Okay. Hello, everyone, and welcome to the Volvo Group Investor Update here in London. We didn't plan for this timing, but we are glad that so many of you take two visions to come to us, even that we have also big events going on in Europe, obviously. Also for me, it's great to be back in London. I did my master's here actually at Imperial College.
That's the reason why I have such a brilliant accent in English. It was not a joke actually. Now to keep it simple, that's my signal. I try to use the same accent in all languages. It's easier, Swedish and English and French and German.
Nevertheless, we will not talk about that today. We will talk about where we are heading as a group, what are the main findings for me as a new CEO since I started at 22nd October in Volvo. It has been 8 pretty intensive months, and it has been a great journey so far really to learn to know people really from the inside. Even though that often I get the question, okay, what's the difference between your former company and Volvo? And I always start by saying that I've had the pleasure to be meeting the Volvo organization for almost 25 years.
And in many occasions, we have been sitting on the plane back home from different markets ending up in Copenhagen and splitting for 2 Swedish destinations. And you win 1 and you lose 1 has normally been the conclusion. So really, having had the opportunity to meet this company for many years has also gathered for me a lot of respect and also for me to learn a lot about our business. So it's not a completely new company from that perspective. But obviously from outside in and during the 8 months now, we have the chance to learn the company from the inside.
When I started 22 October, the game plan, that will always change, as you know, was we'll just start with customers out in retail operations for the different business areas to see where we are, discuss with customers with our different markets, what is the feeling, where are we heading, etcetera, and then continuously work upstreams in the company. Obviously, when you are on a garden leave for a couple of months, you also are not only, I mean, taking a tour of sailing, you're also thinking a little bit about what can happen. And I know that the community, like you are representing, are in particular pretty impatient that you should have been working also during that fact. But you need to respect that you can do it from the outside in perspective. The good news about that is that there are, I don't think maybe Ericsson also, but there are not too many Swedish companies where you have so many opinions.
You can ask whoever, and you will have opinions. It's like asking for the opinion about the color quality on a car. Everyone can answer that without having a clue about the answer. It's maybe even to vote for if you should be in the union or not. The interesting part, of course, is that when you have that chance, you take the opportunity, of course, to meet a lot of external people about the company, what is happening, the views, etcetera.
And interesting enough, when you after a while or a little bit more selective who to meet, etcetera, you're getting to see a pattern. You see a pattern of some of the questions where you have more or less 100 commonality in the answers or in the suggestions. And then you have a number of areas of questions where you actually can have you meet 100 people and you have 100 different opinions. And then you say, okay, maybe we should look into at least a little bit to see where we are and what is happening, and that we have tried to do here. One of the key events that we did after 3, 4 months was internally to announce our strategic direction.
I will come back to that in this presentation and what does that mean. And also, obviously, more from an external point of view, we also announced the changes in the organization and based on a number of beliefs that we have as management and also as Board. And that is also something that we'll come back to here. During the 8 months, I've been traveling the world extensively. I've been to all continents.
And by that, also had the chance to meet our partners, customers, market companies, industrial operations, etcetera. And I have to say that, in general, there are a number of very good things that I feel also also confident to continue to leverage from, so to speak. When it comes to the good news now where we are, it's really it's clear we have good global positions. I mean, generally speaking, we're all on a market share position that could be, I mean, 15% to 25% in almost all the major markets. We have also by that, been building up the necessary presence, operational capability in different regions and also when it matters, and I will come back to that, the necessary scale.
Scale is, by the way, one of the most overrated words in history. And it's, in reality, one of the most simple to calculate on. And therefore, we tend to use that in our calculations. But if you use it wrongly, it will just deteriorate the company much more quickly than it will create value. But there are scale that exists that we should leverage from, obviously.
We also have in most of the region product and service ranges that are all very competitive, confirmed by our customers that we can continue to build on. We see also, after a number of quarters now, a steady increase and a steady, so to speak, development of our profitability, where also I think that you feel that the predictability of the group is increasing also when it comes to our financial performance. And people. As I said, I've had a chance to meet mainly from the Volvo Trucks, Volvo Bus and to some extent, the Volvo Penta brands, but also, of course, obviously, many of the other truck brands, mainly in the marketplace. But I have to say, when I'm now have been, I mean, discussing with our operations, R and D and different functions, we have extremely committed, loyal and motivated people.
And I'm not sleeping bad at night because we don't have the right competence at all. In some areas, what we see here, the drawback of it has been for 4, 5 years of necessary restructuring activities. It has been also, to some extent, deteriorating for the motivation within the company. But the loyalty and commitment and, so to speak, the dedication for our different brands are definitely there. On the flip side of all this, of course, what also has been pretty clear is that with scale, with centralization, complexity has increased, in some extent also bureaucracy and in some cases, also lack of flexibility given the fact that we are operating in an environment that are and will continue and, in some cases, even increase to be even more volatile, so to speak.
And here is one of the key points to address moving forward. We also see and here we need to look ourselves in the mirror and see for the acquired businesses, maybe to for the exception of some business lines, we have actually, over time, been losing market share and positioning. And here, we need also to come back to the cause of that and how we can address that moving forward. When it comes to the installed fleet, only for Volvo trucks, we have 900,000 trucks rolling out in the different markets. I personally see that we have a big untapped potential when it comes to the service business.
Our industry, in general, are extremely hardware focused. And I mean, we tend still to quality of the market, which is a fun expression in itself. And another thing that has been pretty clear is also that given the big restructuring activities, and not only the restructuring from, so to speak, after the Great Recession, but also during the growth period from as from the divestment of the KAR Group, it has been a lot of focus on structural and portfolio questions and maybe, in my opinion and in management's opinion, less focus on the operational excellence. And there is also a great potential for the group moving forward here. I was into centralization.
And another thing is the clarity and transparency on profit and loss in the group. And that is not only on business area level but also when it comes to different product ranges, service ranges, geographical areas or whatever is relevant. So as I said, as from 1st March then and with good preparations ahead, we launched a new organization. And I think that is also pretty natural after what we see here when it comes to the journey. It has been, and this is clear to you, a pretty long period of growth, mainly through acquisition, geographical expansion, moving this group, excluding the core operation, from SEK100 1,000,000,000 to a SEK300 1,000,000,000 company up to 20 10, 2011 when it dropped.
And then, as I said also, a necessary, so to speak, step back, where are we, where do we have the overlaps, how do we get hold of the different activities, who shall do what, etcetera. But given that now, I mean, the cost efficiency program, as we have announced, is on track, It is more about moving into a mode of continuous improvement in all different aspects to really use and leverage the different assets that we have in this group and do it in a pragmatic day to day basis. I'm also pleased to say that, I mean, during the transformation, it was also pretty extensive work done that I can also, to the absolute majority of that work, signed, and that was regarding the brand positioning of our different entities that we have in the group, mainly on the truck side. It is like that, obviously, that when you have different brands, you must be extremely clear where they should operate, in what segments, applications, geographies and maybe even harder, where they should not operate in order to not have too many or preferably not any at all drags in the system, so to speak, and I will come back to that.
So brand positioning. Product renewal was a big theme, as you remember, not then at least for the European system and what we call the cab over engine product range on heavy duty, both for Volvo Trucks with the FH and FM upgrade, but also for Renault. So and then the big cost efficiency program that is still, so to speak, rolling according to plan and that we will have the full comparison base as we will open the bottle of champagne in last December 2016 compared with 2012. What we are now focusing on is really putting the next phase for the group. Customer focus is something that we will hear a lot about today and what does that mean in reality.
Simplicity, I was into that. We are pursuing decentralization with full P and L responsibility. And I'm sure that we will come back on that theme as well. Continuous improvement, that's the main driver for customer satisfaction, but and as a consequence, also profitability improvements and organic growth and mainly then as we see it when it comes to the untapped potential on the service side, for example. In this launch, also very pleased with the team that has been lined up now.
I have, in the team, 10 very strong business leaders with full responsibility, 5 business areas on the truck side, where you have 4 brand organization, as you know, and one that is a combination that I will revisit during this presentation when it comes to group trucks, Asia and joint ventures and the rationale behind that. And then also 5, so to speak, nontruck business areas, but in many cases, also very linked, both from an industrial and network and commercial point of view. And maybe the most obvious cross group business area is Financial Services. In addition to that, as you know, in order to increase the pace and speed of the operational excellence, we have for the truck divisions in the industrial backbone also, made 3 instead of 2 divisions where purchasing will be on the same, so to speak, operational level as manufacturing and research and development. And this is a classical one because you can argue for years, if you like, whether purchasing should be in the responsibility of research and development given the very, very high influence when it comes to the purchasing activities already in the project phases or if it should be in operations given the continuous improvement and really the quality drive, etcetera.
But the best solution is that you have 3 potent leaders really working side by side in the management team to drive this with the common targets and KPIs in the value chain together with the business leaders. Okay. So that is a little bit on that starting up, to speak, where we are. We just see, so I'm not I took the time to write a little bit of a manuscript, so maybe we should follow that as well. We are well invested, as you can see here.
And I think everyone can certainly agree that the group is well invested and has been for many years. When it comes to leading brands and products for each segment, I should at least say for the time being brands and products for each segment. And in some and the good news is that the majority of the segments, we also have leading brands, but we also have a number of positions that we must improve or scrutinize and take decisions upon basically. But still, with the brand portfolio we have in the different business areas, we do not have any excuses not to perform with the right market position. We have a very modern industrial footprint.
We have a capacity level that we can keep for a number of years is my estimation. And also that the operational part of the group has conducted a very intensive activity when it comes to restructuring, really addressing overcapacity during the last 2, 3 years and successfully so. And that means now that we have the platform globally, but also even more important regionally, to really be more flexible and agile and to correspond to the volatility that we can see in the market. When we look at the customer satisfaction, loyalty retention level, that is also a score that we are happy to see as a start. You can always improve, obviously.
