. Lars, our Chief Technology Officer for the group, will come up later after the coffee break and share some of these with us. As our colleague at the machine show said, the HX1, that has more truck parts in it than it does CE parts, starting from the axles and expanding. The LX1, where we have two working prototypes now. One's here, one's on the West Coast of the U.S. in the hands of a very large customer of ours, Waste Management, a Mack Trucks customer, and a Volvo CE customer, where they've been running their demo. I think this three or four-month demo ends within a couple of weeks, and the results of this have been outstanding.
The next version of the diesel-electric loader then will be retrofitted for even better battery power coming, guess where? From the truck and bus operation within Volvo Group. This is the power of the Volvo Group that Lars will be speaking to. In conclusion from me, transformation, the turnaround, self-help. We're getting the operating leverage now that we needed to get and that we assumed we would get as the market starts to come back a little bit, but not at the cost of investing in industry and technological leadership. I'll pause there. I think, Christer, we hand it back over to you, and thank you for your attention.
Thank you very much. We actually have 50 minutes time where we can have a question and answer session. I ask my colleagues here that has been presented to join me.
You steer the questions, Martin?
You steer it, Christer.
We start there.
Graham Phillips from Jefferies. Two questions, please. We heard quite a lot of detail about the turnaround at UD and the associates business joint ventures. I don't feel we got enough about Renault in terms of the number is still orange or the color's still orange, but I guess that actually means a loss, if we equate to what UD was saying about the number that they had. Can we still hear a little bit more about what is the change? Orders are still very weak in the first quarter for Renault Trucks. The second question really, Martin, was about the group margins within all the margins within the truck division. We now are at a quite a high level compared to history. What do you think the margin range could be in trucks now?
Can we have microphone? Bruno, I can start with actually saying when it comes to profitability on Renault Trucks, Renault Trucks is making money. It's not loss-making.
Maybe we can add, we are making money. We were making already a little bit of money 2016. We are making more money in 2017, and quarter one our order intake has been improving, and our market share are stable. When we see the order intake, we already feel that our market share will go up in the next coming months. We are more optimistic.
I think also, just to add to what Bruno said, when it comes to orange, it's not starting with zero and downwards, if I put it like that. That is the first thing. We have seen a gradual improvement over the year, and I think when it comes to the order intake in quarter one, we should remember also that it was also a little bit of product mix effect because we had a weak order intake on the-
Light duty
on the light duty and better traction on the medium and heavy duty. What we have said, and that Bruno was into, but I just want to underline also from a group perspective that we are supporting that, is that volumes are important, as you said, but it will not be the expense to, when it comes to regards of the quality in the business. Because having the residual value, as we say, is a strong sign for us that we have a very good platform. We will not devaluate our product. It's not worth it, and we have a lean organization and lean platform that can do. I just wanted to add that, Bruno.
No, you're right. You're right.
When it comes down to the other question, as you know, we are not putting forecast. When it comes to our financial targets, it's not up to change. We, I mean, you know what good looks like, and we are aiming for that. I mean, we will continue to drive it. I think the good news, as Jan said in the presentation, is that we see improvements across the board, both coming from the underlying, so to speak, vehicle business, but also services, and across the board. That is what we can say.
Sorry, can you just say on Renault a little bit about what the strategy and distribution is? Because I know we went through this phase of combining some dealers in the eastern part of Europe. I mean, is that working? What is the next stage in terms of making its profitability green?
As I said before, one of the leverage that we have, it's great to grow the volumes. We see that with better volumes, we can absorb, of course, fixed cost, and this is clearly our focus. Now, when it comes to the distribution network, we are where we are. We are utilizing, I would say, the full potential first where we are in the separated network in some countries, like France or south of Europe. We are also beneficiating in North and Eastern Europe from a very dense network, very professional network. I think, Martin, you will come back on the network, on the retail, how to manage the retail. Of course, this is a great advantage, and it's a competitive advantage, in fact, for us.
If we see some countries, I was traveling in Finland, north of Europe, I think we have a network we have never dream about. We have never dream about this network, and I think we have now to use it and to leverage on it.
Then, yes, coming back on a more general standpoint on the network, I think also what Danny referred to is that we see also when we have the critical mass in bigger urban areas, we should have separate rooftops. That is driving dedication, brand addiction, willingness to win, et cetera. We, I mean, I was meeting with Ron Meyering here, who's running the Chicago business, for example. I mean, he had a good market position already before, but given that now we see the continuous development, he's doing the same thing now in Detroit. I think that this goes without saying for our European operations where it makes sense in some of the growing countries, if I put it like that, like in East Europe where you have the urban areas. It makes sense to have also on dealership-wise, separate dealers.
Yes, hi. Klas from Citi. I'm turning to you, Joachim. There is a perception in the market that your relatively high Asia exposure versus some of your peers limits the opportunity to expand margins. I mean, we talked about this before. Asia is typically more medium duty, and there is less opportunity to expand service in medium versus heavy. Outside of your JVs, Dongfeng and Isuzu, if you look at Volvo and UD Asia, do you think the exposure is a relative disadvantage, or can you expand margins to best-in-class peers with your Asia exposure within the group?
I think it's obviously difficult for me to comment on competitors' margins. I think I'll refrain from that. When it comes to the fundamentals of the business, they are roughly the same in Asia as they are in other parts of the world. From an exposure perspective for the UD brand in more, let's call it mature markets, as I was hoping to be clear on, we are focusing more on heavy duty. Asia in general, obviously also has the most, if you count steering wheels, heavy duty trucks in the world. The potential is there. If you take DFCV, Dongfeng CV, Dongfeng sells much more heavy duty trucks than medium duty trucks. When it comes to the Volvo truck business, if I may answer a little bit for Claes, if that's okay.
A lot of share of the Volvo truck business in Asia also goes into very intense service market business, mining, for instance. The margins there are also not bad. I'm not sure I would prescribe to the basic assumption of your case, looking at the business as such.
Good. When it comes to true productivity, if I can test some numbers, obviously we're a little bit light on numbers, which is okay. Variable production cost, if I take cost of goods sold, I get this to around 18% of COGS, which is around SEK 42 billion. First, if that's correct, what base should we measure? Is the productivity increase today only matching the wage inflation? Are we going to 5%? We can understand the cumulative EBIT until you reach that target.
I guess I knew that you were coming with some Excel-ish kind of questions. The first one I will not comment on. The second one, it is a question about gross productivity, the 5%. Then you can just, I guess, inflation is a little bit lower than that. There will be a net productivity as well.
Are we at 3% now? Just so we understand roughly the delta.
Yeah, we have different inflation rates and labor rates in the world right now. I guess on average, we're going to be some kind of 2%, a little bit more, maybe, something like that.
Okay.
One thing on that also. I think the trick for us is also about measuring when we are stable, so to speak, then you can really measure the true improvement when it comes to. That is not happening very often. Europe, for example, is an interesting case right now because it has been relatively stable on good levels. As Jan referred to also, there we see that both in Ghent and also in Tuve, Bourg-en-Bresse and Blainville has actually been better in some cases already from before in the French plants. There we see that we are gaining that, so to speak.
One part of also the, not productivity per se, but that is also counting in order to get it to the right margin levels over time, is how you actually handle, so to speak, this when you have the volatility included, so to speak. There, I think we are getting considerably better in moving that type of work together with underlying productivity, if I put it like that. That is important because otherwise you will see it as, say, COGS 18% blah, blah. That's average of average, Klas, that will not work. Just a small hint on that one.
I understand. I just want to understand roughly where we are. My final one briefly is on for you, Martin, when it comes to construction. If you look at the market share slides, you left out the pavers and the compaction equipment. You say that these are core products for you, some companies out there are exiting road construction. It's a very competitive market. I'm just trying to understand if road construction is a yellow dot or a red dot within the group. It feels like a yellow dot when I listen to you now.
I would say, relatively speaking, we're driving a transformation on the compaction product line and the paving product line, just as we are on excavators, for example, and for wheel loaders. We are not pleased, and we have performance plans in place for all of our product lines. I would say that road products are core for Volvo CE. They're core for our customers and for the majority of our dealers. From a market share standpoint, we don't have the same commanding position as we do in haulers or in loaders in some markets. I would say our paving product especially, the Volvo ABG brand, which is Europe and rest of world, very well regarded and very strong product itself. We are quite supportive of that, and as are our customers and our dealers.
Hampus Engellau, Handelsbanken. We've seen today on the construction equipment side, hybrids, electrical vehicles. We hear on similar projects on trucks, but on fuel cells with Nikola, et cetera. My question is more on long-term powertrain strategy for construction equipment and trucks. What do you think about that? Will they be the same, or how should we think?
I think, Hampus, maybe if we take that specific question off the technology presentation made by Lars, it's coming after the break. I think it will be more relevant because then we have done the basic lineup of what we are thinking about, and then we can come back to you. I think we should raise that question again, but having that as a platform, so to speak.
Okay. Can I do a more general question to you, Martin? Obviously, we've seen the Cost Takeout Program, moving over to more continuous improvement, productivity, separating out the separate P&L responsibilities for these entities. Where are you in your thoughts of realizing the full potential within the truck business and more moving over to normal productivity improvements?
No, I think, as we have said, when you
To start with, when you onboard the P&Ls after a pretty long period of more functional-based organization that was necessary, as we said during the transformation program here, it is important for us now to take it step by step. All our brand business area presidents really feel for the P&L. Not only that you get the figures, but you feel where are the levers to really drive that. I think when it comes to the short-term P&L influence, volume planning as we stand, the quality drive of feedback, connectivity done both with R&D production and sourcing, how do you actually operate on services, et cetera. Correct me if I'm wrong now, but maybe we are on 70%, 75% of that ownership, because we are learning a little bit as we go now.
We want to take it step by step also not to lose, so to speak, control. In the long run, it's also about how do you then influence the product and service portfolio plans together to continue with the cost and to continue with the brand application? There probably we are, in some cases, longer, but on the brand-specific and customer-specific, maybe a little bit shorter. I think we are according to where we want to be, not losing out what we have been gaining with the activities you refer to, and at the same time, not, so to speak, missing the vision that we have, that we have 10 strong business areas that should operate on their own, so to speak, and their own merit. There are still interesting times ahead, if I put it like that.
Can I do one last question to Jan on, you showed the balance sheet and the quick turnaround in taking down the net gearing in the group. What's the strategy with the working capital, the short-term financing from sub-suppliers? Are you changing that in any direction to remove even more volatility in the cash flow between the quarters?
I think one, as you correctly say, one of the reasons for the big volatility that we have especially seasonally, but also, of course, when we have bigger business cycle, is actually the accounts payable. Since we have the payment times we have, it comes automatic, more or less. That's one thing. It's maybe not the most optimal way to have it, in all fairness. It creates, as you said, volatility. Volatility is not good. Maybe there can be ways how we can improve that a little bit. As you understand, then that will have a negative short-term influence on the cash flow, and that's something that we have to consider as well. Of course, if we are giving away something, we want to give something in return for it as well, so it doesn't come for free either.
That's something that we are considering how we can do it, because it automatically creates volatility, and we are not happy about that.
Thank you.
Take one final question from up there.
Hi, good afternoon. It's [Joed ], Vertical Research. Just a couple questions on construction equipment, and I think, one, any additional details on excavators specifically and the regional opportunities for share gain that stand out most, and anything from the product portfolio and other features and kind of timeline of thinking around that. Then structurally, anything that you're seeing as you see more connected machines, whether or not there are a lot of mixed fleets, whether or not you're seeing a trend toward more same brand, and how you feel positioned for that, what you're seeing.
Thank you. Start with the excavator question first. We have room to grow market share in all of our sub-ranges and in all of our regions. Fortunately, we're not limited in our ability to grow because it's such a large market. I'll give you a little more color and tell you that globally, we're about number six in total market share. If you look at the larger production machines that you saw, some of which you saw out in the machine show today, we're number three or number four. We're looking to grow all parts of our product offering. That's from a product range standpoint. From a regional standpoint, we are regaining ground in China as we speak, as our distribution network strengthens itself with some help after the very severe correction that China experienced. That's a growth opportunity for us.
