Okay. From my side as well, a warm welcome, and it's really good to see you all here that you're taking your time and come and visit us here at Ghent for this Capital Market Day. And the theme for today is closing the gap. And what we will try to do today is, of course, to talk to you, show you what we are doing and where we stand in closing the gap. And when we talk about closing the gap, it is, of course, to present a gap to reach our target.
And the way we plan to do that is actually to let you have the time for once compared to a quarterly report or something to drill down in 1 or 2 more distinct areas. And the first area you're going to experience today is within the group track operations, where Mikael will come in and talk about the overall plans and the overall program that he's running on a global scale. Then Olivier Vidal will come up and will talk about what we're doing more in detail on the European scale. And then finally, really, Pedal Gogic, you will then see Kamel coming up, who is the plant manager here in Ghent. And then you can walk out yourself and plan to see that we're actually walking the talk and what we described is also in reality.
After lunch, we will then come back and talk about group truck sales, and Joakim Rosselsenberg will present group truck sales. And the reason we have shown group truck sales is because that's the organization in the group this year that is facing the larger changes with the creation, as you remember, from 1st January with the group truck sales. Then Martijn Weisberg will come and discuss with you about VC, showing both, of course, the operational issues that we are facing, but also a little bit more strategic and long term issues that we have and activities we have within the VC. And then Christa has been kind enough to let me come up at the end and do a little bit of a wrap up as well where I will talk about some messages as well. And if we look at the not only the focus of today, but also the target, really what we would like as a team to convey to you and transmit to you is actually our confidence in all the activities that we're doing and that those activities are leading towards the target that we have set up.
And we will do that by addressing the fundamentals, and that is the asset that we have. It is, of course, the rightsizing project and rightsizing program we are going through. But it's also all the activities and achievements and not to the least. I will come back to you also talk about something I believe is extremely important in a transformation like this, and that is the culture, the culture of the company, and I will come back to that as well. We will also talk about the life after 2015, and that is what will our focus be after the SEK 10,000,000,000 program and have a discussion around that.
And if you look at the SEK10 billion program and you put yourself in a little bit of a helicopter view and looking at what is really and what impact does the €10,000,000,000 program have on the company. You will find that this is a rather general cost reduction program. It means that we lowered the cost base in the whole company on a general and overall basis. We are going through IS and IT costs across the company. We're going through R and D across the company.
We're going through administration costs across the company. And that means, of course, that we're creating a competitive cost base, but it also means that impact on the different BAs, brands and regions are proportionally improving based on the €10,000,000,000 program. And this is something that has had a major impact on this company. This program is touching every one of the 110,000 employees we have in the group. But we are coming to an end of it in 2015.
And we need, of course, to look at how should we then focus going forward to continue our profitability journey after the €10,000,000,000 program because that will give us a competitive cost base, but of course, the journey doesn't end at. And how do we do that? Well, we do that by gradually shifting our focus from a general cost reduction program into a much more targeted and selective activities to address specific improvement performance priorities. And on this slide, you can see now our review on how we perform in the different BAs, in the different regions and in different brands. And this map will be then the guiding star going forward for us to allocate resources, activities and of course then action and measures in order to make sure that we increase and thereby also focus on the areas where we need to have the right profitability because this will be then the focus going forward.
And how do we do that? Well, we will step by step now aligning our strategies, both when it comes to the commercial strategies, when it comes to industrial and when it comes to the product strategies. We will, of course, also now step by step aligning our governance. Because if you look at what we did over the last 3 years, it was very much going from a decentralized matrix organization, And we actually broke that in part in a very hefty move into a centralized functional organization. And what we're trying to do now, and that resulted in a €10,000,000,000 program, we try to move the pendulum now to get into and focus on those areas.
And we definitely see this as a next step in our profitability journey. And internally, we call it greenification journey. That means that step by step, we're going to address the issues. And step by step, we're going to allocate resource and activities to create a more green map than what we have today. And this is the starting point then, the full year 2014.
Now I will not go into detail on this. Michael will come back to it, Joakim will come back to it and also Marti will come back to it. And if that's not enough, I'm going to come back to it as well at the back end when I do the summary. With so much for introduction, I think it's time now to start to have a couple of hours group truck operations journey. And I think the best way of starting that is to welcome Mikael on board or on stage.