But generally speaking, for our different brands, for our different regions, we have a high loyalty satisfaction. And it's something we have been investing to protect that also when we have had problems, for example, with quality. So I mean the protection of the customer to really be close to the customer has been there, in some cases, to the expense also of our own development and profitability. But I think that's the right priority to do it. And then it's about really making your own internal processes even more robust and quality focused.
Competitive technology platforms, I will come back what that means. But component by component, product line by product line, that has been the case for quite some time. What we are doing now is that we are much more extensively focusing on how do we get that together in a smart way in what we call the cost system. And this is a major backbone for our way forward. The CAST system stands for Common Architecture Shared Technology.
And that is the modular thinking of the group when they're coming to, in a smart way, sharing technologies, components and systems without, so to speak, affecting the brands or the ability to tailor made solutions to the specific need. Network, also, by the way, interesting distribution that is also part of the DNA. It's like aftermarket. We are distributing products. Many, many, many businesses do that.
Some has moved forward on selling, etcetera, but global distribution presence, and that's true, very strong network. We see that both when it comes to our captive network that we are running, so to speak, through the brands owned by the Volvo Group or by the brands, but also when it comes to our private investors that are high performing and are doing a great job. So also in that perspective, we have a very good starting point for this next phase. And I will come back a little bit to that as well. But you can also see it like this.
We are well invested and has been so for many years. And as you can see, for almost now 15 years, we have been running on an average level of 130% CapEx in relation to depreciation. And that is, of course, not a sustainable situation. That is pointing towards one thing that is very clear. It has been geared for growth and, in particular, unit growth.
But in reality, that unit growth has not been showing up at the same speed as the investments. 2 takes for me on this one. First take is that we are spending too much. And second take that is also very important is that this is one of the confidence matters when we are talking to investors and the financial community and our owners, that how can we actually show now that we are coming back to the level that we should be for quite some years, and that is on par with the depreciation at maximum and at the same time, drive also the investment focus where it matters. I mean, we have a number of very important crossroads to take when it comes to technology and innovation and make sure that the group is actually redirecting also the funds for future investment into these areas moving forward.
So here, we have a number of issues. You'll see now after the last product upgrade, we're coming back and that we are not tempted to do things but to stay with our plan, organic growth, continuous improvement, use what we have and really leverage the investments that I also showed in this slide. And 100% doesn't mean nothing. It means quite some money. So even with that, we need to be very clear on how we actually are, as I said, making priority on different funds.
And obviously, when it comes to the industrial system, the major restructuring, we can host now growth. We can host the right type of measures to keep flexibility for the volatile markets. We can host, so to speak, intra plant shipments, and we can host also new launches coming into the different regions and brands. If you look a little bit on this is, as you remember, a slide that we showed 1 year ago or a little bit more than 1 year ago in Ghent, where we are starting to different regions. And if anything, what we can see is that we are continuing to develop in the right direction.
What we are happy to see is that North America, even though it was a tough year when it comes to the start of the correction, North America performed well. Performed well, thanks to both an increased, so to speak, penetration of powertrain, as everyone is aware of, and also pulling for better. Even that big part of that potential is still to come. Also that we are better now when it comes to the managing volatility. And maybe even more important that we have the guts to even lose a little bit of market share in a downturn rather than to stay with a big inventory that you have to pay for another time again with the inventory reduction, so to speak.
So if anything in downturn, make an estimate and then take it down to double. It's a good rule of thumb. That is also very hard to do. But generally speaking, I've not seen any situation where you have ended up with a dry inventory, so to speak. And I think that this is one of the key factors.
South America, obviously, deteriorating. At the same time, what I have to say is that given the very high speed of the correction and also the magnitude, the organization in Latin America is managing this in a good way. And also, obviously, Europe is even if it's the same colors here, we see that we have an improvement for the 2 main brands, given also the uptick in volumes and the better absorption rate and also that we are gaining momentum in Southern Europe. And also, I mean, one big explanation for this is also that the operational restructuring that has been made is kicking in gradually. And we can see that in the right type of allocation for the different brands.
There is more to do when it comes to operational daily activities, and it's more to do when it comes to the market as such, not at least than for Renault. Asia, obviously, one of the major priorities here is the Japanese market. I will come back to that. And you can see also for Africa, Oceania with high volatility, it has been still room for improvement. But generally speaking, we are following this, obviously, not only on this level, but country by country, segment by segment.
And as a consequence also, we have been taking decisions that you cannot see in this slide. But one example is that we have now been pulling out from South America for Renault since we are not seeing any probable opportunities to succeed in the long run and then expect it to call a spade for a spade and concentrate where you have the opportunities to succeed, so to speak. Before then coming into the 7 strategic priorities, just to take a step back and say why the Volvo Group and why do we have a future that we believe in. From time to time, of course, we and we all we discussed that also if we should have this slide together with you guys. We said we think that it could be appreciated because personally, I'm a culture driven guy.
I believe in that if you have a strong culture in a company, you will succeed. It takes a hell of a lot of job to do it. But really, have the right culture will make the whole difference. And to put up targets is easier, but that will not change, so to speak, the behavior and the real performance underlying. The good news for Volvo is that we are actually in a sector that has the future in I mean, it's still a very important sector but has even more of the future in front of us because, if anything, when it comes to the global challenges, logistics will play a super important role.
If you think about the CO2 and the environmental challenges that we have, if you think about urbanization, that is coming big time. If we are thinking about the clear correlation between GDP Development and Logistics and a number of other factors like energy supply and energy security and your political consequences, the logistical sector is one of the main drivers. And normally, when I'm out on different I mean, not very frequently today, but try to participate from time to time, and it could be a panel. And then there are some guys representing the new economy. And I happen to be on the old economy, which is fun in itself, since, I mean, we are also addressing a very I mean, take Facebook, for example, which is a great company, by the way.
I mean, they are addressing 2 very basic human needs: communication and self fulfillment. And I mean, we are actually addressing one of the most important basic needs, and that is mobility of goods and people. And we will do it in the most sustainable way. And we know that this is driving prosperity for real. And the good news with the word prosperity is that it's embracing every starting point.
Even if we're talking about Southern India, how can we really drive development in Southern India when it comes to the starting point of that transport solutions and transport equipment? Or how can we do within Central Stockholm and Gothenburg when it comes to total CO2 fossil free big systems or in a mine where, of course, that will come more and more, etcetera. So really, driving prosperity through Transport Solutions will make a difference. It will much more point to the solution than to the only the product. How do we actually do it?
So we combine the different assets that we have as a solution provider not only, say, to the major in London, here you have a bus, good luck and see you next time you want to buy a couple of buses, but really to drive, so to speak, the system. On the aspirations part is having leading customer satisfaction for all brands in their segments. And if we cannot do that, we should not keep it. And I think this is a very important part of the pyramid. This is also to embrace our different business areas and brands and say, if we can pull out what is good to be part of the Volvo Group, Then we should do it and develop it and continue to develop it because we see that it's hosted in the right way.
If we don't feel that, it's not fair. It's not fair to the brand, to the people working for the brand and for the customers. So have leading customer satisfaction for all brands in their segments is a promise that we should achieve. Otherwise, we are not the right, so to speak, context to operate within. And then obviously, when it comes to the 2 other stakeholders, I mean, the most admired employer in our industry is the want to.
Everything for me is about the pool, the want to. And that release of the force among human beings is the whole difference. I mean, if you take a dealership and another dealership, you have the same product range, you have the same type of economy, you have the same, same, same, same, and you have 10% 18%. That is how it is. People matters.
And that is an underrated part when we always are discussing about companies, when we are trying to put it into the Excel sheets and say, okay, what will happen here? And having industry leading profitability, I think that is better when you also when I come to London and discuss with you guys because that, obviously is creating maneuverability. The values here are deliberately created so we can see, okay, what is the interconnection for us as people. It starts with money is not falling down from heaven. Customers must be happy.
And if they're not happy, they will not buy. If they are happy, they will buy. They will be successful. They will buy more. And that logic is how it is in a B2B sector.
Customer success in a B2B operation is really of course, with the hardware. But the real name of the game is 10, 15 years of operation with 1st, 2nd and 3rd owner be close to them in the whole value chain, by the way, all the way from R and D, from operations, parts supply and the retail. And how do we do that in a big company? I normally say that I want to evolve a group that is a conglomerate of small companies. Everyone should feel that they can use and operate in an ecosystem where scale matters, we should have it, and where scale doesn't matter, just take it away.
And that is based on trust, and trust doesn't come for free. It takes a lot of time. You need to work with it. Passion change comes based on pride. Passion and also to and we discussed it a lot.
I mean, you can just imagine a group like Volvo that is going through so many changes already since 2010. But again, we say, okay, how shall we do with North America? Do we need to change? Yes. Everything we need to change all the time.
But how we change this is the game changer. And then eventually, we come to performance, and I will come back to the performance later on here. Very important for us. We have been working hard with it. What does it mean for us?
How do we create this culture? Do we believe that we are building prosperity through Transport Solutions? And do we believe that, that will bring performance for our customers, for us as company and eventually for our shareholders? And we are absolutely convinced here. Based on that, we said, how many priorities can you have in the Executive Board?
25, maybe. 42, also a possible figure. We took we picked 7 that we say this those are our 7 priorities that we should be able to follow and execute on in a good way in the executive board in the group management. We launched them also internally in February. And since then, we have obviously been working hard in the different areas to make sure that we have ownership in different parts of the organization where they are belonging.
And you can put it simple, I mean, to say that number 1 to 4 is mainly based on the what and the 5 to 7 on how to do it. But number 1, obviously, it is no secret that we are winning and losing overall with our truck business. And that is not only saying that the other businesses are less relevant, absolutely not. But without a sound truck business, we will also actually have negative drag when it comes to our other business areas. And therefore, number 1, reinforced Volvo as a global premium heavy duty truck brand is the number one priority.