I would state on top of that, excavator sales Volvo brand China has jumped significantly even in the situation we're in. On top of that, there's some potential. I would also say North America, we're not as strong in excavator sales as we need to be or want to be. We're traditionally more of a hauler loader company in North America going back many years. The commercial team has taken very strong steps the last couple of years already to reposition distribution, including their rental fleets, and help them with their capital, which we're able to do through Volvo Financial Services, best in class captive, especially in North America, to really drive those solutions as well. That's to give you a little color on the excavator question.
Relative to fleets, one brand, mixed brand, I will tell you that if we were to rely just on having 100% market share with single customers. That would be a poor strategy, unless the customer is only buying 10 or less units perhaps. When it comes to connectivity especially, we're seeing consistently from mid-size to large to very global customers, they're looking for an open platform so that their mixed brand fleet can connect equally on different job sites. All of us in the industry have that responsibility, and this is what we're working on, not just for Volvo CE, but trucks, buses, et cetera, is to have the flexibility and the open platform so that our customers can connect, as subcontractors to any general contractor, and our large customers can bring in and out different pieces of equipment.
I would add to that you saw some of our very strong positions on some of our key products. We use that as entry sales into a lot of these customers, mid-size, large-size. Once they see the good support and the reliability of the Volvo pieces, that's how we're able to penetrate more and more. That's how we're cracking into more and more of customers and taking share from our competitors. Thank you.
Thank you, Martin. There will be a longer Q&A session after the next network. To deepen your questions, I got actually a question about was it only the green that got a little bit deeper green, or could it have been so also that some of the orange got more light orange? The answer to that is yes. Just to be clear also, orange doesn't mean red. Orange means sometimes red and sometimes also black, but not as black as we want to have it black. I think that is important. Across the board, deltas, et cetera, has improved, as we have said on that. I think that it goes a little bit without saying also given the quarter one.
It was 2016, but also when you saw the development during 2016, obviously you should have seen a little bit different color scheme also for the different brands when it comes to quarter one 2017. We will move into one of the areas very close to my heart, growing services, and capture that potential that still is generally big in our industry and also for us as Volvo Group. When I said our industry, that goes across the board actually for the different business areas. Why I like this in particular is because the more of the service penetration, the better feedback that is that you have a good customer relation. Normally, when we discuss this internally and how that is working and why this makes sense is obviously that it starts on the customer side here.
I normally take the example, it starts with a truck and with a filter. If you deliver the truck and the filter well, maybe you can deliver some more things. As time goes by, in different markets, different maturity levels in logistical systems, you can provide other type of services. The starting point is how can we show the customers that we are bringing superior uptime and superior productivity to their operations? If you think about it, the more logistics mature, not only when it comes to the products and our services, but also with the new technology of connectivity, automation, and also electro-mobility to a large extent, solution-based, life cycle-based solution together with customers and in many parts, customers' customers. This chain of command here will make even more sense for us.
Very important focus area and important to use what we have. I will try to draw my favorite slide here. That is partly successful from time to time and not at all successful from time to time. Let's see how we end up today. When we have good penetration of services, we see also that that is driving customer retention. We have higher loyalty when it comes to customers and segments and markets where service contracts, gold contracts, financing, not at all, and not at least, insurance, et cetera, where we have high penetration because you start to get the relation. You're moving also in the customer supply relation from a transactional, playing cards type of relation to take out the real waste out of the value chain. The potential in that is much bigger.
We see that also in our own logistical system when we are buying transport, for example, that if we are really taking into consideration the full value chain, you get other type of solutions. Market shares, as I said, higher loyalty, our customers getting more successful, population, drive the population, service sales, and reduce volatility. Not at least for us internally, for you as a community of investors, obviously, that is one of the key cornerstones for us also when it comes to coping with the natural nature of the market, so to speak. Okay. Here, I will try to little bit sketch what I believe in here. Here is the x-axis. Okay. Here is the y-axis. Then I do it like this, so we don't have a question about that.
That means that on that side, it's a little bit longer. Here is Okay. Here's market share. Here it could be products, or it could be even revenue streams or whatever. Products or revenue streams, okay? In our business historically, that goes for many industrial manufacturers that are coming from, so to speak, the factory base, we start with a product here. It could be trucks, or it could be buses, or it could be Penta. Penta is doing fine, by the way. They are not here today, but they are a great company. Products, market share. Let's take trucks here. We can take Renault Trucks, for example. Here, we know everything. That is our heritage. We know exactly where, how many. It's typically 18.132135%. Pretty granular. We have something more here coming up, that is a little bit illustrative.
For example, parts. It could be parts. It could be workshop hours. It could be financing, it could be insurance, it could be uptime services, it could be whatever. We have a number of products in our service product portfolio. My point here is that, first of all, how do we drive this part? Because that is the main part. If we really believe in, as I said, the chain of command here, that if we have higher penetration of services, how do we make sure that the installed fleet, the base that we have, is actually having a one-to-one relation with the services that we are offering? One of the key areas that we'll be working here is really to make sure that we are measuring this in a good way, market by market.
Also, if you think about it, this is not only two-dimensional, here it starts to get tricky, so I will not even try. If you do this three-dimensional here, obviously you will have it segment by segment, because this is not the same pattern in Sweden for long haulage, construction, and distribution, or completely different in Poland, whatever, but also segment by segment, as I said, finally, also customer by customer. In order to see that, we need to have the one customer, one account approach, knowing what we're talking about, and how do we drive these bars to come out here already on the installed base. Obviously, what we've heard already today is that service contracts and repair and maintenance contracts is one of the key drivers. The penetration we are seeing, Marty, you showed that on construction equipment.
Claes, you showed that, we see the traction. That is one, because the service contract is driving both the workshop hours and the parts. You can go along. Here to start with is one of the untapped potential that we're working with, both for the revenue stream, decreased volatility, but also, as I said, better understanding of the different segments, make sure that we are competitive for real in the different segments and market areas. Obviously, it goes without saying, how do we continue to build population? We also naturally pull this out. I don't know, was it a catastrophe or Okay, maybe it worked. I think this is, from a mindset perspective, one of the key issues for the future.
Not only thinking about the hardware and every detailed granularity, but also how does it look like when it comes to the full service portfolio? One other key issue here is that are we sure that we have the commercial people driving this? Volvo Financial Services is a good example. Volvo Financial Services is a good example. Dedicated organization, waking up in the morning thinking about financing and insurance, working with a commercial crew. Obviously, in order to drive the same thing on the service side, parts, maintenance contracts, uptime services, we also need to have dedicated people working in the commercial crew together with the rest of the sales organization.
What is interesting here is also what we said, maybe the fourth dimension when you're getting, for example, construction or distribution, you have also for the first owner, a much longer period before it's shifted out to the second owner. Typically, two, three years more for the first owner where we have a higher market share. We can continue with this and talking about how do we drive a second or third life, and there we also obviously program. I think the most important is that this is one of the key focus areas for us. We are driving that also through the different business organizations, and as you know, also we are disclosing that to you every quarter in order to see where we are. If I can shift back to, here again.
Coming to how do we continue to develop this issue now when it comes to the value chain. As you know, we have the different-- You can take Europe as an example, where we are now developing what we call the operating commercial model for Europe. There we have a specific situation that we have both Volvo Trucks, Renault Trucks. We have Volvo Buses. We can have potentially other business areas. We are saying that the OEMs and the brands then, they have their role, we have the market companies that is actually exploring the opportunity for the different brands.
What we have done in our organization, that is fully fledged operation now for Europe and for the truck business, is that we have a new operating model in place where it is bringing more clear focus to the different responsibilities in the value chain. Having said that, obviously the KPIs. How we measure success is still the same. The customers couldn't care less who is doing what. They want to have their end result as they. For us, it is important to have clear responsibilities who are driving what. If we start on the market closest to the customer, it is important that our retail and wholesale organizations have a strong and clear incentive to drive the service mindset. As we said, not only when it comes to the revenues, but the role of the retail primarily is to bring peace of mind for our customers.
Therefore, it should be focused on services, and the revenue streams should come primarily from the services. Therefore, what is important for our market companies when it comes to the operating model is to drive the rolling fleet population in the right segments, in the right applications. Customer mix, as we have been into. Parts and service contract penetration as, so to speak, the strong revenue driver as we stand today with the model as I just showed, thereby also workshop utilization. For other type of services, the same logic applies, so to speak. Again, rolling fleet, the same for financial services, use, so to speak, the rolling fleet as the bracket. Then for the OEM, the focus is vehicles and products and, so to speak, the means for our market organization to design the right solutions to the customers.
The product offering, it starts with do we have the right range for different application segments? Do we have the right offerings around that for parts, for accessories, for the design of service and maintenance contracts, the risk and reward models? Also when it comes to the upstream responsibilities together with our industrial systems of short-term optimize the factories in the right way, up and down, what is the filling rates, what should we go for, et cetera. Parts availability that Jan Ohlsson was into, et cetera. We have started this way of operating, eventually the combined two parts here is driving, so to speak, the success towards the customer. We think it is important that we have focused people along the value chain that can make the difference in their daily operations, so to speak.
I think with that, I will now let you see two very distinct cases on how we are operating this, we will start with Martin Merrick, who is our Senior Vice President, Retail Development for Volvo Trucks. As I said, extensive experience, been the regional director for Northern England and Scotland for many years. Been working with customers and driving a very successful business that we are now applying for the whole Europe, along with these lines, as I said here. Please, Martin.
Thank you, Martin. Thanks for this great opportunity to talk about what's happening at the customer interface. As Martin said earlier, my accent can't disguise where I come from. As Martin says, I've grown up in the retail business in Scotland and North of England, and I think it's fair to say that I've developed over the years, a good understanding of the retail business, where we, a large part of our profit is generated only if we excel in retail. I'll talk about retail excellence and a way that we did that within northern Scotland. Really the purpose of this presentation is to go back to my time as managing director of Truck Center North in Scotland. I'll show how we rebuilt the truck population with the right customer mix to grow service sales penetration profitably after the economic downturn in 2008.
First, a bit of history and background to Volvo Truck Center North in Scotland. Volvo Trucks started in the U.K. in 1967 and actually started in Glasgow in Scotland. It was two entrepreneurs who were not satisfied with the British truck offering at that time. They met with Volvo and started Volvo, a distributorship in Glasgow, United Kingdom. The very first Volvo ever sold in the U.K. was sold into the North of England. It was an F86 and sold to a customer there. In terms of Scotland and the North of England, we've got a very strong Volvo heritage going back 50 years. In January 2009, Volvo Trucks decided to merge Truck Center North and Truck Center Scotland together to create one business, to create the business we see today due to the recession.
We have 420 employees across 12 locations, seven in Scotland and five in the North of England. In terms of annual sales, we will sell 700 retail new trucks, 300 used trucks, around 310,000 hours. Labor hours sold are the economic engine of the dealership. In terms of finance and contract penetration, each year it's between 70% and 75%, very strong, and market share hovers around 19%. A really solid business. In terms of our dealer network, we believe that we've got the right density, the right capacity in the right locations. Martin said before, just be the best in the village, and I think we're definitely the best in the village in the North of England and Scotland. Our customer base is very strong.
We have approximately 3,000 customers in our customer management tool in the database, and we have approximately 2,000 credit customers, account customers. The recession bit hard here in 2008. I had been growing up in the business, and I got my dream job, managing director of the retail business in the North of England in 2008. It only lasted a few short months because then it was decided to merge North of England and Scotland together. Fortunately, I was appointed the MD of the newly merged business. We did that to cut costs, early on I could see that just cutting costs would not be enough. We could see early on that the recession was creating tougher customers, tougher competition. Customers were looking for more ways to maximize efficiencies and reduce costs within their business.
We could see very quickly, the truck margins were being squeezed. With the population forecast, that was going to impact hard on parts and labor sales. Overall, the profit of the business was going to come under threat. We faced real fierce competition, tougher customers, margins being squeezed, and a declining truck population that was really going to put pressure on parts and labor hours sold. I am happy to say that during this period here, that North and Scotland performed well and delivered decent profitability. Not once in any year did we drop below GBP 1 million on the bottom line. That was at a time when other dealers went into the red or were just a black zero. In terms of volatility, we had a good solid business there that could weather the storm. What did we do differently then?