He is on board, but on stage to present that. Mikael? Thank you, Olof.
Let me also welcome you here to Ghent. This is one of the major sites within group truck operation. We host both cab and vehicle and logistic services here. I hope you will enjoy the day. Last time I met you in this format, it was in 2013, and I spent a lot of time talking about the opportunities we saw within group truck operation and a lot of ideas that we were launching at the time.
Today, my focus will be to tell you what we have done, but also give you a little bit of a glimpse on what we believe the opportunities are also beyond 2015 and coming back to Olof's chart here, how we can be more surgical in our approach going forward. And I will give you the overview, the global activity level. And then as you heard, we will then dive into the details with Olivier and Camel. But before I go there, let me just give you a little bit of a framing of what is a group truck operation and what we are doing here. We have global modern and well invested footprint.
We are around 34,000 people in 43 plants and 54 logistical centers around the globe. This is a footprint that is a legacy footprint coming down from the 8 different organization that came into group track operation in the organization. It's the BAs, the brand oriented BAs and also the support business unit functions. And this is the footprint we have been working with and we see great opportunities to improve this footprint. We have responsibility that stretches throughout the group.
We, of course, have the cabin vehicle manufacturing for the group trucks, but we're also supporting the other business areas when it comes to captive engines and transmissions aftermarket and logistics, reman. And we also now since first off, January have the purchasing organization with us within group truck operation. We're hosting 2 group functions, Volvo Production System, our lean concept and then we also have health and safety with us here. And I would say that group truck operation is designed here now to really capture the synergies throughout the industrial footprint and within the logistical area as well. So where are we heading then as industrial division?
As I said, we started with a situation where we had 8 different organizations coming in that was brand oriented. I would say also the total setup was very European centric. We had also very uneven performance. I think I've shown you the slide where we have a big gap between the best performing site and the worst performing sites. And we were very, I would say, hardware driven in order to solve our productivity issues.
We are now moving away from that and releasing, I would say, the synergies that has been unlocked with this new organization. We are going for a common setup where we really can leverage on the best practice in a completely different way. And I will come back to how we actually are doing that later on in my presentation. And really, I would say, having the worst performing sites catching up significantly to the best practice levels we have here. So we are on a way to create now a global system, global industrial system in order to optimize quality, lead time and our cost efficiency.
Our main focus is on fixed and variable costs. And a large part of my presentation today is really focused around the cost efficiency. But to get a truly efficient machinery in place here, we need, of course, also to secure quality and lead time in our total supply chain. So it's a complete package, but focus is truly on the cost efficiency side because that's where we are lagging behind. When we started this journey, we addressed it through the fixed and variable, where the fixed cost is about 40%, our total cost, and we have the variable on 60%.
And then 3 building blocks: manufacturing cost, meaning our conversion cost and then our logistic cost and then also the purchasing side. Purchased material is around 70% our total cost base for our products. So it's a significant contributor in this equation as well. And that you see also is on the variable cost side here. The structural issues are addressed through a number of, I would say, major projects around the globe.
And I will come into that later on in my presentation in describing some of them. And some of them, you will see in great detail here later on today because it's, of course, both on the total footprint, but also inside the different sites where we're talking plant layouts, etcetera. With that program that we have been running now since 2003, we are really seeing starting to see good results coming out of this. I will also say that flexibility is a critical point for us as we move forward here to really make sure that we can utilize our resources in a much more efficient way, coping with the swings in the market, but also coping with the mix of our products in a good way. And here we have had situations where we have had excess capacity in one end of our supply chain and we have had under capacity in other areas and not been able to move that around and that we are seeing now that we are getting closer to get solved.
I will also say that a very important part in our transformation is to create a continuous improvement culture. As I said, we come from a situation where we were very much hardware driven in solving our productivity issues. With continuous improvement culture, we can do much more with much less, and I will come back to that as well. As I already said, the cost reduction activities that we are driving across the different functions are tracking and are showing results, and we are delivering on it. I would say that no stone has been untouched in this journey, and we have used all the different tools in the toolbox, everything from plant closures, renegotiations, canceling suppliers, canceling other type of arrangement that we've had in the past, securing that all options are evaluated and we have no holy cows in the total structure here.