In the B group, things can be taken for granted, but the premium brands are not standing still, as you know. This is like standing in what is a rule, Trapper escalator or backwards. If you're standing still, you are moving backwards. So you just need to move in a sense. You just keep the same position.
And the Volvo Truck brand, to have the highest priority and to make sure and at the same time, make sure that we are regaining and taking back the relevant position for our other 3 brands in the high end truck market. Number 2, capture Asia growth through the JVs and the value truck development that we have been doing. Number 3, create the most desirable heavy duty product and service portfolio, but also important to say that we make sure that in this portfolio, through the cost system, that we really can tailor made to target different segments. Volvo Production System, and production is not production only, production operations, but production of all different type of products and services, both of production system as the platform and the culture, so to speak, leverage establish brand specific sales and service operations with focus on retail excellence, as we have done now when we have reestablished the brands with full P and L leverage group assets in our nontruck business areas where it matters, creating additional profits, and I will come back to how we are doing that, and revitalize the Volvo Group culture, as I was into, and I will also come back to that with some examples moving forward here.
First one here, reinforced Volvo as a global premium and are also really regain position for our other brands. The name of the game here is really this simplified but still very important slide. It starts and ends with a customer that want to have a solution. And for whatever brand and that's the reason why I don't like when we are writing, okay, one brand is here and one brand is here, etcetera. I mean, for a customer, they are always choosing what they believe is right.
And even if this is a B2B with a heart, which makes it fun, by the way, it is also, at the end of the day, a very rational business. It's production equipment we're selling. It's a life cycle perspective. And even when we are talking about the value segments, such as in China, in India, in Southeast Asia or in Africa, people are extremely rational when they are doing their choice. This is just to show that depending on what type of application, what type of segment, what type of customer size, what type of geography you're operating, you will have a cost short that is varying a lot.
And the long term ability to tailor made a solution for these different needs will make the whole difference. The interesting part, if you look at the different brands in Europe, that there are all different ways to have an ear. And I'm personally convinced, and we have been looking through that also now when we are designing our P and L organizations or business areas that we have very clear space and position, for example, in Europe for both Renault trucks and Volvo trucks and can leverage, so to speak, a smart back end, at the same time, give the customer experience that they expect and require in order to be profitable. So just have this in mind. It's not one size fits all.
It is really about understanding the customer's business. And by the way, this is only the cost side of the P and L for the customer. Increasingly important, what we see is the revenue side, when they are also getting different type of incentives when it comes to CO2 efficiency, when it comes to noise efficiency, when it comes to other type of discussions with their customers. So we have a more active part of that as well. You can go into whatever home page you like among the big retail chains today and the big activity that they have to conduct in order to achieve their CO2 targets, for example, is about logistics.
And there also, our customers have a good opportunity to be part of a positive development. When we look through then the truck brands and what this means is that for Volvo Trucks, obviously, we have a strong position. We are a global brand, the only global brand in the world, as you know. And in most of the markets, we today have a strong position, maybe to some extent, with the exception image position and also network and product footprint. And this is the strong focus for the Volvo brand.
We also see that the traditional, so to speak, strong haul is in long haulage and high demanding long haulage, but still under absorption and great potential in many of the other sectors such as construction and distribution. Also, as I said, the untapped potential in the service business is also and also network consistency that we have. And generally speaking, a good service and sales network, but still a number of underperformance that we need to address. Maybe the drawback of Volvo is that, as I said, a little bit when you had the multi brand structure, it has been taking a little bit for granted. And now moving back to a pure 100% focus on Volvo Trucks will, of course, make a difference in that perspective.
For the Nord Trucks, 1st of all, one of the key decisions that we have been taking for the Nord Trucks is, 1, sell what you have and 2, develop where you are strong and exit where you are not strong, basically. So it will be focused on Europe. It will be focused on Southern and Eastern Europe, but also that we are having a good coverage of the services since we have trans European movements. It will be focused on North Africa and Middle East, generally speaking. The interesting part of that is that someone might ask, okay, will you have scale enough?
Can I welcome you to scale? Yes. The answer is yes. And the answer is yes because scale when it comes to markets is about market area by market area where you need to be 10% to 15% to have relevant scale and to be able to really develop, so to speak, the sales and service network and have the right presence. The scale when it comes to manufacturing, I think it goes without saying, we have one plant for final assembly that is well geared for the volumes, and that is Bulkers.
We have one combined plant now when it comes to medium duty, which is also good since it's not brand sensitive in the same way as heavy duty, And that is Blenwheel, when we moved down Volvo to Blenwheel. And obviously, we have scale also when it comes to technology in a smart way with the cost system, even though that we and that is something that we admit also, that we over engineered the renewal a little bit, and we are addressing that now. But the good news about that is that we have a good platform to stand for many years to come now, and we can really leverage that also directing the right type of customers with a broad range for them. And we have a great team also very dedicated to work on this now. Other factors to really work on is to show that we have a very, very strong product and also that, that should consequently continue to improve the RV and thereby also the offset for the new prices.
And a third part, yes, I would like to mention, and we'll come back to that also in the Q and A, is really the medium duty ability within Renault Trucks when we are getting back, so to speak, to the strongholds. So again, good case when you really carve it out and see where do you have the strongholds, how can you use, so to speak, the group assets in a smart way, but not overlap the brand, so to speak, from a group perspective. And we also see that trend in the Renault Trucks business area as we go today now. On the MAX side, the same thing here. Continue to develop the core markets and the core segments.
As you know, almost a 50% share in refuse or waste handling in U. S, and that is obviously also important, still small market but important market with interest in profitability. We have also the straight trucks, vocational, construction and other type of special trucks, a very strong position, market leading with 23%. And that will, by the way, continue to withstand with also construction activities in U. S.
And also a relatively strong position in regional haul, where also future product investments also can gradually increase opportunities for some smart niche opportunities in the long haul where we are only present with 2%. But given the cost system and in a smart way because MAC is the iconic brand in U. S. And Mack Built America, and we should continue to leverage on that. And we have a strong and dedicated network also.
The good news about the U. S. Is also that we see that our investors in the retail are gradually seeing the opportunities when in the big urban areas to separate the networks and gain market share. And then UD sorry, and then UD trucks, obviously, as you know, a story of major restructurings since quite some years now. Also in this case, we see good improvements coming out from that.
Restructurings in terms of the industrial footprint, some restructurings when it comes to the sales and service network. And obviously, also that we are getting our act together when it comes to the product range. Light duty, marginal business, but we are running that through an OEM contract as a vendor and badged business, which is getting a good contribution for us. We have taken that decision to do the same thing for the loss making medium duty. And we will, as from 2017, have that as an OEM sourced product.
That will be great also to support the network and the customer base. I'd appreciate to work with 1 supplier from that perspective. And we will continue now to also invest for competitiveness in the heavy duty, also in a very selective way using the core system. So here, I think we have a very focused activity. In addition to that, we have done a more full carve out of the industrial value chain together with the commercial system for UD trucks.
And that is to create, so to speak, an agile, lean company where we can really see how much R and D can we afford, how much can you pull from the group and how do you dimension the structure for the market shares that we have and the volumes that we have in Japan and in selected export markets. And Joakim Russelbather has been sorting off with the team in a very good way. Number 2 here is Asia, and that is obviously also one of the big questions. As you know, we are I mean, before coming in maybe to this, we are invested in Asia with 2 bigger joint ventures in India and in China, and we also have our own, so to speak, value range with U. D.
Quester. One thing that is important to remember here, remember, as I said, that customers are rational. They're extremely rational. And when you look upon this cost pie here, it means that there are a number of reasons why it looks like this and why customers from that perspective are cash flow based investment focused, where they say, okay, even if I can, in a theoretical way, calculate that the life cycle cost will be lower to buy, for example, a Volvo that will last 10, 12 years. I mean, they don't either have the trust or horizon to look 10, 12 years down the road.
And they say, okay, can I get it back in 2, 3 years' time? Another very important factor, of course, is the average mileage. Here you are running 50, 60,000 kilometers in many of the applications still, where in a comparison segment in Europe and U. S, you're at 250,000 kilometers. And only from that side, of course, uptime doesn't matter at the same time.
Fuel will not have the same role in relation to the depreciation, etcetera. And obviously, other factors like interest rates or driver costs are completely different. The $1,000,000,000 or even $100,000,000,000 question is how fast will different things go here. There are already signs where segments like e commerce, for example, in China, we are up now at 200, 200 and 200 and 200 and 200 and 200 and 20,000 kilometers per year. And there we see that Volvo Trucks, for example, as a brand, has a leading position now because then, again, customers are rational, the fuel consumption, the wrap time, the repairs, etcetera, and how fast we are.
But our assumption is that for India, China and for Southeast Asia, it will still be quite many years where this type of offering is needed and where we have a golden opportunity to meet that with the cluster of the JVs and our value truck depending on region and how we can use the different brands here. So what we have done is that we have created the 5th business area for trucks that are combining our interest in Volvo Eicher Commercial Vehicles and in Dongfeng Commercial Vehicles and also together then with our value offering that is mainly then targeted for Southeast Asia and that we see now that we are starting off after a pretty tough start, both when it comes to quality and acceptance. But now when we have targeted a number of key markets, we have a good acceptance. As you can see, we just took a number of snapshots. Even if it sounds smaller figures yet from Thailand from 2.2% to 4% and Indonesia from 6% to 15%.
Those are important signs. And we have said, don't grow quick now. Grow sustainable, get the right price point. We have the right investments. We should not have this as a drag.