I could see that cutting costs wasn't the only thing we could do. No change was not an option. I set about right-sizing the business, and I had to prioritize and redeploy the scarce resource that we had, so that we could get even closer to our customers and deliver decent profitability. For us, we took the view that we had to really focus on our customers and support them. As I said, we faced fierce competition and tougher customers. At that time, we had a very traditional mindset. It was very much about moving the metal. We had to change that way of working. We were competing on price, and because of the situation with the competition and customers, we get sucked into that way of competing. We needed new skills and capabilities.
What we did was we took truck sales executives and service market sales executives and merged together to create a role, transport solutions executive. We created some headroom that, in fact, just on that note, that we didn't just merge these guys together. What we did was we used HR and competence development and went through a very robust program. We had almost certified transport solutions executives that had the right competence that we needed at that time. We created some headroom and headcount, if you like, and we created another position called fuel watch manager. This role worked closely with our customers to change driver behavior to reduce fuel costs and maximize productivity. That worked really well.
We also looked at when we took away the service market sales executives, as Martin has said earlier, who wakes up in the morning thinking about selling contracts to the existing population? We incentivized transport solutions executives and their used truck sales executives to sell those contracts. Used truck sales had declined so that they had an an opportunity to sell more. We immediately moved from three sales force to 12 by doing that. Today, the used truck organization North of Scotland has got the highest contract in finance penetration, and I believe that's because of this change. Our view was to get even closer to our customers, move our customers from being price sensitive to cost conscious. We made the change in the organization on the roles and responsibilities, we still had cultural change to go through.
Even though the roles and responsibilities changed, the mindset hadn't really changed at that time. This was going to take a bit longer and result in casualties. We had to move from being highly prescriptive to a more empowering and coaching style. At that time, we adopted a very process-oriented sales model. We had lots of KPIs, and we had a scorecard to match. We were measuring the number of telephone calls, the number of visits, the number of quotes, conversion ratios of all that. We had people actually meeting all the KPIs but not selling the right number of trucks at a profit with the contract penetration that we needed. We were very efficient at producing quotes, and we were funneling our people to compete in price. We had to change.
We had a very smart CM, customer management tool, that we were using just to measure performance against these KPIs, and we were not using it as a strategic management tool. New truck sales margins were being squeezed, and actually at that time, the sales department was slipping into a loss. We had to turn this around. How we done that was we insisted that the transport solutions executive and the local commercial crews, they took ownership of their business, and that is they took accountability also. We removed the KPIs, and we challenged them on sales, profit, finance, and contract penetration. They decided who to visit, when, and how often. We just gave them support. We set the direction, and we set expectation. We provided the tools and the training.
We simply asked them what other support they needed to meet their targets that we had set. We applied the same philosophy to the dealer managers, the local dealer managers in the 12 sites. What happened, we've seen they were encouraged then to work with the transport solutions executive, the used truck sales executive, fuel watch managers and VFS in a commercial crew way of working. We did not prescribe how they should do that. They decided themselves. We've seen that by making these changes, that we moved from selling on price to offering solutions and competing on service. This was a journey over this period, as you can see on the chart here, going from your left to right. It was a journey with a few twists and turns, and not everyone made this journey.
Unfortunately, even the sales director and service market director didn't make the journey, not because they were bad people, because basically they did not believe in the philosophy and either could not change or would not change. We had to make tough decisions, then it was the right decisions for the business. What we see here today is a high-performing team delivering even better results and high customer satisfaction. Retail excellence then can be defined as high profitability and high customer satisfaction. You can see from the results here, I've highlighted those two rows. We can see that moving from a process-oriented way of working to more insight-driven sales and commercial crew way of working is delivering better results. In the 2014 column, you can see the impact of low population and low labor hours sold.
However, as I've said, even though it's down year-over-year, we still delivered a very decent profit in 2014. More importantly, we can see the positive impact of rebuilding population with the right mix of customers to increase service sales penetration and customer satisfaction, and ultimately, profitable growth. In essence, we moved to a philosophy of giving more to those who gave more to us, and it was a virtuous cycle. With the new operating model that Martin has explained, service sales penetration will become even more important, and I believe that we're in a good position to work that way. Clearly, we need to support the retail business with the right facilities, the right tools and training to enable them to work this way. It's clear, I think from what we've heard today, that we need to choose to do business with the right customers.
I think that we have the tools already within Volvo Trucks that empowers the local commercial crews to make the right decisions to choose the right customers. What you see behind me here is the share of business model from our customer management tool. This enables the local commercial crews to identify the right customers, whether it's a parts and service approach, whether it's a truck sales approach, what do they need to do to acquire these customers? They can see from this tool that they can create individual customer strategies. They can see the customer loyalty in terms of the Volvo penetration of the fleet and the penetration of parts and service business. Their success is built on strong local customer relations. It's repeat business. To complement this tool, we have another tool which we call the retail customer profitability tool.
Local commercial crews can not only measure the loyalty, what we see here, but they can see the actual profitability per customer. That really helps them to make the right decisions to grow our business profitably. By adopting this insight-driven sales approach with individual customer strategies, we've provided solutions that really help our customers. It helps them maximize efficiencies in their business and reduce costs. We have examples of customers that have said to me that, "Since moving to Volvo, I've seen my profits increase." Our customer success is enabling our success. To summarize then, we need the optimum truck population to deliver high profitability. To have the right customer mix, we need to sell the right solutions to the right customers.
Our way of working here is totally aligned to the new operating model. I believe the tools that we provide are fully aligned to that way of working. Martin spoke about having tools with a unique customer number. That's what we can give our local commercial crews today. We've been on a journey here, moving from command and control, highly prescriptive, to empowering and coaching our local commercial crews who have taken ownership and accountability. They have the full P&L and operational responsibility to deliver better results. Centrally, we set directions, we set expectations, we provide the tools and the training. In my opinion, this delivers operational excellence and retail excellence. Thank you. I'll now hand over to my colleague here, Dennis Slagle. Thanks, Dennis.
Hello again. There are 3.5 million heavy-duty trucks in the U.S. and Canada registered. We know the numbers now. Of that 3.5 million, only 15% of the service business is done by the OEM dealer outlet. That is a byproduct of a lot of things that I mentioned earlier. The way the business grew was to pick other components, and I am sure that they got their share of the business. Of that 15%, another 15% is done by independent repair facilities. By far, the biggest portion of that is done by customer-owned facilities. Contrast that to Europe, where I think the number is probably at least in the 90s that the OEM dealer performs the business. Why is that?
I think you can imagine how big an opportunity we see in that, because most customers have no business trying to repair their trucks, particularly in the age of sophisticated emissions, et cetera. Over time, they will seek support from the OEM dealer, the people with the expertise and the tooling to do the repair right. The other thing that I found when I came in 2008, coming from the construction equipment business, is that everybody talked about uptime downtime, but very few customers actually measured that in a good way. All the rage then was fuel economy, and obviously fuel economy is very important, and we work and deliver on it every day. In terms of the total cost and the quality of what they deliver to their customers, downtime becomes much more important. I will give you just a quick math here.
If the average truck in the U.S. drove 120,000 miles, to make it simple, say 6 miles a gallon, that is 20,000 gallons times, let us say today, $2 a gallon. That is only $1,200. If it was $4, it would be $2,400. Take that 1,200 and compare it to one unplanned down day. Whether you are hauling bananas or ice cream, and you are letting down a customer on the other end, what do you do with a truck? If the guy is missing the kid's ball game, the whole thing comes into that. Managing uptime was an opportunity. We took a very, very strong but commonsensical approach to this. As you will see in this video, lasts about 5 minutes, I think we hit something very special, and I will come back and talk about it when it is over.
Welcome to our Uptime Center in Greensboro, North Carolina, at our North American headquarters, where we support dealers and customers 24 hours a day, 7 days a week, 365 days a year. To measure our success or failure, we use availability because that is what is important to the customer. Is the equipment available for them to generate revenue? For our customers, 1% improvement in fuel economy is worth about $500 U.S. per truck per year. One day of unplanned downtime can wipe out 2 entire years of that savings. An important aspect of delivering uptime for our customers is our dealer network's ability to make repairs in a timely manner. What we found was the limiting factor had become the time the trucks spent waiting in line to get into service shops for repairs. We made a conscious decision to use uptime as a differentiating factor in the marketplace.
We chose uptime and the availability of our equipment to be a competitive advantage for us in our market strategy. The Uptime Center concept is a way for us to take those functions that are most important to us during the course of a breakdown and bring them together in one place, then combine the technology available to us through connected vehicles with the human expertise that we have here in the Uptime Center. Our immediate mission is to get trucks back up on the road as soon as possible. On the back end, we're able to harvest data from those experiences and learn from it and feed that back to the people that can do the most good with it. A lot of those functions are right here in the Uptime Center.
As we learn, we're able to predict failures and move more into a predictive role to prevent those failures from even happening in the first place. We try to create a very creative and collaborative work environment in the Uptime Center. This is a place where we're not afraid to make mistakes. People can come forward with ideas, having all of these groups together makes that much easier. We're able to implement things, try them out, and whether they work or not, we get to try things in the interest of the customer and fast fail, which isn't a bad thing. One unique thing that we offer to our customers is the ASIST platform. That's the web-based communications platform that we use to log the cases.
Each interaction is timestamped and captured there so our customers can see it, our field people can see it, our dealers are connected to it as well. For a customer, they can just check the system without having to call and see the status in real time. We have almost 200,000 connected vehicles that we monitor for the Volvo and Mack brands, and we're recognized as a leader in connected vehicle services here in North America. Those trucks are trying to tell us something all the time. We have a tremendous amount of data to harvest from those trucks to learn about customer behavior, the operation of the vehicles, how they work in different applications.
We're able to feed that back into product development to benefit products in the future, also to help understand customers' operations and how they can benefit from changes in their operations so we can be more consultative in our approach and act as a business resource for customers. Having access to this data also benefits us in reducing warranty costs, because we can make improvements to the products faster. Instead of waiting until a problem reveals itself to us through warranty, we can see it coming in the data and head it off before it becomes an epidemic. One thing that separates us from our competitors is the fact that we provide a service, not a system. We collect data off the trucks.
We feed it to the Uptime Center, where we have the subject matter experts who then work with customers to provide them with actionable information that they need to make decisions about their business. Over the last couple of years, we've seen an improvement in the availability measurement, which is our measurement of uptime for our customers, towards our goal of 99%. We know each additional tenth of a percent is going to be more and more difficult to earn from this point forward. As a result, we're having to do some very new, creative, and innovative things to earn that additional availability. One innovation we'll be introducing very shortly is the ability to make software updates to trucks remotely. This will save customers from having to bring their trucks out of service into a repair shop to have the software updated.
We'll be able to perform those updates remotely and keep the trucks on the road. As our population of connected vehicles grows, our opportunities to harvest data from that population grows as well, and we are building our back-end tools to be able to extract more value from the data that we collect off the trucks to help benefit us and ensure customer success. Our vision for the future is to move beyond being easy to do business with, which is just price of admission at this point, and become difficult to do business without, customers have a hard time imagining running their business without the benefit of our products and services.
The byproduct of all that I talked about is an undercapacity of service bays in the U.S. Our dealers, since 2005, have added 20% more bays, and as they add them, they're filled up. They fill up almost immediately, which is obviously reinforcement to do more. While we have this under capacity, the industry estimates that the average dwell time for a truck put in for servicing is 4 days. In a lot of cases, that's 4 days for a half-hour repair. What we're doing across the board here is addressing that in a very strong way if you go out to the dealer side. We are tasking our dealers to create certified Uptime Centers, where a part of that, they deal with the basics of triaging.
They have a fast bay where they can steer trucks that need that quick repair there and not be held up behind an engine job. You can see the other parts of that. Again, the very commonsensical approach to put everybody cross-functionally that can put a truck back on the road in the same building, in the Greensboro campus, and that's what we call the Uptime Center. This web-based case management is the secret sauce. It virtually puts the customer, it puts the driver, the dealer, and our technician in the same virtual room, and we, on a real-time basis, get things fixed, get things approved, get things priced, and send down instructions on how to fix it. The right mix of technology. We have not forgotten the human factor in this.