So everything has been reviewed and assessed from the start to the end here. On the manufacturing side, you can see here that we have closed 8 different plants. 2 has also been outsourced. We have also new setup to support our growing markets in Asia. So 2 new plants has been installed in the growth markets during this time period.
Continuous improvements, of course. We have, on the logistical side, seen a similar pattern where a lot of footprint changes has been made and also they're driving continuous improvement in a completely different way than what we have seen in the past. On the purchasing side, I have to admit that we were laid out of the starting blocks there. We started to gear up traction during 2013. And then in 2014, it has really taken off.
And also here, we have installed a complete new toolbox. And we are, I would say, going into 2015 with a high speed in terms of capturing synergies also within the purchasing area. So very clear evidence of progress, I would say, when we look through the different areas. We addressed it with structural changes to capture opportunities within the fixed cost area. And that is what I'm going to show here, where we are restructuring our total footprint.
And everything on this slide here is in progress of being implemented and will be implemented by the end of the year. As I said, all the tools in the toolbox have been used, and we have closed a number of sites. We have, for example, closed a powertrain site in Spain. We have closed our CKD activities in the U. S.
And moved that back into the mother plants of, in this case, the Makanji. So it was finished during the autumn here. We have, on the distribution side, rearranged our both European and U. S. Footprint, where we have closed 3 distribution centers in the U.
S. And we are closing the distribution center in Gothenburg. We have also closed and changed the scope of the reman footprint and consolidated into the remaining site. Big changes in Japan, and I will come back to that because I will give you a more detailed view on what is happening in Japan. Within the major part of our sites, we have made a lot of changes.
As I said, you will see some examples here in Geth, but also in other sites, for example, within the powertrain production, we have done completely changed internal footprint. I would dare to say that no site has been untouched either. We have, for example, both in Chovde and Hauges Town implemented a new straight flow when it comes to final assembly, and we see great productivity gains in that. In Chvde, for example, we are doing the same amount of assembly activities with close to 200 people less and that is implemented. And we also have had opportunity then, for example, in Hagerstown to do the similar exercise, and we have then also in sourced some activities there and by that also gained further productivity by doing that.
So major major changes inside the respective plants and you will see physical evidence of what have happened here in Ghent, for example, later on here. We have also outsourced some activities, I would say, especially within the logistical area, where we have outsourced crosstalk and packaging both in Ghent, Gothenburg, Broshlav and also in Lyon. And they are 2 of them is concluded and 2 of them is in the progress of being finalized now during next coming months. We have also outsourced some of our activities in Japan, but I will also cover that later on. We are looking into Venezuela and Uruguay, see how we can optimize that setup.
We have not come to a conclusion there yet, but we are working with some scenarios here that will pan out during the rest of the year. And then we have, as I mentioned, 2 new plants supporting our value segment in growth markets. And we also have a new concentrated central warehouse in the U. S. Where we have co located a number of activities.
So when you go through our global footprint, you can see here that no site has been untouched. It's either closures, outsourcing or rearranged scope with footprint changes. So a massive change for all our colleagues in the total group truck operation here. And I would say, especially in Japan, where we have now been changing the Japan setup for the last 2 years, and it's about to come to a closure during this year. We are concentrating our different activities into 2 main sites.
It's of course Aguiyo, where we have our cabin vehicle assembly and it's Gunma, where we have our distribution center. You see here on the slide that I'm mentioning 10 sites consolidating into these 2. But if we count all, even the smaller ones, it's actually 22 locations across Japan that we have exited. Some of them, of course, very small, but still it has been a building and a few people working there. So that has been also an opportunity for us to exit lease contracts, divesting real estate, etcetera.
So a huge reduction of location across the total Japan. We have also divested one of our major sites, Kunoso, our foundry, where we managed to get out of that site by actually divesting it to a third party that is now taking over that operation and filling that with other needs from that particular company. And one is about to be closed here. So all in all, with the changes and also the closure and divestment of some of our smaller non core activities. We have reduced the staff within group truck operation with 50%, meaning 1500 people, both blue and white color throughout this journey.
So by the end of this year, it's a closed case in Japan here. And we are now set for the needed volumes in Japan going forward. So a true rightsizing activity. Continuous improvement, I mentioned it few times already, and it will be growing in importance for us as we move forward. We have been working with continuous improvements and the Volvo Production System, meaning our lean concept in the Volvo Group for some time.