We should build our position in the value segment. We should continue to bring the different competencies to the table from the JVs together with our, if I may say so, people that are experts in the value segment and work on where can we use, so to speak, networks together. And that not mainly the different brands here, but if, for example, I mean, if we have a good network for Volvo Trucks here, it's much less risk than, for example, in Europe because there are implementing segments where we actually can have an additional offering. If we don't have that, we are not there at all, and we will not have that deal at all. We see how well that is working when we have good complementary offerings, such as Australia, where we have 3 different brands and really complementing each other, and we have a market share of 27%.
Purchasing and supply chain, obviously. Also here, we are carving out these parts of the known, but still based on the cost system with the standardized interfaces that we actually can have local supply of main components where so matters and build the right type of life cycle expectations, but also have the ability to, in a smart way, upgrade when those times are coming. And then technology components, as I was into. So this is a setup that we believe in. We have had good discussions, and we also see that also in our joint ventures that we have good ventures that we have good traction.
The main concern for us on worldwide commercial vehicles has not been the earnings, even if it can always be better, obviously, but it has been the traction in heavy duty. And since 6, 7 months now with a lot of, so to speak, dedication from our Indian organization, we see also traction in the heavy duty. Here, you see 3.7%, 2015%. Year to date, we are around 5% to 6%. And in the regions where we're really concentrated on heavy duty, we are above 10%.
That, if you remember, I said it's a critical mass. So it sounds great. And also on Dofeng Commercial Vehicles, we have been managing together also the downturn and also in a successful way. What will happen here, of course, is that some drivers will come from emission and legislation. That is a very, very important part also of the logic.
CN5, that is Euro5 for China, comes soon. And then in almost directly after CN6, that is Euro6, where our knowledge and support is an important contribution. But at the same time, where we can use a smart carryback also from the structure. When it comes to the product and service portfolio, one of my also everything is my favorite subject here because I love truck business. But one very important part is the cost system, as I said.
And this is something that can we can talk about the whole Capital Mortgage Day, by the way. This is just an investor update, so you have to wait a little bit. But the importance of this, and for you who were at the Ghent update or Ghent Capital Markets Day, it was more or less the same side. We have changed a little bit. And one thing that we have changed is the direction of this.
Before, it was in this direction. And this has a huge difference because it starts here. If you create a system here that are not meeting the expectations here, it's useless. It could be brilliant from an engineering perspective, and you can combine whatever. But if it erodes the brands and you're not getting the effects out of it when it comes to price positioning, segment performance or geographical acceptance.
You just forget about it. The important part is to really look to what are the needs from the different business areas and where can you combine it. And then obviously, there are a number of main components. There are a number of main enablers when it comes to the main interfaces in the definition of the hardware, but also increasingly important in the software, electrical, electronics, mechatronics, etcetera. And as a consequence, given that so it starts and ends with a specific need of the different customers, you can also then leverage the right type of scale.
And the right type of scale basically then is in the industrial structure, as we have been talking about. We see that coming through more and more now in powertrain. That has been a consequent red thread through the group's history since we started the different type of acquisitions, how we are working with the production flows and where it matters with common processes, not at least continuous improvement and sharing. But at the same time, we're very clear about that we should not have 1 size fits all when it comes to the industrial setups, depending on wages, depending on volumes, etcetera, etcetera. So we are not overinvesting and ending up with 130% in relation to depreciation.
So this is the base. And what I've seen the last I've been following this now with R and D team. And I think this is important. I think we are gaining momentum here in a better pace than I expected actually when I entered. So I think coming into a more normal situation without restructuring, very important part of the continuous improvement, work with the cost system and work with continuous introductions rather than big bank solutions.
Super important. Also important to say, to use the common architecture and shared technology where it matters. This is the difference between standardization and modularization. So we are not being too tempted to share too much. That has a very important part for the brand uniqueness or for the competitor offering for that specific brand in their specific market and application.
And therefore, again, as we said, distortion ends with having a smart view on where are we sharing, how much, how many brands or into that. And this we are steering together with the business area management and also the R and D executives in the product board. It's a pool situation because every brand is responsible for their P and L. But at the same time, it's also a guardian situation. So we're not developing things that have the same need, and then we don't need 2 different executions basically.
Also very important principle for the governance and not at least for investments and not to over any near things that doesn't matter for the customer. Something more to say about that. I think I'll go through with that. And what are the consequences then for us when we have a cost system now that is getting operational in a to a much higher degree with the new product renewals? The major things for us is that we instead of different product lines, you need to introduce a full range product at the same time, big bang.
You can work with continuous introductions step by step. When you have a new feature or a gearbox or a software or a cab feature or connectivity or electromobility. You can introduce it on the different product ranges as we go. You can debundle large projects into several. That is because large projects are, in theory, cheaper, more efficient.
It's like a big factory or in theory, much cheaper and more efficient than a small factory. But in reality, it brings pretty much of dependence and complexity. So you can debund the large project into several. That gives also much more empowerment to the engineering teams and a bigger proportion of the engineers to see their delivery into the cost and really to that it has brought something to the market. And you can do continuous improvement, obviously.
So that is bringing improved product quality, more stable workload, as we said, less project complexity because with large project scale is or complexity is increasing and less risk also and people empowerment, as we've said. So the cost system, very important key parameter for us to continue to work with. Also, important is, as I said, with the R and D funding going forward, that we are making sure that we are also putting our bets where it matters when it comes to future innovation and where customers really want to see development. We have today a world leading situation in these three areas. We have been not so noisy about it, Maybe a little bit shy actually.
But I think as we move forward, we will prove by implementing together with customers, let customers be even more part of our innovation process. When it comes to alternative drivelines and fuels, fuels obviously is alternatives to diesel. If it's biogas or ethanol or different type of alternative fuels. We are there as long as we can see a long horizon. And when economic and technical horizon is going together, we have that knowledge.
But even more important, what we see is the combination with electromobility. And that is where we have put most of our bets, and we have a clear leading position, everything from mild hybrids to heavy hybrids and also to full electromobility, as you know, when we are now deploying more and more orders into Europe to start with on the public transport side of buses with very good results. And obviously, all these combinations will come more and more in different type of applications. It will start with these type of more confined areas, like cities, like mines, like type of areas that you can control infrastructure wise, but it will come more and more also in different combinations. And when it comes to independent electromobility, we are happy to see that we have a strong position.
We are continuing to invest, not losing out there. Automation, we showed a small film. That is also a given to come. In our industry, even more clear that it will come quicker. We are already today conducting full scale tests in confined areas, obviously, like a mine.
It's nothing new about it. And you can also do it semi automatic, if you like. I mean, when you have clear guidance into the routes, you do it full automatic, and you can have also control tower with the type of systems we have, both for trucks and also for yellow machinery. And connected products, more than 500,000 Internet of Things is a year today. And what we're using it for, as you know, is to drive information to the customers, but also to drive information to make our other type of services more efficient, remote downloading, remote diagnostics, repair and maintenance, finance, insurance, etcetera.
Still, there is room for improvement here to increase the ecosystem with other players. And also, the industry is surprisingly keen on data gathering. But the 2 other steps of action and analysis is even more important. Volvo Production System. One thing that I've been observing during my 8 months is that we have, for a long time, been trying to solve operational drawbacks with portfolio answers or even, in some cases, with strategic answers.
We are now with a new operating model, making sure that we have a clear focus on operational excellence when that is the need. And there is a need in many areas to really drive continuous improvement, lead times, precision, quality levels, improvement work and use the competence of the people. But this has been a clear observation for us. And it's also on the portfolio level that we have a clear governance also how we are actually pruning the portfolio in a smart and consistent way so we are not letting draggers be kept in the structure. It is about, as I said now, moving from big programs, restructurings into continuous improvement.
And the leverage out of that is something that we have big confidence in. The Volvo Production System is really about, I mean, the flow thinking, same KPIs through the whole value chain, reinforce the regional structures because we have strong regional value chains that can operate with good flexibility and volatility. I think we have been showing that now in North America, for example, and also in Brazil and in Russia and all over the place, by the way, to really give this agility and flexibility in production volumes. This is one of the key factors for us. We believe that here is a lot of opportunities, and we have already started to see those effects.
Variant reduction. We have, as always, it's easy to introduce new things, but you also must be brave enough to take away products or product lines with low volumes and with almost no contribution when it comes to the lost sold units, etcetera. Continuous introductions, as I was into, cost and Volvo Production System as a platform, minimizing risks and really driving productivity and efficiency in the right way and in a sustainable way over a long time. Quality, quality, quality, quality, quality, quality, quality is the best way of doing efficiency. And this focus, we are working a lot with a very, very positive feedback also from our people.
And as I said also that we have a brand and regionalized value chains that we can utilize for decentralizing our decision making. Establishing brand specific sales operation. Just a number of words on it. Why are we doing it? Yes, because customers, they live and die with their brand.
That is how it is. They love it, and they will really want to have that peace of mind, trust. It's about product services. It's about people. It's about the network.
And customer loyalty starts in retail. This is really from corporate to a customer focused culture. I've been spending a lot of time just visiting our different retail operations. We have going through together where we are, what is the volatility in performance, why do we have, I mean, different levels of performance and also very good feedback from the organization because here, I mean, the best thing with retail is that we have so many interesting positions also for young people coming up pretty early in their career that can run a full fledged P and L. I mean, what can be more fun than to sit as a group manager or a department manager or whatever?
I mean, here you're running your own company, and you can really make a difference. So it's fantastic. So as we say in Sweden, from constant first one, that's a local one. But it starts in retail, and the retail focus is extremely important to have a grip on. Thereby also and you saw that also for 1, we are starting to disclose also how we are doing in the service side to be more transparent to you guys, but also to put, I mean, focus and pressure on downtime potential that we have.
We are still, as you can see, we have approximately 23% of the services today, whereof the majority is ports and pretty natural due to the integration of the network that we have. But at the same time, when we look at some of the markets, there is room for improvement here. And we are working hard as one of the missions for the different business areas to have clear, clear business leaders and targets on the service side that will further improve and increase resilience and that we take step by step as we go here. But already coming up as best in class, we have a number of percentage points when it comes to turnover. And I don't think it's a big secret that it has a pretty good profit contribution as well.