There's always a human on the other side of the line proactively telling the customer he has a fault code that needs attention too, helping him find the nearest dealer and an open bay and the parts that are needed. Of course, connectivity, as Martin said, almost 200,000 trucks now, we're getting a very, very good database. It's exciting to see this ecosystem that's been created at the Uptime Center. It's where people are challenging people, we just are moving from strength to strength. I think we're ahead. We've been at this for about four years now, and every day it seems like we get something new coming. With that, I will close and I think we're going to Q&A. Is that correct?
Thank you, Martin. Before we go into the Q&A, I just need to comment. This is making me super proud, actually. Here we have two example what focus is all about. When we talk about untapped potential and opportunities in the service business, of course, without giving any specific figures on it, I can say that it's still huge. I think some of the factors here, I mean, I remember when I was running operations before, I mean, okay, maybe you should send in 15 to 20 KPIs. What really mattered at the end of the day was maybe three, four, five KPIs. I think those examples are really, okay, what is the driving factors to get the culture going by aligning around one or two KPIs? Uptime, I think, is a brilliant example, and we see that culture.
I was actually astonished when I came the first time, we see it coming also through the fact that now with the turnaround times in our dealerships, with the certified Uptime Centers. Also, I mean, customers super happy, dealers happy, proud also, because this is driving a lot of pride when it comes to the brand and our ability to serve the customers. The same goes for the examples that you are giving, Martin. To drive the service culture I think here we are on the way, keep it focused, keep it simple, here you really see why the decentralization, the empowerment, and the accountability is so extremely important because as I normally say, customers couldn't care less who is the president or CEO. They want to have peace of mind, and they want to have good productivity and uptime. Now questions.
Thank you. We have a short Q&A here for the presenters, we start with Agnieszka, please.
Hi, Agnieszka Vilela , Carnegie. I have one question to Dennis. When it comes to the Uptime Centers in the U.S., how unique is what you have compared to the other OEMs in the country?
First of all, I want to say it's unique. Ours is harder, and it's harder to keep, but we have 101 locations that have earned the certified Uptime , many more in process. It's hard to get, and we've actually taken two away temporarily, because we cited issues that caused them to lose the certification. It's not just an automatic flag up the pole.
Just one question to Martin, if I may. Do you have any target for the service revenues for the group as percentage of the whole group, or do you have any target for the service contracts?
We anticipated this question, actually to be transparent. We are always transparent. The interesting thing with the target of percentage of the group is that when you have a downturn on the hardware shipments, you will reach the target. I think what's even more important is obviously that we have clear targets on what good looks like when it comes to, so to speak, service revenue streams for different services per vehicle, and also vehicles in relation to segments. There we have clear targets, and let's say today doing normal, whatever normal is in our business, but if you look over a cycle, maybe it's 22%-23% as service share without financial services. I think there is a considerable upside on that. We know that from the markets that are doing well. It's not that the customers have more or less need.
It is also about really our own ability to show the customers our value. There is a considerable upside on that. We are measuring it on vehicle. One of the drivers, obviously, that we have hard targets is on the contract penetrations.
Hampus Engellau.
Hampus Engellau, Handelsbanken. What is the penetration rates on service and spare parts for the secondhand owner of the Volvo vehicle, and what are you doing to target that, given that pricing on spare parts, et cetera, is a key issue and also cost for servicing?
Do you want to start? This is close to your heart. You can start if you like, Dennis.
That is, as I said earlier, one of the opportunities that you could say we could have done better in the past. We're focusing on that second user, that third user, with a Road Choice program, which is, I call it a brown box because it's not Volvo or Mack, but it's something that isn't as expensive as a brand new one. To your point, someone that just bought a SEK 40,000 used truck doesn't want to spend the same amount on the part as someone who bought a brand new SEK 120,000. It's a market that is now being served in other ways, as you can imagine, where people are getting parts, and they're not coming into our dealer. With the Road Choice, with reman, which is another big opportunity for us, we're able to satisfy that.
We go all the way out to the end of the life with carcass, and we bring used parts off those carcasses with our DEX program . We don't talk about that much, that's all important in keeping the traffic coming to our dealer.
I just love your passion for this. I will say, this goes again to our ability to see where are the customer in the cycle on that segment. If you have a three-year life length, you don't want to buy a part that will last 10 years. It is as simple as that, if I put it like that. Remanufactured and also, as you say, for some of the components, new part, aligned to the expected life length of the used second or third. Then also what we are doing, Volvo Trucks for example, we are driving those type of contracts for the second and third owner as well, so to speak. If we are serious that our trucks are premium with the life length, obviously we should also have designed contracts for second and third.
Historically, not a good penetration, I think with the system that Martin showed here, we can follow also the truck over the life cycle. Not only CRM for the customer but also CRM for the truck or the vehicle.
Don't forget all makes. We're pursuing other brands. Bring it in, conquest the customer while he's there. All of this is dynamically magic.
Graham Phillips from Jefferies. Two questions to each Martin. First to Martin Merrick, on the 12 dealers, it's about dealership owners. Did you own any of those 12 dealers? Were they independent? Was there an experience that you contrast between owning and not owning the dealer? Then also to Martin Lundstedt, you've got Renault that doesn't own the dealers effectively in Europe. Volvo owns a majority of them. Can we contrast what is the best model to own in terms of capturing more of this service and aftermarket? Clearly you are giving something away the more you add to all these things to a third party. I know the U.S. is a different case, so we don't need to go there. I guess it's just those two things.
On the first question, the 12 dealers in the North of England and Scotland are wholly owned by Volvo. However, we have private dealers working close by, so we have a very strong network all over the U.K., and we work closely with the private dealers also. They're following the same thinking and working the same way. We do have this share of best practice with private dealers. Has that answered the question?
It does. It shows that owning it is actually a good idea, and you've been able to lead the charge.
Yeah.
Of course, it comes back then to why not own all the dealers of Renault in Europe?
Yeah. Why not? No, I think it's a very good question, and we often getting the question around the strategy, how should, so to speak, the captive penetration look like. Generally speaking, we have a pretty pragmatic view on that, starting then with having the right level of competence wherever we are operating, so to speak. As both Claes and Bruno mentioned in their presentations, and also Dennis mentioned, it's all about having the right level of quality. Therefore, where we have good private dealers investing, also from a balance sheet perspective, because we have still so many opportunities that we need to capture also where we don't have investors, I don't necessarily think it's a bad idea to have. It's rather on the opposite. We see that it's a very good idea to have private investors as well.
We are going along with this in a pragmatic way. Yes, you give away some profit, at the same time, you can use your balance sheet in optimal way also. I think to have a balanced view on this, both for Renault and for Volvo, we are operating approximately 50/50 also, so to speak. We are normally having the biggest hitters, but we have a lot of very competent private dealers as well. I think it's the best strategy going forward, actually. We will not have a specific strategy to go even more captive. In some cases, it has been shown taking over has been good because we didn't have the right investments or restructure to other private groups, as we have done in U.S.
In some cases, to divest actually because we don't have the critical mass in that market has also been a good choice. Pragmatic view on it. Just one more thing there. I think to have a number of dealerships is extremely important for the culture, even more. To be very close to the customers, to have these positions and having as many people as possible also going through this position that will be commercial leaders, I think that is extremely important.
Olof Larshammar, SEB. I think Claes Nilsson had one slide in his presentation showing parts per vehicle in different European markets. I think U.K., Sweden was on the high end, twice as much as the average level. You had some other markets on extremely low level. Is there any structural reason for this, or could Martin Merrick put up the low markets?
A really good question. Perhaps Claes would want to take that.
You can start if you like.
Okay, I'll start. Working with the other markets, they all have the desire to do this. Sometimes, if we take Australia, for example, extremely high because of the type of operations and such like. If we take the U.K., they have the legal operator's license, which means that vehicles visit every six weeks. The potential there is a lot higher also. I think there's differences of the potential and how often the vehicles visit the workshop also.
You're good also in U.K.
Absolutely.
If you look at contract penetration, for example, that is higher.
Yes.
Klas.
From my point of view, the answer to the question is, yes, there are structural differences. You could see on the lower end of that scale, you had a lot of East European countries. As you know, much of the long-haul traffic is you have bases in Eastern Europe, but they're actually working in Western Europe, and therefore, you have a higher penetration per vehicle in operation in Western Europe, actually using also these East European vehicles. That's one part of it. It is also related to a lot of what is the segment mix in the market. As I said, in the Nordic markets, U.K., Australia, you have a high degree of pretty complicated, complex construction, mining vehicles, et cetera, with a much higher consumption of parts and service. That's the second reason.
Third reason is actually that those markets that are on the top, that are doing a very good job of penetrating the population they have in the market. The way that Sweden, Australia, and U.K. are penetrating the market is something that we try really to push to other countries as well. We did an exercise if everybody actually were close to the U.K. figures and how much money that would mean in Europe. Absolutely, there are much more to learn from the good markets towards the markets which have a big improvement potential.
That is obviously one of the reasons why we have wanted to talk about the retail excellence and being close to the customers, because in so many dimensions, we see also what that structure brings when it comes to market share in different segments on the hardware side, so to speak, but also when it comes to services. Everything counts in the value chain, if I may put it like that.
It's Harold Hendricks with Morgan Stanley.
Please claim.
Wait for the mic.
Just to go a little bit further, you talk about finance and finance penetration, which is obviously an interesting business. You've talked about uptime, which makes a huge amount of sense. To what degree is it still, as we get a completely connected fleet, is it still efficient for people to run their own fleets? Or is it possible that maybe you should be running the fleet and you're selling hours? That's something obviously on the car side, people are starting to talk about. The finance penetration for all of these companies is going up significantly, so the balance sheet need from that perspective is increasing. Can you further improve the efficiency and the cost per truck as the automation comes through, and run things differently that way? Is that something you're going towards yet or is that too early still?
If I start on that, obviously when, and we were a little bit into it, depending on the different, both the technology enablers that we see, but also connectivity. So to speak, the visibility along the logistical chain, who are the actors, who will be reinforced, et cetera? In some of the more closed loops, like in mining, in some of the construction equipment applications, could be ports, et cetera, it is like a closed production system.
There you can say that there is almost already just the two actors, or it could be one, and we see a trend that there is obviously also for the big companies, both from a balance sheet perspective, if I should put it a little bit like that also, how they operate their, so to speak, total capital allocation, but also from a pure efficiency gain and take out some of the connections because every connection makes a risk for a sub-optimization, for example. Yes, but there we also need to find our way, so we cannot take everything on our balance sheet if I put it like that, so how do we actually find the financial structure of doing it?
On the efficiency gain as such that you're into, I'm fully convinced that working through the value chain as a whole will bring much more value creation that the current models are doing. As I said, we see it in our own logistical systems, when we are looking at how do we actually optimize. For example, as I told someone here during the morning, if you look at where do we optimize, for example, the inflow to our factories. Our forklift drivers should be occupied, and then you're looking out for the door standing 50 trucks, and okay, is that a good balance, so to speak, and who is paying for that? With connectivity and automation, you will have further opportunities to optimize those flows, so to speak.
Just quickly, in the U.S., about 25% of the market is leasing already, but we're different from Europe in that it's rare to find a full service lease because of the amount of travel. There are some, and it depends, and the targets for further leasing penetration are the private carriers rather than the truckload and less than truckload, they tend to own. The private carriers, if you're a grocery store, you have no business owning a truck. Yeah.
As an add-on, Daimler recently bought Athlon, a large European commercial fleet management company. Is that something that would be attractive to you? Especially given the answer you just gave on the U.S. as well. Aren't we going to move that way to some degree anyway? That seems like a natural way to go.
Yeah. First of all, when it comes to fleet management and the whole structure of that, obviously, I think what is important for us, first of all, is to have the right platforms and structures to be able to, for more or less, if I may put it like that, anyone to operate their fleet management. Going too captive in this will not be a winning game, in my opinion. On the other hand, we must make sure that we can show that we are the best partner in some parts of this value chain. That is the trick moving forward with the new environment. Where should you put your bets? I think the Uptime is a very good example. We have a platform connected.