We have some areas that are really well advanced. But we have also sites, and I would say, quite a few sites within group truck operation that has not really taken on this way of working. And that is we are we changing on right now. And you see on this graph
3
targets, you could say, where we are setting ourselves the challenge to have a certain number of implemented IDs per year. For this year, we have 300,000. And of course, it's not the number in itself that is important. It is what it consists of, the ideas that are implemented. But it is really to drive the organization to get into this new way of working.
And a world class organization or around 20 implemented IDs for blue color and around 8 to 10, I would say, on the white color side. And that's what we are reaching for. And this is the journey that we are on right now. And so far, we have seen a significant increase compared to 2012, but still some way to go. And the new way of working here is really that it's not up to each plant or each area to discover how to work with this by themselves.
We have now, I would say, a structured approach to make sure that we capitalize on the combined knowledge we have in the company. As I said, we have some sites and some areas that are really, really strong in this area. We are now taking some of these competencies and applying them into areas where it's more needed. So last year, we started by assessing some of our main sites. Out of the 54 distribution centers and the 43 I mentioned, the top 20 sites stands for around 98% of our conversion costs.
So we know really well where we should focus our efforts to get good leverage here. So we assess them to see in which maturity level they were at. And depending on the outcome, we have then put on additional resources then to support them to quickly catch up on this journey here. So we have a central expert team then supporting our local sites and we're also combining that with experienced people from the different line organization. So with 1 production system now, we are really catching up big time here, I would say, for the total group truck operation here.
So we know how to do it. We are seeing results of our efforts, both from the structural changes we are making, but also from the continuous improvements. And this slide, I would say, is evidence or example of evidence of that, where we see that trucks per white color have significantly improved just between 2012 2014. And as you can see here, if we count it per white color, we're talking about 30% and on the blue color side, 15%. And for this year, when all our different programs are being ticked off, More to come also here, of course.
So at the end of this year, we should sum up that we have a 52 percent improvement on the white color side and 36% improvement on the blue color side. What I've been describing so far is very much around the period up to 2015 here, where a big chunk of our efforts has been around the structural changes, slowly gearing up then on the continuous improvement side, but also driving process harmonization here. We believe that beyond 2015, there will, of course, be further opportunities that are of structured nature. But the portion that needs to come from continuous improvements and process harmonization needs to increase in order also to support what Olaf talked about here, the need for a more surgical approach addressing different markets and different brands. And this approach will do that.
We see that we will have opportunities to harvest around 5% in productivity per year as we move beyond 2015 with this. We are driving then, I would say, an approach where we want to really leverage on the best practice and then gaining efficiency across our different operations. Some areas are further ahead than others, but the journey has also started earlier for some. If you take powertrain production, for example, there has been a global powertrain production unit for some years now. And they have a setup that really supports what we are looking out for in the total group truck operation.
We have then, of course, within sourcing and off the market, seeing some opportunities. But where we are, I would say, the latest into driving synergies across the total setup is within the truck production area. And that's what we're now trying to catch up by also applying the ways of working we have seen within Powertrain, for example, but we're also seeing that we have further opportunities within the ones that are ahead. So even though Powertrain serves as industrial model for us here a little bit, we definitely see much more be done also in Powertrain and I will come to that. Process and IT is also an area where we are seeing opportunities now also to consolidate the total footprint.
And here, the connection to the process improvements is quite big. And I think within the operations area, we probably have the biggest legacy challenge here to really harmonize this setup here. If we come to Powertrain then as an example of how far we have come in certain areas, you can see here that we, of course, started in 2000 and 1 when we had the 3 different brand powertrain organizations coming into 1 organization. Slowly but surely, we combine this into 1 industrial setup. But it was not until, I would say, 2,005, 2,006, it came together as a truly, in this case, then the production global production setup.
And from 2000 and and 5, 'six then up until 2011, we saw then the global footprint being developed and the global approach. But from 2012, in the new organization to 2015, truly focusing on the operational side, we have taken further steps here. And just in this time period, we have seen 12% cost reduction in the total cost base coming through with the efforts we have been driving through the structure changes and the continuous improvement area. And I would say more to come here as well. So we are now in the 2nd wave, and we are moving into the 3rd wave here to take even to the next level.