This is a slide that I'm using from time to time, good or bad. Maybe it's bad, I don't know. But I've done it myself. So it was for free anyhow, so don't worry about the cost here. But if you think about I mean, the reason why I want to show it is because, I mean, this one, vehicles or machine, whatever, let's say that this is 18% here.
And that we know exactly. We know everything about it, 18.1%, 2%, 3%, 4%, 8%, which I mean, how does it look like, etcetera. But as we go here, and I mean, that is the starting point for what we have for the services. And then when we say, okay, we have 50% to 60% on parts, in reality of the total market, what we have is if we have 16% here and then we have 9% of the total market in Parch and still, I mean, 40% to go with I mean, with the loyalty here. And the same you can see then for the different products and services.
And 2 messages that we have been very clear about. I mean, do we have the right amount of services in our portfolio? And given that we have them, do we perform on them? Or do we just have a number of services that looks good? When I see the best, I mean, product and service and solution related companies, they don't have a super big portfolio here, but they are really, really good in driving penetration of the installed fleet.
And this is one of the areas that we are working together with. Then obviously, I mean, if you pull this, so market share matters. And therefore, we need also to see, okay, where can we grow? And market share matters when it comes to different type of segments also. You have a completely different picture when it looks at construction, mining or if you look at long haulage or if you look at the Tulip transport in the Netherlands or whatever.
So again, a number of things. And then, of course, bundled services that we do with connectivity like repair and maintenance contract, they are pulling the 2 things here. So from a perspective discussing the potential, there is a lot of interest in fact seeing this way of working actually. One of the favorite subjects among investors is obviously our different business areas and what is happening, etcetera. Just to be clear here, when you have a number of different business areas, maybe truck or nontruck, as I said from the start, everyone shall be benefiting from the fact that being part of the Volvo Group.
Otherwise, it doesn't matter. And otherwise, it's even worse. It is actually unfair, both through the brands that are benefiting or the business areas that are benefiting and the ones that are not. So we have a very clear, 2 very clear principles. Principle 1, every brand or business area or geography or product line or services shall deliver on their growth and profitability and volume targets based on its own merits.
And principle number 2, every brand pull and not push is responsible in a smart way to pull whatever is good for their business out from, so to speak, the group opportunities. If that is customer or dealers that we can combine in a smart way or if that is powertrain technology or electromobility or connectivity or knowledge and talent or brand, that's fine. But at the end of the day, I will look together with Jan and combined because there is no idea, I mean, why should it combined because there is no idea. I mean, why should it be part of it? I think that is the best way of reasoning instead of trying to explain, I mean, probably it could be good with this or that.
And I mean, let the different brands be clear on how can they use it. And that is the way we are working right now. Finally, coming back to the culture. I will just make a word on performance that is based on what I just said. This is how we are actually pruning the different type of portfolios right now.
We have a starting point that is clear for our business areas. We are in a way where we have it on regions and where we have it in some cases on countries. We have it on product lines when it comes to the main product lines, etcetera. But we are now continuing through our business areas and in their P and Ls to go through that on even more granular level. And what this will show is that I and management, we want to see on relevant levels how does it look like, Where actually green or is it gray?
It's just to match the suit here. That means that, okay, we have a good position, continue to develop, drive it, if it's profitable growth, penetration, whatever. But I mean, it is, so to speak, a decentralized responsibility. We don't need to be part of it, if I may put it like that. Yellow means that we want, on a certain level, organization to see action plans with high frequency execution coming through, meaning that it's on the observation list.
Either it could be that it's an early launch to see our volumes coming accordingly, as we have said. But because also in these cases, patients could be pretty limited. Or other long term drags, I would say, eventually, it will come, etcetera. And then, honestly speaking, there are a number of red dots that we know and we have been working on for a while. And I think you are aware of, as I said, for example, the medium duty in the UD platform.
I mean, it's not an exit, but it was a decision to exit it as an industrial platform for us and to bring in an OEM complementary. I think it's a great decision. The backhoe loaders and the graders, etcetera, are other examples where the probability and the motivation to really develop it was not there. It was not a business case. We couldn't see it.
We didn't have the platform. Exit it, sell it, whatever. And for the yellow, as I said, have a very clear time period when, so to speak, delivery shall come. So what we want to achieve? I hope I've been reasonably clear about that.
Clearly, the cheap and profit and loss responsibility for each brand and business area with this structure. And also not only brand because we are talking about big companies. Volvo Trucks is, as you know, I mean, well above SEK 100,000,000,000 in turnover. So I mean, that is a big company in itself. And that means that we'll continue to do that on regions and geographies and industrial footprints that we are really making from corporate to customer culture.
We are in a good way. We have a well received atmosphere in the company, more regionalized value chain approach. We have those investments, leverage on it to make a continuous improvement, increase simplicity and improve speed. So ladies and gentlemen, I was almost saying, dear friends, but it depends on the question. So I would say that at the final, I understand.
So thank you very much. So I think we open up with Q and A for that.
Claes from Citi. So you list 6 potential exits on one of the last slides. Could you, Martin, give us some color on the share of revenues? I mean, some companies in the sector such as Siemens, you're talking about €1,000,000,000 being sort of underperforming. If you could do that, would you?
No, I think it's a little bit early. It was more of a schematic where you're looking upon it actually. So no, I will not do that as we stand for the time being. It's more about the principle, how we are working with this, so to speak.
And just to clarify, was that a sort of unit when you said volume? Or was that in SEK? Just to clarify that.
It could be whatever, actually. But the There's no big difference. Yes. No, no. But the important thing is depending on what type of focus area we have, you can imagine this as being, for example, Volvo trucks.
And Volvo trucks are looking through the different markets or they are looking through their different applications for truck configurations. And then you get the picture like this. So I mean the good news about having the methodology and also have the same way of looking upon high performers and good decentralization, full steam ahead yellow, limited patience and red, exit. I think that is bringing a good culture in the company that we need now when we have more of a continuous improvement, transparency P and L focus in the organization. So it's more the methodology.
So this could be whatever level, so to speak, but we want to see the transparency, even customers eventually.
My next question is on cost. You said that you're positively surprised since you joined. How much of manufacturing right now delivers productivity in line with best in class? I mean, I know Ghent is doing quite well, Hvda as well up in Sweden. I mean, is it 20%?
And how quickly can we roll out fishbone module manufacturing in the rest?
No. But I think when it comes to to start with cost, it's a good enabler to share, so to speak, the same interfaces, way of working, etcetera. But when it comes to world class manufacturing, it's more the maturity level when it comes to our way of working in Volvo Production System. And also there, I have to say, and as you're indicating also, there is still a widespread. But definitely also, given the fact that the group has been going through an enormous amount of restructurings, closing, opening of new areas, both when it comes to the logistical part, the manufacturing part, the machining part.
I'm proud to see that we have a number of plants and also sub plants within the main plants that are on really, really high level, but still room for a lot of potential.
My final question is on this observation list. I know that all yellow circles are not on the observation list. But in terms of what kind of time line are you thinking here in terms of giving them a chance?
I think it depends a little bit on what type of dot you have there. Are you, for example, early in the product cycle? I mean, I can be clear. I mean, obviously, we have when it comes to the full Asian segment, for example, we have a number of products in the portfolio since we also have been conducting a number of acquisitions during the same period as we have been launching product, that we will have, I mean, maybe 1 year to see, okay, is this taking off for expected to go for a more focused F and D since we have some overlaps, for example. So it can be everything from 6, 7 months to depending on if you have a little bit more, it could be up to a couple of years maybe.
But the important thing is that it should be very clear what are we expecting and that also if you have a time line that is longer depending on the investment or whatever, that is not we will not read it after 2 years and say, okay, what happened. We will still continue to read it every 2nd week, whatever is necessary, because long term consists of many short term. Thank you.
Bjorn, Danske Bank. You sounds kind of very optimistic on potential in terms of profitability and growth looking ahead. But if you look backwards, how much do you think Evolva has underperformed versus its capacity versus its peers in the past?
I mean, this is a super difficult question given the fact that different companies entities have conducted completely different strategies of being where they are today, so to speak, since that has been a story of a lot of acquisitions. And everywhere things are standing on its own, so to speak, profitability and commercial merits, more focused on profitable growth than growth and organic growth rather than acquisition. I think we have reached a level where we have, so to speak, the size necessary to do almost whatever is good for our customers, so to speak. And we are also a size where also partners and other actors in the ecosystem are interested to work with us. So I think more about really focusing on what is the true potential of different parts rather than the whole part.
And if I and there also, I can see that as we also indicated in the beginning with the different colors on the performance of the truck portfolio, But that goes also when you really look through the Volvo Construction Equipment portfolio, we are doing the same thing with the different business lines and the positioning. Again, average is the mother or nothing. And therefore, we are really making sure that we're all in our market position, how can we grow it? Do we have the right profitability? Do we have the right scale?
Are we relevant in all different factors? And many parts have also during this period been performing at least on the same level as peers, and others have been a pretty substantial drag and that we will not continue to have.
And Jan, you target to be a leading player in terms of profitability in the industry. That goes by segment or that goes for the group as a whole?
Yes. I mean, eventually, I mean, if it goes by segment, it will go for the group as a whole as well.
Yes. But I mean, you have different segments versus competition. So someone are more lucky or less
Yes. I think what is important for us in the long run now is to continue to deliver on a number of very important parts to show investors and owners that we are credible in what we are saying. And I think to handle volatility for different regions, different regions in a good and consistent way is one of these things To make sure that we will not accept, so to speak, different business lines that are not performing is another one. And the third one that I also think is important, where we don't feel that there is a natural fit in the group given that specific area, whatever it is, it could be geography, product line, whatever, that we are also credible in saying this can be better or developed in another form, for example. So there are a number of things that only can be shown by action, so to speak.