We think that the uptime part, we are pretty sure that a lot of the fuel coaching, we think that some of the financing, et cetera, and how you actually are using that to even more tailor-make insurance, et cetera, could be part of our value creation in the value chain. A lot of the other parts of the fleet management, I think that customers expect also to have open interfaces into our platforms to integrate. Otherwise, we will force them for the wrong reason to go captive, and you will never succeed by forcing them by monopoly situation, my opinion on that. We will rather continue to work in the ecosystem together with partners, and that will bring more opportunities in my view.
Thank you, Martin. I started off this morning talking about the mission of the Volvo Group, and you are familiar with that. Driving prosperity through transport solutions. We truly believe in more transport. More transport is definitely connected to challenges, or I dare to say problems. Challenges or problems, congestion, CO2 emissions, local air quality, noise. These challenges, they need to be answered. Problems, they need to be solved. Solved by solutions, and that's where the engineers comes into the picture, because engineers, we are in solution business. We are expected to come up with answers to these challenges, solutions to these problems. We are expected to come up with these answers not in 20 years, not in 10 years, but soon. Our customers, they are expecting us to come up with these answers, and society is expecting us.
I expect you to expect us to come up with these answers. The world is changing rapidly. I think you have seen part of it today in these presentations. As engineers, we like that because engineering equals change. Think about it. Engineers without change, no. Not existing. It means that product development is product change. This means that engineers, we can define a lot about the future. You've heard the plans today for several of our brands and business areas, and the mission for us as engineers in the Volvo Group, it's to guarantee, to assure product leadership for all our brands and business areas in their respective competitive set. We are serving 14 brands in the Volvo Group in different product segments, and we are doing that from an engineering perspective by balancing common solutions for everyone and brand unique, brand specific solutions.
We are also balancing our investments into well-known technologies and to new technologies. It's a challenging task we have ahead of us. It's not an easy task, but it's a task that is easy to use when I am motivating my global engineering teams. We are right now leveraging from 15 years of investments into our modular system. You have heard it today through many of the presentations, the common architecture, shared technology, the common system. We have engines amongst all brands and all business areas. We have electrics and transmissions almost all over. When it comes to all the truck brands, we have chassis and chassis components shared across the group. Sharing these components globally, that's the foundation for us when we are creating the brand unique solutions, really creating the tailor-made solutions needed for the brands in their respective competitive set.
Since we have worked hard on this commonality, creating this system, we can definitely already now see clear benefits and synergies when it comes to R&D. Not only R&D, definitely also in the supply chain, in the operations, in the sales, and not the least, as we touched upon before, in the services business. Let's take a look at our most recent family members, the new ones that really have entered into the core system. Let's start with Japan. Joachim was into it before. Japan is right now introducing a new emission legislation, the PPNLT, a real step when it comes to engine emissions. On this slide, you have the brand new Quester fulfilling this legislation, and we are doing that by using the 11-liter engine with the variable geometry turbo. It's the engine that we are sharing with Volvo and with Mack.
We are using our global engine aftertreatment system. We are using our global automated manual transmissions. We are also picking components from the core system when it comes to electrical architecture, when it comes to the chassis and chassis components. Based upon these common components, our engineers have managed to develop a truly specified vehicle exactly according to the expectations of the Japanese market. This is the largest project ever in the UD Trucks history, and it's also a good example on how we are playing the system and playing the game. We have project lead through the project phases in UD Trucks, and now after launch, very clear the product ownership of this product belongs to UD Trucks. We have played a global R&D system all through the project. We have involved most of our global sites.
Gothenburg site, Lyon site, the Bangalore site, together with our friends at UD Trucks, have developed this vehicle. It's a real killer when it comes to performance. Load carrying capacity is increased with 200 kilos compared to the old Quester, and fuel consumption is improved with 6%, and fulfilling a tougher engine emission legislation. That's a real performance improvement. Now to another new family member that Martin was into, the Croner. It's an all-new medium duty vehicle for UD Trucks in the value segment. Don't make the mistake to think that because it's in the value segment, it's a simple product. No. The value segment in different markets is meeting very different customer demands. It means that we have really set up a wide variety when it comes to customer adaptations in the Croner family.
The Croner, by the way, when I came on board in October last year, I really questioned the name because I didn't understand how could you come up with Croner as a name. In our business and in the transport industry, time is essential. Just-in-time delivery, uptime, as Dennis talked about. It's not a coincidence that it's named after the god of time, Chronos. It's a good truck with a good name, Joachim. Good combination. Here, once again, we are leveraging from the core system through reusing the 5 and the 8-liter engines. We're reusing transmissions that we've used in Quester before, cab interior, electrical architecture once again, and chassis and chassis components, meaning that it's very easy to tailor-make to different market demands going forward. Instead of big bangs, we are really striving for introducing smaller projects, reaching customers faster.
We can do that by using components with standardized interfaces and reusing solutions that were used before in the group and adapting them a little bit then just launch them. That means that this truck is brand new. When I saw the project cost of this project, I was really surprised. I had to double-check it three times with three different sources because it is amazingly low. Unheard of in our industry, I would dare to say, without revealing any figures, I promised that. We did a good engineering job on this one, definitely. It is prepared now for all the different markets when to be launched and fulfilling those customer demands. Now we have both the UD Quester and the UD Croner in the core system . Martin was already into it before.
Next step now is, of course, to really explore the ecosystem of the Asian part of our group, really to explore the potential benefits that can come out of components, competence, suppliers that we can leverage from together with our two JVs. We have already started this journey, and there is much more to do in this area. Now then leaving the cost discussion and saying that we have invested in this during the last 15 years, meaning that we have good commonality today, and we can stay with these major interfaces, and now we can really focus on technology development. For me, I think it is great to be engineering our industry right now because it has never been so fascinating and challenging as it is right now.
This is really the era of engineering, and if you compare our industry to some other industries, we have a rather complex and complicating situation right now because we cannot leave many of the well-known technologies behind. If you, for example, compare to the passenger car industry , many of them are declaring that they are leaving combustion engines behind. In our industry, that will not be possible. We are adding new technologies on top of the well-known ones, and that is a challenge, definitely. This slide here, you saw the truck standing outside here as well, the Volvo Concept Truck. It is an excellent example of what we mean with well-known technologies and new ones. We have improved the well-known technology aerodynamics a lot on this one, and we have added hybridization, part of the new technologies, into the same vehicle.
That is the name of the game going forward, being able to combine this. Concept trucks as the Volvo Concept Truck just outside here. It is a very good way of working. It is a good way of inspiring my engineers to come up with new ideas, it is also good to have when you go out and meet customers and other external stakeholders to test your ideas. Are we on the right way? Is this the right direction? Should we fine-tune it? Is it worth really putting a lot of resources into industrialization or not? A lot of the questions right now, they are not so easy to answer, meaning that we need to take small steps, test them, as Mark said in the video, sometimes fail, then take next step. Well-known and new technologies.
Let's dig a little bit deeper into those ones, let's begin with the well-known ones. There's still so much potential in the set of well-known technologies. I attend a lot of conferences and seminars all over the globe, rather often, I meet experts declaring the death of the combustion engine. I always raise my arm and state that they are wrong, at least in our industry. Because in our industry, with a very big variety of customer demands, a lot of long-haul transports, we will use combustion engines for a long period of time. There is still a lot of development potential in this technology, despite being in operation for 140 years. These combustion engines can run on alternative fuels, that's a killer, of course, from an environmental perspective.
Two or three recent examples of what we have done when it comes to well-known technologies, just so that you imagine what kind of potential is there. To the left, turbo compound introduced in the U.S., giving up to 4% fuel consumption reduction. To the right, Klas was into it, the creeper gears in our transmissions, really improving drivability, maneuverability, mainly in the construction segment. A big step, meaning that many customers are now giving up automated transmissions, going into automated manual transmissions, a much better solution. In the center, one of my favorite examples, the piston of a combustion engine. I mean, that must have been optimized for decades. There cannot be anything more to add to this one.
Some of the most brilliant engineers in the Volvo Group, they were thinking about, if you look at the top of the piston, what about if we just added some waves on top of it in order to blend the mix, or to blend the air and fuel a little bit better in order to optimize the combustion? Whoops. They reduced the fuel consumption with 2%. In our field, such a small investment and 2% fuel consumption, in our way of working, that's Nobel Prize winning. There is definitely a lot to do when it comes to well-known technologies. We need to continue to develop combustion engines, transmissions, rolling resistance, aerodynamics. It's a long list. Will be the foundation for our industry. As I said, the most fascinating era ever in our industry, we are going to add new ones on top of them.
Some of them definitely have the potential to disrupt our industry and the industry of our customers. We are talking very much about the three technology trends right now, connectivity, electric mobility, and automation. As one of the biggest manufacturers in the world of heavy commercial vehicles, we are definitely one of the players defining the future right now in these areas. We are in a start of a paradigm shift, when these three technology trends will converge, it's not if, but when, then we will see big changes to the transport industry. Let us start with connectivity. Dennis was into it before, how important it is. Connectivity, Internet of Things, big data analytics, is an enabler for new services, for new business models. We are in the start, definitely in the start.
The transport industry, logistical industry, will be more and more software development driven. We have today 600,000 connected vehicles. We are collecting a lot of data, but this is just the beginning. Heard a good expression last week when we were in London at our innovation summit, where someone said, "Right now we are rich on data, poor on knowledge." I think that goes for the whole industry or the whole society right now. We have more data than what we really can use today. Today, our customers, they get support from us to increase their efficiency, to utilize their fleet optimization, to get down fuel consumption, and of course, to increase uptime, as Danny said, based upon connectivity. Uptime is, of course, what everyone is chasing, and that's really something where you can use connectivity. Danny was into it. Mark was into it in the video.
We are right now launching the remote update possibility when it comes to software in the vehicles in the U.S. This will also be a game changer in supporting our customers, increasing uptime, and giving them the full benefit of their vehicles. When we really will utilize all the data and the knowledge we have in the connected society, we will increase efficiency of the complete logistical chain, and we will see new business models popping up. Leaving connectivity, stepping into electric mobility. This is an area where we definitely are leveraging from being a group. In our group, the Volvo Buses, that's the business area that's really spearheading the electric mobility. It's already a game changer for the complete bus industry. For years, since we introduced Euro 6, in the Euro 6 version, Volvo Buses is only delivering hybrid buses or full electric buses.
Volvo is a global main player when it comes to electrified buses. In Gothenburg, we have the route 55, where we have transported 1.2 million passengers only last year. Hybrid buses and full electric buses, and the end bus stop on that route is inside a cafe at the Lindholmen Science Park. When you're showing this to people working with city planning, you see a spark in their eyes, because if you can have bus stops inside hospitals, when you can have bus stops inside shopping malls, that gives new perspectives to city planning. We have also developed an interface for charging of electrical buses, an open interface that is becoming an industry standard, meaning that cities can buy bus fleets from different manufacturers and using the same charging infrastructure for all their buses. That's really a door opener to more electrical fleets.
Why is then electric mobility really taking off now? An electric motor is extremely efficient. You don't have any issues when it comes to local air quality. If the electricity is green, well, then you are not into the CO2 issues either. Going forward, what you saw out here today was no buses. We are reusing the competence and the components from the bus development going into trucks and construction equipment. We are continuing our cost journey, but now in the area of electric mobility. If we jump into trucks, a lot will happen when it comes to trucks and electric mobility in the years to come. We will see full electric distribution vehicles in the city centers, light vehicles, medium-duty vehicles. It's following the trend of electrified buses, but it will also be an answer when some cities will ban diesel vehicles.
In regional and long haulage, we mainly believe in hybrid solutions, connected where you then have a combustion engine and you partly electrify the propulsion of the vehicle, recovering brake energy. That's what you have seen outside here on the Volvo Concept Truck. On long haul, we also believe in full electric solutions, there you can have many different solutions. One that we believe in is the electrified highways. This will come. Discussions in North America and mainly in Europe, in Europe, mainly in Germany and in Sweden. This will come, it will not come everywhere. We will get corridors of electrified highways where we then can operate these vehicles.
I believe that we will see dedicated fleets of trucks operating these ones, going north, south through that corridor, full electric, they will have batteries going the last mile electric to the pickup point or to the drop point, loading, going back to again to the grid, back to the starting point again. This will happen when it comes to trucks. You also saw the construction machines outside here, definitely this is also a game changer. Also here, we can use the modularity and the scalability of the components from the Volvo Group. Some questions out there during the morning session was about batteries, Martin was into it as well in his presentation. Volvo Construction Equipment will not develop their own batteries going forward. Definitely not.
It's a matter of scalability of the batteries that we are developing in the group, then to be used by all brands and all business areas. We have shown, as you know, the 100% electric excavator. We have shown the hybrid wheel loader, you also saw the electrical load carrier, the HX1 out here. Definitely game changes when it comes to construction equipment from a cost of ownership perspective, not the least if you think about city applications. No emissions at all, really quiet operations. The load carrier here to the right, the HX, it's not only electrical, it's also autonomous, as you saw earlier today. By that, stepping over to automation. For clarity, vehicle automation, I think that this is important because a lot of people think that vehicle automation is about fully autonomous vehicles. Now you're in a training session.
This is a stepwise development when it comes to automation, you are all very familiar with the first steps. We talk about feet off, that's a cruise control. You have had it for decades in your passenger cars . Today, the cruise controls are really sophisticated, the advanced ones. Next step, hands off. We talk about lane keep warning and lane keep assist. Next step, eyes off. That's the level when the vehicle takes control for a limited period of time, you are still in control. You are supposed to act when the vehicle tells you to act. The top levels, level 4 and 5 in this slide. It is autonomous drive with or without driver. To the Volvo Group, it's very important to say that automation is about safety.
A lot about safety. We can improve safety a lot with automation, environmental impact, and productivity. We have developed and we have demonstrated for you today and earlier fully autonomous vehicles. You saw the mining truck out here. Last week, we demonstrated a refuse truck that you saw, the yellow one standing out here. We demonstrated it in London last week. It's amazing the operation of the refuse truck. You have one driver, one operator. He's walking down the street emptying the garbage bins, and the refuse truck is following like if it was his own dog down the street, stopping at the next garbage bin, waiting until he's ready, and then they go together to the next garbage bin. By that, he is avoiding jumping in and out of the truck every 20 meters. You can just imagine about his knees, his hips, and his back.
That's working conditions. It's productivity and it's environmental impact. This is a research project. We are not sure that this even will be industrialized in this way. Now we are testing it together with a really innovative customer, Renova, to see, is this the way to go? Is this something that we should really focus on when taking it one step further, or should we refine it? We are convinced that something like this in refuse will be the future. Perhaps not exactly this one. If you look into more complex urban environment, the city center of Stockholm, the city center of London, et cetera, it will take significant time before we see fully automated commercial vehicles in operations. That's an extremely challenging environment. We believe in fully autonomous vehicles starting in confined areas where you can control the environment.
However, as I described this ladder, we see that all these automation steps, they will be introduced, and they will meet different customer demands at different levels. Some customers, they are satisfied with the first level. Some of them want to go to the second, third, fourth, and fifth. Automation is a game played on different levels, supporting different customer demands. Now we should do a deep dive into one customer case where the highest level of automation is a clear demand already now. During the morning session, you got a very good presentation out here of the full autonomous FMX vehicle. It's a project, it's a research project that we are running together with our customer, Boliden. We are operating in a mine, an underground mine up in Kristineberg, and we are doing this together with Boliden.
Let me now introduce Peter Burman, program manager for the Boliden Mine Automation. Nice title, Peter.
Yeah. Thank you.
Please enlighten us a little bit about your challenges and the drivers for going into autonomous mines.
Yeah, we try that. First, the good thing when you are invited to such an event, it is when you're on stage, they can't take you off. When today I saw these wonderful machines, and I saw you guys being out there standing in line trying them, it was one thing I figured out addressing myself. I will take the opportunity to ask Martin, that is heading this big business, that is it only me, but when I'm standing in front of these huge machines and the high technology, when no one sees, I want to go and kick the tire and check the air pressure, or is it just me?
No, I think.
It's you as well.
Yeah.
Feels good. How many of you have been in a mine? Oh, quite a lot. Then you know it could be quite a dark and sometimes also cold place. Imagine how it could be just 100 years ago. It must have been quite lonely to be there deep underground. I just want to paint this picture about this mine, the darkness and everything, and try to keep that in mind. Okay? Today I will talk about digital revolution, and this is how we look at it internally in Boliden, the next level of mining. My name is Peter Burman. I'm the bald guy there. I'm the program manager.
When you're invited to this kind of event, and I have met more vice presidents than I have done in quite a long period of time, you feel that you need to get up to their standards. You don't want to be embarrassing, and you want to put the technology and the discussion up on a high level. I put a lot of effort into the agenda, just so you know. This is the agenda for today. I will talk about why James Cameron is wrong. I will talk about why Volvo autonomous trucks are like Kinder Surprise, and then I will take the opportunity to show you some pictures of my grandchild. Is it okay? Does it make sense?
Yes.
How many of you know who James Cameron is? You've seen his movies? I mean, this is quite an innovative guy. He's behind movies like Avatar. It is Terminator, Titanic, and so on. He is quite a resourceful guy. He even, with his own money, built a submarine. He went down into the deepest point on this Pacific Ocean. He has a movie that you can find on YouTube. It's pretty cool. This guy, he could imagine the story behind space travel and cryosleep, and when they go to this planet, Pandora, where they have the mining going on, they fly through space for many years. When they arrive, what's the first thing that happened? They land on the planet, you can see the mining trucks coming up. He couldn't imagine a mining truck without a driver.
Could you see it up there? Quite amazing, we know that James Cameron is wrong. Already last year, the team headed by Björn here, they started to do the test with the autonomous trucks in our mine in Kristineberg. In just two weeks from now, we have a team from Volvo Construction Equipment that will start to do the tryouts of the remotely controlled wheel loader. This is a cooperation where we also have involved Ericsson. Ericsson is a part of it, helping us with the connectivity. We will have the first 5G network in a mine as well. It all started actually a couple of years ago in Barcelona. I don't know if anyone was there in the what do you call it now? Is it Mobile Congress or something like that?
You had Volvo Construction Equipment doing remote control of an excavator. I think it was actually here in Eskilstuna, but they could do the remote control from Barcelona. That was actually quite mind-opening for us. Okay. We will discuss this with automation in the real world and how we could create value. This was interesting. Okay. Why Volvo trucks are like Kinder Eggs. I mean, generally speaking, when you look at automation, this is not only in mining, it is also in more or less all construction, and in effect. You start to look at the unit operation. It is something that you want to improve. The first part of this, it is actually the transportation as such.
You can see that the guys from Volvo, at least when they talk to me, they claim that they will be able to reduce the cost with 50%. We think that is quite amazing given the fact that the driver, the labor cost is just one third. You could imagine there are a lot of things going on here, because you will be able to take away the cabin. That will increase the payload. You take away a component that is quite expensive. Without the driver, you could drive the vehicle more efficient, and you could also lower the maintenance cost. I don't know if you have done the calculation right, but it is quite exciting. Still, this is quite impressive. In mining, we could earn even more money.
You remember what I told you in the beginning, that Volvo Construction Equipment is building this remotely controlled wheel loader. This is interesting because now we could combine these two things and start to do optimization on the system level. Here is the money. This is a picture that has been stolen by ABB, Atlas Copco, Sandvik, Volvo, et cetera. We would need royalty on this one. This is actually the activity level in one of our mines. You can see I'm color blind, but it is bluish something. It is the activities during 24 hours. You can clearly see when people go and eat their lunch, and you can see when you have the shift break.
The idea here is, imagine if we could still do the loading and the transportation of the ore out of the mine when we don't have people in the mine or when we are not allowed to have people in the mine because, after blasting, we have the mine full of dangerous gases. Now we can see that generally speaking, in underground mines today, you have a utilization of the production phases that is between 20%-25%. It is ridiculously low. The potential here to earn more money is huge. This picture has more or less internally in Boliden sold the whole idea of the mine automation program because you can imagine how much money this is if you succeed. Okay. Now I will talk about something completely else because this is the third level.
Normally, we don't talk about it in the industry because it has never been there before. This is this 3D mapping. What I will show you right now, it is something that is being put together by the team, the development team, and it is one truck that is driving one way in the mine once, and it's creating this. It's pretty cool. You can see that the truck is building a 3D model of the mine. That is not necessarily creating a lot of value for Volvo, but it's creating value for us. Because imagine if we could combine the data from the trucks from Volvo, from the Atlas Copco, from the Sandvik, et cetera, and they could measure more and more data. After a while, we will have a perfect 3D model of our mine. We can start to see small rock falls.
We can build an artificial intelligence that is looking for holes in the ventilation shafts. A lot of things that we're doing manually today. Here you can see this is real Internet of Things. When you start to get value out of data that is created with another purpose. In our business, it could also be a safety thing because if you see the safety bolts that we drill into the walls, if the bolts start to pop out, run. Okay. Now I will give you the opportunity to meet my grandchild. His name is Harry, and according to my wife, and she could be a bit dangerous if you start to question her, this is the most beautiful and perfect grandchild ever. That's not my story. This is Harry.
He is two years old, and I want you to ask yourself the question: Will this guy, in 16 years from now, he will be able to take the driver license in Sweden, but will this guy ever hold a driver license? Think about it. Okay. This is a statement that is put together by the CEO of General Motors, that we are going to see more change in the next 10 years than we have seen in the last 50. We have the stress that that is putting on organization like our mining company and maybe also on Volvo. The question is: How do we make the automation happen? This is my answer, working on the technology department. You need to train management well. It's hard work, I know.
You need to get them aligned to get the CEO and the president and everyone to support the mine automation. In our company, we have succeeded. It's also quite fun that when I have this story, I also had the opportunity to have this presentation, having them in the room. This is a nice way that I could plot these caricatures of them, and they can't complain. This is important message. The next part, it is that attitude is important because one thing's for sure, we will see a lot of change. We don't know what platforms that will be successful.
You always have the people that is sending the message, "Peter, why don't we just sit down and wait and see what will happen on the market so we don't waste money on this new technology?" What they really miss is, I will tell you a secret. It is you could imagine, and you could think that mine automation is about technology, but it is about people. What you really are doing is that you prepare your own organization for the new technology. The machines as such is not that expensive compared with all the changes you need to do in your own organization, because that will take time. For the people sitting down just waiting, what will happen when this new technology is on the price list?
They need to take all the cost and to introduce this new technology in the organization with all these changes and everything, they will be lagging behind. Never forget, and this is a message that I send when I talking to people working with production in Swedish industry, it is that never forget, allow failure is a part of progress. Then you would see the CEO of our company when I told this, then he was looking at this. "Oh, he's setting up for telling me some sort of failure now. What has he messed up now?" Next time, if you come and visit one of our mines, you will see 5G networks from Ericsson.
We will have virtual reality for support of our machines, and you will see flying drones underground because we have a lot of inspections work that we plan to use drones for. Then we will also improve our positioning system. This is actually the product that has failed. We was one of the first in Europe that installed a new Cisco Holo system for positioning, and it doesn't work for us. It's too slow. The good news is that Ericsson has already set up a new solution on it. In summary, my story, of course, was not about James Cameron. The message is very simple. It is the new technology is already here. Don't wait.
If you meet companies and you will put value on them, it's a company that say that, "No, the technology you need to improve, we need to wait," then you know that they don't know what they are talking about because the technology is already here. We have this value creation on the automation that we are doing on three different levels. I mean, the unit level you know about today. The system level, you also know about. It's standard procedure. The third one, it is the Internet of Things and the big data layer. You need to look out for that because you suddenly could create a lot of value. The last part that was addressing my grandchild, of course, it's fun to show a picture about Harry.
I like him a lot, the story is actually the speed of change will accelerate. Okay, guys. In the beginning, it was all dark. We can now see the light in the end of the tunnel. It is a mining truck from Volvo, and it's written mine automation all over it. Thank you.
Stay here. I have tears in my eyes, Peter. Is that good or bad?
I don't know.
No, I mean.
Maybe you are allergic .