But I think those are a number of things that are critical.
And last question on the Asian JVs. Is it possible to give some kind of the time line to when that's going to have a meaningful contribution on earnings?
No. I think if you look upon it as it stands today, obviously, for example, AIGO is a pretty, I mean, small operation in terms of top line, SEK 10,000,000,000 or something like that. But at the same time, the knowledge and understanding of what it takes really to be a relevant player to use the sourcing network from Bolivarke and also to carry back a number of components, I think, are even more relevant. When it comes to the markets in itself, I think China will be quicker given the fact that, as I said, logistic maturity is increasing. We today have a logistical cost of or logistical share of GDP that is approximately 18%, 18% for China, whereas in Europe, 9%, 10%.
So of course, they see that this is dragging their efficiency as a whole with a number of percentage points. So there, I think the shift will come and also given the fact that emission legislation, etcetera. So that will shift in a number of opportunities. And we have a strong position with the Df, Dongfeng commercial vehicle setup and also with complementing activity. But difficult to say the it's more that we keep the sweet spot for the different JVs during that development rather than try to push something that is not there, so to speak.
Hi, this is Martin Veka from Redburn. I have three questions, if I may. Firstly, on CapEx, you mentioned that CapEx is probably stabilized
in the
long run. But if I compare CapEx as a percentage of sales of Volvo versus Kamia, there's quite a big discrepancy. And I appreciate that Volvo is a much bigger company. But that said, Scania really only produces one truck, one product, while Volvo has quite a bit of a range. Is it really reasonable to say that CapEx should not go up as a percentage of sales from today's level?
No, I think what is important to say, I mean, not I mean, not commenting on competitors, etcetera. But what is reasonable to say, I mean, over a longer period of time, of course, it will be a little bit volatile depending where you're on the product life cycle, etcetera. But what you can see, I mean, given the fact that if you look at top line growth and unit growth, etcetera, we continue to have level as we have, it has no rationale whatsoever, in my opinion. And also when we are concentrating, as I said now, more on continuous improvement step by step development, both when it comes to the R and D portfolio, when it comes to new innovations that we are doing and we can use in the whole group and also with industrial footprint and the service networks that are well invested. I cannot see any reason why we should not get leverage out from that, so to speak.
And I think we have a very unified view in management and in the board as well.
Okay. The second question And that is also based by
yes, sorry. But the cost system, as I said. And therefore, I think also in the coming event, we should maybe deep dive that a little bit. But that is a very, very important factor that, I mean, so to speak, to share technology and common architecture will drive the opportunity to share what is not important, so to speak, for the customer from a brand or from a performance perspective, but it's still needed on a vehicle or on a unit and at the same time make the right type of brand uniqueness and differentiation.
Thank you. The second question on organic growth, I think the lack of organic volume growth of Volvo has been one of the biggest struggles. I think we've had 12 years of exactly 200,000 units outside of 2,009. And in the past, we've seen the renewal of the product range, etcetera, etcetera. What can you do from this point to finish this 12 years of 0 growth on the Volvo Trucks business in the volume terms?
First of all, when it comes to organic growth, I think there are 2 opportunities, as I said. I believe the number one important for me, a part and that is the service penetration. I think that has a very interesting upside for us when it comes to the volume growth. So it's not only a matter of unit focus, so to speak. With the 200,000 anyhow, we are well placed when it comes to scale and operational efficiency opportunities that are still untapped.
So I think for the time being, rather, I mean, if I prefer to see 5%, 6%, 7% growth, and I think we have opportunities to really look to it also. I mean, as I said, we have been losing out market shares for mainly our acquired brands, pretty stable on the Volvo side. Volvo Truck side, here, I think we have good opportunities to work with what we have, focus on our efforts more actually on the commercial activities, commercial drive organically than big CapEx investments or restructurings, for example. So there are absolutely room for improvements. And where we have had the more stable situation also from, so to speak, an organizational perspective, We have also been relatively gaining market share, like in Latin America, like in Australia, like in South Africa, whereas where we have had more of a turbulence, we have been a little bit refraining from the commercial focus.
And just very, very lastly, I kind of wanted to hear your view on the truck industry in the Western world in general. We have the average weight of a truck continues to increase. You said I think 2 or 3 years ago that it's not only the heavy duty segment that's taking share, it's also that within the heavy duty, the heavier and heavier trucks keep taking share. On top of that, we have consolidation of fleets. A lot of these drivers show us that possibly the developed markets should be fairly stagnant in the long term apart from the cyclical volatility there shouldn't really be any growth.
Is this something you would agree with? Or you still think there's going to be growth even in developed markets?
I think it depends on a number of factors, obviously. But I think you're on the right track when you're saying that, I mean, it's not only depending on the GDP development per seat. It's also linked together with what countries, regions are allowing for technical development, for example. I mean, if suddenly in Europe, we allow for 70 tons or longer trucks with higher volume capability, even if we are remaining because, as you know, 60%, 70% of the long haulage fleets are going to volume restrictions and not weight restrictions today. That will obviously make a lot of improvements when it comes to logistical efficiency.
Therefore, again, I think the ability for us to be to have a bigger or a more in-depth relation with our customers on the service side, up time focus, fuel efficiency coaching, connectivity. Where it matters, where we really can provide value, I think that has at least the same type of value. It will go even quicker, by the way, in my view in China, where, I mean, the market will not at all grow in relation to the at the same time, but the shift into more sophisticated equipment and solutions will come, as we said. And that is, of course, interesting for us. And that's the reason, again, why we are saying prosperity through Transport Solutions.
I mean, to have that as a value and capability with all our different brands, applications, specifications is the driver for us.
Graham Phillips from Jefferies. A couple of questions, please. Just first one on Renault. You talk about some of the potential for that to gain regain share. And we look clearly, it was a long time before we did have a model replacement come through.
But to get that from orange to green, and I know the 'fourteen to 'fifteen was still deep orange, so it's obviously still unsatisfactory, what sort of share do you need to get back to in that business?
I think, as I said, one of the key drivers now for Bruno Blanc, who is heading Renault and his team, and we have been working on that is obviously to see where do we have the right potential also on country level and on segment level. So as we have said also in recent months and in terms we have decided to exit markets where we have too low volumes and it's really putting only a drag. When it comes to the core markets, I think we have a position that can make, so to speak, the brand sustainable, profitable. But given that, there is also an upside in many of Southern and Eastern Europe, North Africa and also in selected countries in the Middle East where Renault and also together with the sister brand of Renault Kors is extremely appreciated. So I'm not too worried about the critical mass of the volume.
It's really that we are getting back together on the regional focus that we have and also that we are even more maybe for renewal really working with continuous improvements on the product portfolio now with a strong platform that we have rather than loading it with unnecessary R and D and other technology, for example, to meet the customer base that they traditionally have and will be succeeding in.
Yes, I guess I was meaning within Europe. So you can get it from orange to green in Europe without having to get any more share. I mean, for instance, in France, I think the market share from a high 40s to something in the 20s today. I mean, you don't have to get back to that 40 odd percent to get it into green.
No. But at the same time, I think it's fair to say that we are I think we are today just to be a little bit more exact than 28 And as you said, it was not the high 40s maybe. But maybe if you put together, Berly and Xavier, I mean, everything once upon a time in the glory days. But maybe, I mean, from the high 30s to and we were down to 25 or something. And I think to regain in France, we have a strong network, strong presence.
We had a medium duty rate complementing, etcetera. To start with, the 3, I think, is more than reasonable, and that we can do also in a profitable way, so to speak, so we are not buying shares. Okay.
And second question is on the slide where you had the untapped service potential. And one of the ones that showed the biggest upside was workshop. But of course, you don't always own the dealers. And I can obviously contrast with your previous employer where you do earn a lot more of the dealerships. I mean, is there anything envisaged in terms of changing the ownership to either own more dealers or to combine more dealers So that actually you can capture some of that rather than leaving it to a 3rd party to gain that benefit.
I think, yes, I mean, obviously, when it comes to European system, I think we are done mainly then for Volvo Trucks, for example, not that far away from the integration level, etcetera, given the fact that we are operating in many of the bigger urban areas with our truck centers. But I think the main thing here is really that personally, I mean, I have no specific preference as long as we see that our dealers are performing because even if we are not owning, we have, with our private investors a very good presence, customer loyalty, this is driving ports, this is driving other type of activity. So from that perspective, I think we are very pragmatic what is right for each area. And still, the main issue for me is that we have 2 big volatility between good and low performance, both on the private side, if I may say so, and in the captive side. So that is more of a priority than really to maybe acquire.
But if a bird flies by, I mean, we are always willing to do that.
And I guess final question is, we've heard a lot today about the opportunities within sort of the markets and the operations of the company. Can you think a little bit about the structure of the company and clearly sort of addressing perhaps some of the concerns investors have had over the years about the cyclicality in Volvo's earnings, which obviously come from partly exposed to truck, but also construction equipment and so on. And the rating agencies, I think, again, have similar concerns why your credit rating is so low. Have you thought about the structure of the company and what might improve investor sentiment around those particular issues?
No, I think, first of all, the proof, obviously, in the pudding is to continue to deliver. And I think we have now since 5 4, 5 quarters, I mean, more visibility in, so to speak, the measures we are taking and how we are doing it. Services, coming back to that, is one very important factor for me when it comes to the resilience to meet volatility in units. I think we can be even better in using, as I said, the regional value chains to make handshakes in the organization about what matters in Latin America rather than the industrial system must go up to Sweden to take your measures, and the commercial system must go up. We do the handshake up here to have much clearer decentralization.