No, well, this is a very good example together with a yellow refuse truck out there. In the past, it was easy to develop a new truck without any real interaction with end customers because we knew the real demands. We knew that it was about incremental change and incremental development. When we now talk about these three new technology trends, then we are talking about leaps, and we don't really know in exactly what direction we are going. Meaning that this time we really need to do it together with customers, progressive customers, as Peter and Boliden, as Renova. Dare to try and dare to fail, as you say. Failure is today an allowed word to use in the engineering community of the Volvo Group. For every failure you learn, a small project, then you learn to take the next part.
This project that Peter talked about, it's about automation, it's about connectivity. If you then add electro mobility onto it, and when we talk about these three trends converging, and they will converge, as in this slide you will see a completely new transport system and also a change to society as a whole. The transport system in the future will not be individual vehicles connected to one or two systems. It will be one logistical system, it gives us the opportunity to optimize the use of vehicles and the complete infrastructure. It is definitely possible to talk about a future transport system without congestion, without accidents, and without environmental impacts. That's really the potential of these three new technology trends.
Coming back to us as a group and these three new technologies, if you look really detailed into this slide, we have now added connectivity, electro mobility, and automation to the cost slide. As you see, they cover all business areas and all brands in the Volvo Group. It's clear to us when we are working together, and as we have heard today, these components and this competence in these areas is perfect to reuse all over the Volvo Group. When we are creating innovations and innovations for the future, I counted before I came up on stage, I have said future 16 times now. I like that because I'm the CTO of the group, so I'm a little bit responsible for the future.
Talking a lot about the future, before you come up on stage closing now, Martin, you know the future is not that far away. It's closer than ever. As a matter of fact, it's 45 minutes closer than when I started giving this presentation. Think about that. Martin, closing.
Thank you, Lars
Thank you, Peter. Great presentation.
We come back, Peter.
Yeah. You come back. Very interesting presentation, obviously, what both Peter and Lars said about future, how important it is that they have the integrated interface with customers in the future that will continue to develop, actually. We are coming to the end of the presentation for today. We hope, obviously, that you feel that we have been going through a little bit more in-depth than we did in London around our strategic priorities, why we are holding on to them, and how we are developing those. Everything from the truck business through, so to speak, our value chain, technologies, product and service portfolio, the retail excellence, how we actually, in a smart way, are leveraging the truck scale and technology content, but still keeping agility also in our non-truck business areas. Obviously developing the performance culture and the customer culture of the Group.
Just to summarize where we do stand. If Lars were representing the future, I hope I represent the future a little bit as well, and also here and now. It's another quarter, et cetera, to deliver on. Really hoping that you have seen the 3 main blocks and the messages here today continue to drive the 2 principles of our 10 business areas. Everyone responsible for their customer satisfaction, profitability, and growth opportunities. Second principle, use the Group assets when feasible to improve number 1. The governance is not more difficult than that. That is coming through also in our regions, in our different markets. That will also bring, so to speak, more business people, more people allowing to be closer to our customers. Continuous improvement is the name of the game for us.
We are well invested in the product portfolios, in the industrial footprints, really to build upon that, and not at least when it comes to the product development, as Lars was into and Peter also. Now it's about using the platforms we have, reiterate that, and develop the business models along with the new technologies. For example, when it comes to connectivity, as you said, we are poor in knowledge. I think we are still in the phase where there are 3 phases, collection, analysis, and action. Still, it has been a lot of collection of data, but analysis in a smart way and action built on the complete value chain. The improved flexibility in the Group, resilience. That brings me then, obviously, to the 2nd block, where 1 very important part is the service business.
The service business, because we know that when we are successful there, it is the feedback from the customers that we are adding value in several dimensions over the life cycle. Reinforcing the culture is also reinforcing a customer-centered organization. Maybe with my drawing, I don't know, capture the untapped potential that we see in different segments, geographies, across the board. Leveraging on technologies, that was the recent presentation. I don't think that I need to go in depth more than saying that the new technologies and the well-known technologies, based on 15 years of investment now with the acquisitions, we can leverage and build on, and also align that together with the commercial crews in the markets and the different industry verticals to develop new business models. We have seen a number of examples here today, and we will gladly continue to discuss that also tonight.
By ending saying that we hope that you have got the flavor of the culture, as I started with, the values of the Group. I'm very proud to have big part of my team here today presenting to you, and also that you hope that we have been trying to transmit the customer success and the aim for future improved performance through trust, passion, and change. We love this business. We love to develop it together with our customers and all our 95,000 people, and we'll continue to do so. Talking about the figures, we are not here to promise, we are here to tell you that we will continue to deliver. By that, thank you very much, and I think we open up, Christer, for the last Q&A. Everyone who wants to come on the stage, come on stage.
Yes.
Yeah. We start with Agnieszka there.
Yeah. It's Agnieszka Wyrola, Carnegie. I have a question on this disruption trend when it comes to automation and also better logistics and more online sales. Don't you see it as a threat for the fleet size and the future sales of new heavy-duty trucks?
No, I don't see it as a threat in that perspective, what a little bit related to the questions that we have had before, I think we need to be much more clear about that the design of the business will look very tailor-made in order to capture the opportunities we have, so to speak. Obviously, it will be a big mix of fully owned, different type of investment companies, maybe to own that as a real estate type of investment, et cetera. We will see numerous new business models emerging. I don't know if anyone else would like to comment on that. Is that okay? It's good, you're still awake. We're happy.
Klas from Citi. Can I just come back to North America and the share of the aftermarket? I'm not sure who to ask. I think it's Dennis. 15% of the population is run by the OEMs, another 15% by the IRFs, and then the rest by the customers themselves. As the trucks from the boom years that are three to four years old, that are largely captive and are coming to the market for service, where do you think that 15% share of OEMs can go to in the future, just so we understand the upside potential from the aftermarket in North America?
The quick answer is I don't know. It's certainly a lot to go for. There is, as you say, the younger the trucks in the population, the better chance we have of getting them in the warranty period and holding onto them. You could see it not rising like a rocket, but it should steadily increase over the years if, collectively, the OEMs are doing the right thing, and ours are. As I think I told you, we've added 20% more bays, and as we add them, they get filled. That's a positive reinforcement for the direction. I know it can calculate out to a mega opportunity, and I hope it is. The opportunity should be there.
What I think is interesting, I think this is a very good question about the upside, because 15%, 85%, turnaround time of four hours, three hours repair in average. Certified Uptime Center will improve the turnaround time in existing capacity. Second part is that if we look at expansion plans that we have now, and I think should be extremely proud of that, Dennis, how actually our team has been encouraging our investors since we have that structure that we have in North America to continue to invest. We are opening the biggest retail facility in Los Angeles during this year, and we know it will be filled. I mean, it's a pretty good business case, but we cannot run retail on our own in North America. The potential is there.
If we have a professional service that we have with many of our service dealers, we will fill those, actually, because we are 15%. Customers would love to be more captive with us, if we have the right facilities. This is just continue to be consistent.
Tell them how many bays.
Tell them how many bays. It's 100.
I'm going to be a little bit careful. 94, today, their facility is open 24 hours, three shifts.
94 bays. A big operations in Europe, as you know, is maybe 16 bays. That is a big one. That is a huge one.
In California, too, they work on them under the garage overhang, while they were waiting to get into the bay. That's Port L.A., and you can imagine the number of terminations they have in terms of shipments. People are looking to get their truck serviced before they turn around and go someplace else.
Just a quick follow-up for you, Martin. Obviously, you're not giving us any service targets in terms of share of sales. Could you help us understand in Europe, where the market has been captive for a long time, in terms of when we have the example of Scotland, which sounds great. If you look across Europe, how many Scotlands versus poor performers do we have across?
Versus non-Scotland?
Exactly.
I think as you saw a little bit also on the chart, just to give a flavor of that, is that U.K. obviously was on the higher side. Little bit of that is obviously application and what segments we are penetrating, because we have a better penetration also in construction and distribution. Having said that, we also have higher service penetration. That was U.K., and North England and Scotland is the best there. We have a lot of non-Scotlands because they were in the upper quartile, so to speak. That potential is great. We see it so much also between different retailers, both stores and class-
Even in the same country
in the same country, neighboring, et cetera. The whole service focus is also about customer focus and aligning the whole organization. It's not only about the retail and service organization, but then it's really connecting to you, Lars, with technology, with production, as Jan was into with parts availability and also our OEM organization. It brings so much more also when it comes to the culture of being customer centric. Upside.
Hampus Engellau of Handelsbanken. With the introduction of the CAST system in UD Trucks, Croner, et cetera, if you take the manufacturing cost of a truck, all the brands, what would you say if you would put the percentage points in the commonality between the different brands today as you introduced the CAST system ? Whoever wants to take it.
We have said like this, and not mainly from cost and commonality. We have said that you can count this in so many different ways. It's of no use of giving figures because no one will understand the reference point where you start and where you end. It's even difficult for us as a company to really follow it on the top level. Where it really makes sense is when you go down to component levels, because it's on a component family that you really can design and decide on how many performance steps you're going to have. The combinations that you can make, that's just mathematics on how many combinations you can make with standardized interfaces.
If you really should get a good answer, then you need to dig down into the engine family, the transmission family, the headlight family, the seat family, the steering wheel family. That answer you will not get.
Okay.
Håkan, just to add to the answer, the synergies and the scale that I think you're asking for is not only on the industrial side, it also becomes on the customer side because it allows us to, from the different brands, to access the portfolio in a much more easier way, thereby going after the hunting, the niche opportunities that I was into in my presentation before.
Obviously what we see is that, if you take Croner, without giving a figure because it's not relevant, just from whatever base, it's more than double, what the commonality is than it used to be with the old Croner. It's big when it come. The good news about that and the core system is that you will not sacrifice one minute what the Japanese specified application should look like. When you start to do that, you're going down the standardization path, so to speak, and not the cost path.
Can I do a question to you, Lars?
When I go to truck exhibitions like Hannover, et cetera, all the OEMs bother to show futuristic future trucks, my reflection is that all of them are having a cab.
They are having-
Having a cab-
Yeah
with a steering wheel.
Yeah.
My thought is that that's maybe not so likely if we look really into the future. My question is that, is there a conflict between your customers and this trend? You would annoy your customers if you would show those type of trucks. Is the industry thinking differently?
I think it's a very good question, I think that here is a customer, he would not be annoyed having a truck without a cab. As I said in my presentation, we foresee fully autonomous trucks, really self-driving ones, mainly in confined areas in the sort of short-term future. Even in those cases, most likely in many situation, they want to combine it with the possibility, at least in the start, to drive manual for one or another reason. When we take next step together with Peter and his colleagues in the mines and really go full autonomous, you are definitely right. In his operation, when we're really up and running, there is no real need for a cab, absolutely.
For most operations in the foreseeable future, there will be need for manual driving, and that's the reason why you, in most cases, see cabs.
Today, when we have a very good business for the transporters in Europe, what I hear many times customers saying today is that, "I could buy more trucks from you if you could provide me with drivers." The driver shortage in Europe, and I would say in the same in North America, is really a critical point, too.
I was going to add that the fourth step of what we're talking about, the future, would remove the need for a conventional cab, where we could have a truly global truck for the first time. No cab.
The interesting part with automation is also, as Lars said, the different steps, et cetera. If you think about the factory, we have been automating factories for 100 years, since Henry Ford actually, in different steps and mechanization, et cetera. Still there is what makes sense level of automation, and that is also what we will see in these flows.
Exactly.
That made me happy also when we discussed that, when we've been following the work with Peter and Björn and all the rest in this project is that we are pretty pragmatic. Where does it make sense? How can you use it? Control tower, et cetera. It's not a one shot, so to speak.
We have another driver that you probably don't see in other industries, and I didn't talk about it today, but it is safety.
Absolutely.
When the mine's getting deeper and deeper, and you start to get a big problem because, the rock tension and so start to create more and more danger. I would say for us, we have a very special business case, and it is we need to take out the drivers also because of safety.
Yeah. Björn, Danske Bank. Let's change the subject and talk about Asia a little bit. We had a few good presentation, and it looks, of course, very promising. I think we heard it for 10 years that this is going to be a good earnings driver looking ahead, and now it looks, of course, again, very promising. Is this happening right now, or is it all about CAST, or what is the trigger point right now that we should really see Asia becoming much of more of an earnings driver for the group?
Do you want to start, Joachim?
I think, first of all, it is true that these things take a little bit of time, and it is, of course, also connected to the length and the duration of our product cycles. To create the new UD Quon or a similar product is five years? Five years. Why now is your question. I think, for me, there are at least three points seen from a UD Trucks perspective. One is that we have a new and a much better range adapted. Secondly, we have the new business model, where we take a more integrated approach on the value chain and we are, let's say, joining forces across the functions, striving toward the same goals. Thirdly, I think we have a pull and support from the group, but not the push.
That allows us, let's call it locally then, in Asia to take the right decisions and do it much more fast. Having said all those three things, it's not the day-to-day journey, and I think, as you said, we have been working in this direction for quite a few years. We are, of course, feeling we are on the right track. I hope that was clear from our various comments.
If I just may add, I fully agree to what Joachim is saying. I think also we have been trying, and it's always difficult when you are a big group, et cetera, but really trying, as we said, to have this discussion, what is the contribution for different parties? I think from some aspects, maybe we have not taken into consideration where our own acquired brands, if I may say so, UD can make the contribution where they are really excelling. Also Dongfeng and Eicher, we see that both from sourcing structure, from frugality in these type of segments, and also from competence pool, because now in our executive management teams, we have people with a seasoned Japanese heritage in UD Trucks for the UD Trucks operation in Southeast Asia.
It's a very focused team that has grown up, so to speak, with this value emerging markets mindset, which is necessary because coming with a team too, so to speak, uniform from the premium and excel in value, the risk is that we are actually having a good product but a little bit too expensive and a little bit too complicated. It's two different segments. Here I think we have actually used that we have a global team. The same goes, by the way, for construction equipment. Martin was into that when he talked about wheel loaders and excavators in some of the segments, typically the mid segment, also on the Volvo branded products. We see that maybe we have designed them for the big machine uptime requirements, the use is 24/7. Perfect. It's not used in that way, so to speak.
I think really having people living with this has been promising and it's a lot of work to do yet. Without Asia, when it comes to the growing population, emerging logistics, the aspiration of that, and also demands they are putting on the sales when it comes to sophistication in logistics, we cannot live without that. I think we are lining up now, but focus is required.
On the changes in the marketplace where you have more advanced logistics, of course, demanding more advanced trucks and more service, et cetera, is that a rapid trend, or can you say something about that pace?
Do you want to start Claes, or?
I can do that. If we take the example of China and the growing e-commerce segment, going then in a couple of year from 1,000 to 2,500, is that a rapid change? Yeah, it is. It's more than doubling the volumes, but we're still a very small niche player in China, obviously. We could see now interesting things happening in India that could lead to the same things in terms of opening the state borders and new infrastructure, et cetera. In the big picture for Volvo Trucks and looking at we sold last year 103,000 trucks globally, that is not going to be the big differentiator for Volvo Trucks globally, actually. Important profitable segments, I think, for the group as well to also penetrate the premium segments.
Last one on India, if I may, how far as you come there, I think the market share for heavies have been just below 5% for quite some time, and it's about building service network, et cetera, I guess, to really boost that share.
If you, again, talk about Volvo Trucks, it's not so much about building service network. There we have been niched into mining and really heavy construction. It's first now that I see some potential of going into other segments as well. Of course, you have the joint venture.
I think in all fairness, also to respect our organization, it has been just below 5%, it's true, but it has been an evolution over the last 12 to 18 months that has been more consistent and understandable why it's happening. Important to what you say, Björn, it has been through training and focus on the heavy-duty segment that is to a big extent, even in India, if you see still very unsophisticated long haulage operations, it is another market than the medium duty. There activities have been done together, both from the group, but also obviously together with VECV that is having the responsibility of the sales. What will continue to drive this is also that we, as I said, we are transferring now the Pro 8000, that is the sister of Quester, into the same type of operation.
We have more fully fledged with Pro 6,000, Pro 3,000 and Pro 8,000. We have the right range also, we can cover broader. I mean
Should it be 10 quickly? I am not sure. I think it is better to build it step by step, but understand really. We are going for certain both segments, but more importantly, also region to expand it gradually. There we are fully aligned also with our partners, so to speak. That is the focus area, because obviously in the long run for us, heavy duty must be considerably bigger share than it is, that is for sure.
Thank you.
Thank you, Eric. Ole Rane, Nordea. Two questions. The first one for Bruno on Renault. You expressed some confidence on gaining a bit of market share, growing volumes, and one of the key levers for that was the resale value. Could you say anything about how the resale value has improved on the new offering relative to where it previously was, and how far it is from being where it really should be for you to have a strong business case?
We are just at the beginning because our trucks are just coming. We have got some 24 months trucks. I can just say that up to now, we are able to reach the target that we set. Of course, that is giving us good hope for the future. We will see a big or massive return or returns coming after summer, so this six months. Of course, it's also very depending of the used truck business, of the used truck market, which is a little bit tricky right now. I think it's also very much linked with what we are doing. I will not repeat what I have said this morning or beginning of the afternoon, but being able to really manage the flow of vehicles.
Also one thing I have not mentioned this afternoon, we are also creating diversity in our used truck offer by transforming vehicles in what we call X-Road, which is construction vehicles, from a tractor to a construction vehicles, to offer more diversity. Also to rigid, to offer also more diversity where, in fact, we have a demand in rigid, but we don't have offer. This is all the action that are, when we are able to pile up all the action, that we will be able to really manage the resale value. Up to now, we see a good indicator. Thank you.
You know, it's a considerably better product.
Exactly, yes. This is a key point. The product that we have today has nothing to do and nothing to compare with the one that we had before, especially when we talk about the premium. Much more suitable for the used truck business.
Second question, I guess we'll end up with Claes. There's been quite a bit of focus on the turnaround assets within trucks. I guess the flip side of that is that it indicates just how profitable the Volvo brand is, particularly in Europe. Three, four years from now, would you expect most of the profit improvement to have come from the lower margin assets today, or will it have been Volvo have improved from a high level?
First of all, in terms of profitability going forward, even though we are seeing some tailwinds in terms of a strong European market, which is partly there to support our results. Actually, if you look at Q1 this year versus Q1 last year, we had a strong improvement in the result with globally the same volume as first quarter of last year. More in Europe, less in both North America and Latin America. Of course, the mix helped a little bit, but there is so much more potential also in Europe. We still have profitable markets where we don't have the right market share. We even lost some market share in some countries. We still have so much more to do on the parts and service business.
We have much more to do when it comes to price management in a clever way, working with options and variants, et cetera. Actually, yes, at some point in time, the European market will come down a little bit. I see from a profitability point of view that there is still so much more we can do. Then we also, of course, expect both North America and Latin America to normalize. I'm very optimistic about the future profit potentials for Volvo Trucks as well. In summary, there are room for improvement also there.
That's Graham Phillips from Jefferies. Martin, it's a question on strategy. It's a bit over two years ago, we did have the last capital markets day. We might have one in two years time. Your chairman was quoted that in two to four years time, the ownership of Volvo Construction Equipment, you'll decide what to do. Without asking directly what would happen, but what are the tests that you would have to see if a business stays in the group, mindful of the holistic approach of the company, the credit rating, the volatility of the earnings, all the things that are impacting the rest of the group?
I think we were pretty clear, actually, as regards to the quarter one or to quarter four reporting, sorry, in January about Volvo Construction Equipment. For us, it's important to further increase transparency, not at least for all our investor, what is happening, how are we improving the business. We have very strong confidence in what is happening in our business. This is core for us, and it's core from a rational point of view. Having said that, we also said very clear that we must, as a group, and that goes not only for Volvo Construction Equipment, that goes for all assets that we have, that Jan was into, be able to show that being part of a group is adding
More than it costs to be part of the group. I should say it should not be a small delta. It should be a clear and visible delta, both for the owners of the full group and also for, so to speak, the customers and the employees that are running that business. That is the simple answer. We are concentrating on continue to drive and support Martin Weissburg and the whole team. They are doing a great job by leveraging also in a smart way, I think the group ASIST without having this push, you have to do this and blah, blah. Really, for example, 8 liter was a no-brainer when we really went through the situation how we can drive it. That is what the concentration is all about for us as management and as executive board.
Christer Vagnegood from DNB. Question on how you are thinking about developing autonomous driving for trucks in the future when it comes to level 4, level 5 on public roads. The products you showed today was in a mine, for instance, which of course requires a bit less R&D than when you have these long-haulage trucks in traffic. How are you thinking about that?
I can start on that one. As we said, we are starting in confined areas. The good thing with that is that everything that we are learning, all technology that we're using, would be the same technology that it would be the base when you start to talk about, say, on public roads. Then it's also a matter of definition, what is public roads and what kind of traffic situation you are into. As I tried to explain, the challenge to go into city center, for example, that's a huge one. You must see it that it will be in steps, and everything that we are learning in the confined areas can then be scaled up to a very simple traffic situation.
For me, a harbor terminal is something in between a confined area and a public road. That would be a very logical step after exploring mines and quarries. Harbor terminals could be the next step. Then it takes some kind of road with a low traffic density going forward. It will be a step-by-step approach, reusing all the knowledge and all the competence you have built through the start in the confined areas.
I just have a short comment. It is for us to really get the benefit out of this investment, we need to go with level 5. The driver must go. That, of course, is in contained areas. Now when we see the progress of Volvo, nothing is decided, but we have raised our hand and sent a message to Volvo that we want to be the pilot customer and test also this kind of technology on public roads. That said, you must remember that the roads where we have our mines is, you don't have a rush time.
Exactly. It was good that you said it. I tried to be a little bit more political. Peter's road are public roads without any traffic.
Yeah. How should we think about the R&D cost going forward? OEMs in the automotive space are spending SEK billions in this area. The same goes for electrification.
These areas are, as we said, something that we add on the well-known ones. With all investments we have done now, we really feel that we have leverage in well-known technologies, and we are confident in the plan that we have for the years to come in the activities that we want to do in the frame discussions that we have around research and development. I do not know, Jan, if you want to comment any further on that one.
I think it is covered in your presentation. I think the way of going forward, it is something that you discussed also in Volvo Trucks, Claes, is actually how we can continue with the old technologies. Of course, we need to continue to work on this with variants and a few things. Maybe think a little bit about when we stop things also in old technologies. By that, taking down that one a bit, at the same time then increasing what we do in new technologies, that is the whole thing. I think we have a good discussion, strategic discussion about that, in practice, it kicks in, you can say, every year that discussion when we discuss the R&D efforts and so on.
Once again, I think that has come through today, the starting position or the position we have today is not that bad, actually. We spent quite a lot of resources on this. Just to give you a little bit of a flavor, this is not an exact figure because it is difficult to measure, actually, just to find out. We spent quite a lot of money in connectivity, everything from onboard out to the connected services. We talk somewhere in the range, different departments and so on, of SEK 1.5 billion per year. Just to give you a flavor about what we do there. You can debate whether it is enough or good enough, but it is not that we are not spending money on these areas. I think this is the balance that we have to do going forward.
Just to finish off a little bit on here is big time opportunity for us to leverage. Modularity in both software, components, systems, et cetera, both for electromobility, automation and connectivity that we are already doing, by the way. That is one thing that I always try to remind everyone, trucks have much more in common with a stone crusher than with a car when it comes to why do you use it, what is the logic, what is driving, so to speak, the productivity and the benefits for both society and the customer in itself. That is the reason why these type of technologies, when it comes to the business model between Construction Equipment, Penta, buses, and all our truck plants are big time opportunities, actually.
Okay. Thanks for today.
I think that finishes up the Q&A. We have two things remaining. One is a dinner, and we have buses going back to Stockholm at 7:30 P.M. With that, Martin, maybe you would like to finish off.
No, only by saying that thank you for coming all the way to Eskilstuna. We hope it has been worthwhile. Obviously, continue to use the evening to discuss whatever is interesting for you. Thank you for coming. I hope you have enjoyed the day. Thanks a lot.