And they have to manage that locally, regional volatility, for example. So services, regional value chains and obviously, also that we are not how should I put this to be clear enough that we are not investing for final volumes. If we are doing something, I have seen a trend that we have been building the business cases on volumes that should be, so to speak, sort of the end phase. If we believe in 20,000 units, we invest from the sort of 20,000 units rather than to go with the system with a little bit higher variable costs but lower investment levels. And when the market are maturing and when we have the right level of market acceptance, then we go for a more full fledged industrial situation, for example.
So there are a number of measures that we are doing. And I think also that I showed this very schematic side of operational portfolio on strategic level. And I think also on governance wise, we have been pretty clear on where are different questions belonging in the company. So not we are losing not we are losing out flexibility and speed, so to speak, not at least when it comes to short term and cyclicality. And one thing there, sorry, because there's many different things, that is also that in correction in markets where corrections are needed, it could, for a shorter time, be better to be a little bit more brutal on the brake, maybe lose 1 percentage point, very short term, but not ending up with a situation that will attempt to give you a lot of attention over unsold stock or whatever.
So I think have the right focus on market share and growth, but not to the expense of being afraid of taking the right measures when the market is changing.
Thank you.
I don't know if that was clear, but
Thank you. Jose, JPMorgan. Just a couple of items, please. Can you give us an update, please, on how far you rolled out by region or by brand the common engines, transmissions and chassis structures?
Yes. Generally speaking, I mean, this is, of course, different levels of, I mean, commonality. When you say chassis, for example, it is really not on chassis level, it's more on component and system level. But you can say that, obviously, in Europe, we are pretty far reached on powertrain and the full powertrain still, so to speak, with the specific requirements for the different brands. We have good traction, as you know, also in North Latin America, we have only one brand.
And in North America, we are on good track with the powertrain. And then also given, so to speak, the nature of the different segments for the 2 brands, it's not that much of a commonality when it comes to other components. But really on powertrain, good traction, and not at least lately than on the AMT or the M drive for Mac. Then when it comes to the Japanese, we have taken a number of steps now also when we are actually upgrading the heavy duty platform step by step. So I think generally and then overseas markets is really based from the Volvo trucks in Europe.
So pretty much platforms are there, but now it's about, I mean, refining and continuous improvement on that.
Two follow ups. Can you give us some sense of where you see CapEx to D and A over the next 3 years for the business? And also, if you could come back again on the rationale for Renault and Mac brands in Africa and Oceania as well as M. A. C.
In LatAm, please?
Yes. I think obviously, when it comes to CapEx, I think I've been pretty clear on the indication where we are heading, and I will not be more specific on that. I prefer deliveries first. But when it comes then to the relevance of the different brands, I think, again, as you are pointing out and as I showed again then on this slide, depending on if you take, for example, Mackin in Latin America, you have a number of markets where you can really leverage from the definition that you have in North America and in Canada and in Mexico, etcetera. And even if there are pretty small volumes, I mean, with the right structure, you can put it up.
So it depends really on where you are. But it's too old so that there are a number of market areas where we will continue the pruning for different brands, including model trucks also in some cases.
All right. Anders Trapp, SEB. I have a question that is more near term actually, full term oriented. Of course, I mean, we've been meeting a lot of customers in the last year. I guess you know them pretty well.
So what you Brexit thing in Europe? Will everyone just postpone their investments for half a year? Or what do you think is going to happen?
No, I think we will see probably some short term reactions, and that depends also what type of I mean, what sector you're into, what type of contracts you are having. And I mean, if you're already retail in France, I mean, you will continue and work with, I mean, the freight renewals. But if you have some sort of relation with markets that can be affected, I think we will see. And that has been a change for me during my years in the industry that with the transparency we have now, you can almost see it directly on different sectors in the 1 week after or something. So it can be something, but I don't think that will have a big lasting effect actually.
It will be more about long term or mid term consequences about the psychological effect of GDP development in Europe, basically. But I think we will see some hicks in the curves now because uncertainties have a good and obviously, in Europe, that has been ticking pretty well now. And that can but let's see. We will see some ticks related to some segments, I think.
Looking on the other side of the Atlantic, orders have been sort of pretty poor in the industry for a while. There's high inventories in dealers, although they are declining. When do you think the order cycle will leave these extremely low levels?
I think as always, when you have a correction downwards, it tends take a little bit longer time to clean out stocks and inventories and get the right balance. And at the start of this year, we're talking about until late summer, beginning of the fall. But our view maybe is that it will take this year to clean it out in a good way. And what we are concentrating on, obviously, you can get the question, we have our current forecast. We have the quarter 2 reporting now in a couple of weeks, around 250,000 dollars for the retail shipments.
And I just see that other guys are hovering around the same figures, a little bit lower, a little bit higher. The interesting part now is really to manage, as you say, the balance between inventory production and retail sales, I think. And so far, so good. We are taking down Volvo, another step now during vacation, but because we are firm on showing that we can manage in a good way volatility. That is the number one priority for us.
All
right. And then moving over to Asia. You said you are sort of carving out unit trucks a bit to measure it very carefully. It's not been doing really well since the acquisition a number of years ago. Is there sort of it's completely unthinkable that you actually might divest Utitrux if you if it continues to disappoint year after year?
No, I think, again, coming back to what we said here, nothing is unthinkable because then suddenly this side is becoming only theory. What we see now with the measures we have been taking, that we are taking for the time being and also activities that we have in pipeline gives us confidence that we will see improvement. But they must go through in a good way. We must make sure that they are sustainable. The carve out is primarily made to make sure that we have a value or we have a value chain that is really directed mainly to Japan for what we are carving out and an even stronger, so to speak, pull from them what they can use and have that clear, so to speak, interface with the rest of the group and with some selected export markets.
And that is exactly what we're working with now in the business spend for Utitrucks. And again, I mean, every brand, every business area must, in a reasonable term, deliver on its own merits.
Thanks. Mike Rauch, Kepler Cheuvreux. Hi. I think the plan you introduced today is, from my standpoint fairly congruent with what I think a player in your industry is going to need in the next 10 years. But most of the information you've given us has been just qualitative in its nature.
So at what stage are you going to give us more quantitative information or I guess what I'm more looking for is any type of information that tells us to what extent is going to cash drive down the cost per unit relative to today's status quo and so forth, please?
Yes. I think in the name of credibility, I think we have to do that. 1st and foremost, I would prefer to do that through our normal reportings to see that things are continuing in a trend that we are expecting and that we are focusing on. And also, by giving this type of information that we did today and follow-up later on also on other type of events, of course, in the name of transparency and credibility, this is, of course, very important. So absolutely.
And
what would be the time frame roughly we should be looking for from today on?
Any rough indication?
Let's see. I mean, I think, again, as I said, I mean, already during our normal quarter reportings, I think we are step by step also increasing transparency on what we're doing because it's important for us vis a vis our owners and investors that people feel confident about what we are doing, what are the consequences of those actions and what is it bringing short term, but even more important also for the mid- and long term and the direction of it. So that is important for us also to be credible.
Hi, this is Nikhil from JPMorgan. I just have one question. Your number one strategic priority is to regain market share. I was wondering because Daimler had a Trucks Capital Market Day recently, they all spoke a lot about market share. Are we going into an environment where pricing is going to be a lot tough, where 2 major players are going to fight for market share?
Do you think so?
I mean, first of all, I think it's very important to have a clear strategy where and why and what segments and how does it look like. As I said, I mean, when it comes to regaining market share and position for our 3, if I may put it, probably some historically acquired brands, I think we have room for improvements given also our historical level in customer base and really focus on what we have. The biggest upside for us is not, I mean, regaining market share in a quick pace that will erode price position because then we will not gain anything anyhow, so to speak. So we don't feel that it's a quick fix. We think it's a focused activity.
All brands as they stand right now have the opportunity, as I got your question before, also to turn, I mean, from low to medium and to high performing. But I mean, in selected segments to add volumes with focus, I think, is full possibility. But we are not searching to do that in the broad scale in that sense.
Hi, again, Mike Raab, Kepler Cheuvreux. Perhaps getting back on your technological architecture strategy, just to make sure I'm getting this right, cast is just in reference to heavy duty product? Or would that also partially or perhaps fully comprise medium duty?
Yes. It is you can say that cost system of the company, of our size and of our width, so to speak, or the product range, it is a number of interfaces that could be common across. For example, overlapping structure when it comes to the Android platforms, where you can have the same interfaces and use the same components. But there are a number of parts of vehicle platform where you need to have it more specialized for medium or heavy duty. But in fact, it will be a combination.
But the thinking, the strategy and the way working will be the same for medium duty as for heavy duty and for other business areas where it makes sense, obviously.
And the architectures for emerging markets would be different though? Because you need to be more price competitive there I presume.
I would say the technology content will be different, but not necessarily the architecture because as long as you can keep the same dimensional interfaces, you can also more conveniently upgrade different type of components as the market is maturing. So what we are trying or not only trying, what we are doing because we can decide that, is that we are pretty firm on the interfaces because it makes sense. It doesn't cost anything. The interfaces, they are just measures on different dimensions in space. But between those interfaces, you should be able to use the right technology level and sources in the right place depending on what type of applications and brand you are talking about.
Thank you.
Johnson Unload from Bloomberg. Just wondering if you could talk about Iran and any potential opportunities that you see there. And have you restarted the JV you had there?
1st of all, we didn't have a JV, but we had a partner that had substantial operation for us when it comes to production. And obviously, as all other companies, we have intensive discussions on how to restart also given the relief of the sanctions and the opportunities that will come into the Iranian market. We have, both for Volvo and Renault, traditionally very strong positions, both on the truck and bus side and also Construction Equipment. And still, the market is very slow due to, so to speak, drain in the financial systems, etcetera. But this will be an interesting opportunity as we move forward.
And we have both strong networks and industrial presence when needed, so to speak.
Thank you.
Good afternoon, Martin. Hello. Sorry, it's Justin Bracken from Sanford Bernstein. I have three questions, if I may. First question is around CapEx and operational excellence.
You mentioned sorry, scale and operational excellence. You mentioned at the beginning of the talk that scale was very misunderstood in your perspective by the investor community and the analyst community. And then you've also mentioned during this talk that operational excellence is very important to Volvo going forward. Could you talk about how you're going to convince the investor community that Volvo will be able to deliver profitable growth versus the previous 5, 10 years of less profitable growth? And why scale isn't as important in certain areas, but why operational excellence really is?
Yes. First of all, how I and my team and all our employees can convince the investors and the owners is that we are delivering good results over time and that we're doing also I mean, with a clear visibility on why and how. And I think we have been disclosing a number of the backbones we believe in. When I say that scale is an overrated, it is that what I mean about that, and I'm a little bit on a mission here, is that scale in the wrong context can actually lead to the wrong type of conclusions of what you shall do. Normally, you look upon scale as doing a lot of things, but the relevant scale is doing a lot of same things.
And then you should be very clear about what same things that you can do without, so to speak, hurting the opportunity of tailor make or really leveraging different brands, positions, application segments or whatever. And I think, therefore and also when it comes to scale, it depends on where you are in the value chain, what is, so to speak, the different opportunities you have. One of the most important parts of scale of critical mass for me is knowledge and knowledge sharing in some of the critical areas. There you can gain a lot. There are obviously a number of things that is bringing scales but on different type of multiples.
So if you have, for example, an engine line, when you're running it 3 shifts, you're running 3 shifts, so to speak. And then the next step is to add another one. And I think given the restructures we have done now, we have a footprint that we can where we can host a lot of increases when they are coming, service hours, more units. But also when it comes to operational excellence, to really continue to work on the continuous improvements of quality on day to day basis, better involvement of people, the delivery positions, more less urgent chippings and really have the focus on the ball that we are delivering. So our salespeople and our mechanics out there meeting the customer can stand with a nose to the customers and feeling that they have a full fledged system that is delivering every minute on their promise.
We discussed that last week. We had a very good, so to speak, start off with the business plan and activities. And we said, I mean, excelling on the basics will still make us unique.
And a follow-up on operational excellence, sorry, if I may. Having been to the last two Capital Markets Days, both in Sweden and in Belgium, I was struck by the difference and the different level of quality between the 2 production sites. One being from my point of view a little bit more streamlined than the other, whereas they both produce very similar trucks. So how much of the operational excellence really leads to increased integration between the different brands across Volvo because I don't think that has been evident, at least from speaking to the investor community, in the last few years.
No, I think when it comes to the base as such, for example, if you start with, for example, final assembly, there I think the work with Volvo Production System, the sequence, how do you actually deploy best practices coming from the different plants, from different real realities, so to speak. There is very good potential. We see good traction in that. And you're absolutely right that there is still a difference, obviously, between the different plants. I think that gap is getting closer.
So we see traction as that there is a culture also embracing opportunities to learn from each other, which is great. I think also in all fairness that depending on what plant we are talking about, they have been undertaking a number of pretty big changes. And now when we are more or less, because it's always happening, something in a big industrial system that we have, through the big restructurings to get everyone to really focus on continuous improvement, teamwork, take ownership of your workstations, the flow thinking, not at least also in the logistical systems, both when it comes to vehicle logistics part logistics is a great potential. But the learning factor between factories is a very important part of that. So I fully agree on that.
And my last question actually plays into the last two answers you've given around culture of the company. You mentioned that's a very big important change for you that you want to make happen. How much of a challenge will it be? And how long will it take to change that culture for you? And how much similar to Scania will Volvo end up being?
No. But I think it's unfair to Volvo to always have a comparison like that because we have so many great assets that but what I think is really important, if you the closer to customer you come, the more, I mean, the same it is. It's a matter of size, etcetera. And that's the reason why I say that important for me as leader and with my management team is really to make sure that we are given the ability for the different units to stand on their own merits when it comes to P and L and the development and taking decisions and agility and create that part of the culture. What we have said is that when it comes to the corporate clock, so to speak, we have 1 week per month and we are doing the more, I mean, if I may say, so bigger meetings that have company impact.
So we do that. So we can release that other 3 weeks to be out and talk to people what we need, how do we release the energy and how do we make sure that we are conducting the change because you can never implement culture, your own culture, because everyone's working for Volvo or any other company, they will decide in their own head if they like what they see and if they are given that extra mile, etcetera. So that will be a never ending story. But the good news is that we have very good traction about the values, the operating model, how we should do this together. And also, with a big respect for what has been done the last 3, 4 years also, I think that is very important for me to be clear upon that it's not right or wrong.
It's depending on different stages in the company's timing, so to speak.
But I'm right in saying that you're moving the company from a technical and operational focus to more of a customer and profitability focus, and that would take a little time to do.
Yes. More customer, but I will say that also operational. I think we have done a lot of things in the company to feel the pulse in the whole company regarding, for example, deliveries, lead time, delivery position, quality levels, having the same, so to speak, targets customers into the company. Obviously, we don't do that in 8 months, but we have a good atmosphere, and we have a fighting spirit.
Thank you very much.
Graham Phillips from Jefferies again. A follow-up question on the potential service untapped potential in the services area. Can you talk a little bit about the technology head you have on the board now and what connectivity could bring? I guess it's part of the 10% other that's part of the pie chart, very small today. How big could it be?
And will it be profitable? Will customers expect to get it for nothing or for small cost? And will you be able to make a decent sort of margin better than traditional manufacturing?
Yes. I think this is obviously one of the core areas that we are working with. And when you have an area like connectivity, obviously, you will have, so to speak, the connectivity as an enabler and really making sure for what type of services you're using it for. 1, of the services that we are seeing already today appreciated by customers, so obviously, so to speak, the information we are giving to them in different steps based on that they are buying. And we have a basic package that you're, so to speak, getting together with the truck.
But we also have a pretty good upgrade frequency on more advanced type of information. So that is one part of the connectivity, what you're having direct with the customer in terms of better information. Will that be big revenues? Yes, I think so moving forward because people will get used to it and will have that as one of the supply sources. But even more important, as you were into, is also that the connectivity will drive better efficiency for us to serve the customers when it comes to the more normal services that we already today are delivering, like the repair and maintenance contracts, where we are also seeing that with connectivity, we get better performance, both for the customers and for ourselves.
We can preplan better what is happening, how does it look like. We can do remote diagnostics and thereby also minimize the turnaround time for customers. We see it also when it comes to the operational performance of our finance portfolio or insurance portfolio, where we're more tailor made, can make offerings. So you don't have to pay the average insurance, for example, but on your own behavior. And we see it also for other type of more advanced contracts like uptime services, where our U.
S. Operations, both for Mack and Volvo, is actually leading that. We have a newly inaugurated uptime center that is, I think, industry leading for the time being on that. So connectivity, definitely, we have the base. 1 of the abilities we need to improve, as I said, it's not only the we have data, so we can manage it for the coming many years.
But really, how do we have good analytics and make, so to speak, actionable services out of it so that counts for the customers. So that we are working a lot today. And that is a typical area where we have group ability actually because the same demands are coming in for penta and for buses and for construction equipment, for example.
What proportion of customers are taking the next level up in terms of on time service or real time connectivity? Because you get the basic package free with the truck, but then what you're saying?
Yes. It depends really on it could be in many, many different sectors and also a little bit on the maturity level of that specific company or if they have other type of measurements. But I should say, generally speaking, it's I think the biggest taker today is really the midsized fleets that have the same thing. We don't want to have our own backbone because many of the really big fleets, they already have some sort of captive backbone where they are following it and maybe are using some of our connectivity data to plug into there. So we need also to have that open interface also.
But really taking that upgrade is many of the midsized fleets and then some sectors, obviously, also like mining, for example. But I think that we will see that more and more because if you think about the potential, when we really go through and do a Dynafly Dynaflyte study, for example, and additional training and a specific tailor made package, Often, we can see results of 4%, 5%, 6% of fuel savings. And when it comes to engine development, that will take 4%, 5%, 6 years to do, so to speak. So there is a great upside, and our ability to show that value to the customers will continue to be important. Another part that we have seen is also, given the connectivity we can also follow, is there something, so to speak, also to do on the tuning of the full specification for the next truck, should they have other type of rear axle ratio because we can follow exactly how it looks like.
So great potential. But again, to focus also, to not have too many, we can do this and this and this and then have 0.5% penetration. I mean, then it's useless for everyone. So we need to get traction also in the penetration.
Hi. Again, Mike Roth, Kepler Cheuvreux. We had some news flow overnight coming out of China that apparently local politicians are currently contemplating to lift the 50% ownership cap for foreign manufacturers in vehicle producing operations. Is that from your standpoint an opportunity mid to long term or perhaps even short term to step up your stake in the joint venture locally?
I mean, generally speaking, we think it's always good when you don't have caps. I mean, no, I mean, that is all I mean, we are, as a global company, the better maneuverability all partners have to actually base the relations based on commercial and partnership marriage is better. So I mean, yes, that is always good if you're lifting restrictions. At the same time, when it comes to joint ventures, my firm belief is that it is it must all anyhow, even if you have 40%, 50%, 60%, 70%, we have as you know, we have a majority stake in SDFG. On Construction Equipment side.
We have minority stakes in the 2 truck JVs where we deliberately went down by selling the shares in the mother company, Wijer. Because at the end of the day, if it doesn't bring enough value to the different partners, it will not work anyhow. So I think the most important for us to concentrate what are the different competencies and values the different partners can bring to the table. But obviously, if restrictions are lifted, it is giving a bit better maneuverability moving forward. Okay.
Let's go for take coffee or whatever you like, guys. I think you have been brave to be standing and sitting and listening so, so long. So thank you very much for coming. See you next time. Thank you.
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