And a lot of people, experienced people in driving this is now reallocated to other areas also in the total GTO setup to support in this journey. So we know how to do it. Looking at the logistic area, we see a scattered picture, I would say, here because we have both here the aftermarket logistics, but we also have the manufacturing logistics area here. And in the aftermarket, we have come a little bit further where we have consolidated the total global needs and put it into the same warehouses and the same flows. And we have quite a good synergy in that area already today.
But on the manufacturing side, we have had a situation where we had, yes, we had a large customer base, if we call it that, within logistics, but we had many small customers. Even each plant had their own requirement on the logistical setup that was performed by the old Volvo Logistics. Now when we have all the plants, all the distribution centers and the execution of the outbound, inbound logistics in this one and the same management team, we see great opportunity to really synchronize the whole logistical setup. And now also with our purchasing here, it's further enlarged. So between 20122015, we have once again been focusing on the footprint challenges.
We have introduced the continuous improvements and the way of working there, which was, I would say, to a larger extent, not existence in this part of our setup. Now we are seeing it being applied with full force and they have taken it on in a great way. So we are seeing good progress there. So new ways of working in this area. Also on the purchasing side when it comes to the logistic buyers has been changed.
I think we worked in the past with more, I would say, static routes. Now we're moving into more dynamic purchasing where we are having shorter contracts. We are, I would say, more opportunistic in the way of actually transporting our goods. If you take the outbound side, for example, we can switch with short notice between Jockey deliveries to trailer deliveries, etcetera. So different means of getting the vehicles out to the marketplace where we are going for more of, I would say, a spot transaction rather than to have long, long contracts.
Great opportunities. I would say we're also managing the way we are operating logistics in a different way. We are not into always the details on how the transport needs to be performed. We are buying more capacity from A to B, and we let the transporter optimize it within their flow and that also bringing down the cost significantly. And with the outsourced activities and also together with the reduction of external business, we should remember that also that when we came into this in 2012, we had some external businesses in these areas that we now have exited also.
So we're going from the ambitions in the past of being more of a logistic company to be now more a buyer of logistical leads. So quite a big change in the total way of operating here. And that is what we now are pushing forward with to make sure that we capitalize on the combined strength of the new function organization here, where we can take into account, of course, costs, but we can also looking at the capital tied up and the risk in the total supply chain in an optimized way. So great opportunities here going forward for sure. So to summarize the overall picture of group truck operation here, we are now set up to enable the total optimization of the total supply chain end to end together with purchasing, manufacturing and logistics.
We see great opportunities also for the future. We are seeing traction on our program. We are confirming our committed targets to the overall Volvo Group's ambitions. We know what to do, and we are doing it, and we are setting quite high ambitious targets also for the future. And I'm quite excited on what's beyond 2015 also.
So great opportunities within operations. And I hope you will see that now when we continue to drill down in our different activities. So we will now zoom in on European optimization within cab and vehicle. And I will hand over to Olivier that will take us through that. So please, Olivier.
Thanks, Michael. So my name is Olivier Vidal, and I'm in charge of the cab and vehicle plants in Europe, Middle East and Africa. We are very proud to welcome you this morning, but I can tell you that we will be more proud this afternoon during the plant tour because we want we are really in the middle of this transformation journey. We will be able to show you where we are leading when it's about efficiency of our operations. And one of my key messages of this morning is we would be in the Gatabag plant or in the Boug plant, Blaville plant, and you would see the same type of optimized setup, optimized flows, optimize assembly operations.
So Michael described what has been the overall transformation journey inside GTO, both implementing structural changes and strengthening continuous improvement. Now I'm going to describe what we are doing in the European industrial setup. Let's say that the diagnostic of our weaknesses was the same in Europe compared to the overall GTO. So means also the opportunities and even efficiency between the plants, different level of maturity in lean manufacturing. Not the same type of industrial setup between, for example, 2 main plants, the Gersovug plant and the Ghent plant.
Cab trimmed in Ghent, but the cabs for the same type of product trimmed in Umea, which is located in the northern part of Sweden and not in the gasoil plant. Then also overcapacity, especially in medium duty. So we got the green light from the top management to start this European Optimization, and we call it EOP, European Optimization Program. What we have already done, we have dismantled 1 assembly line in the GasLog plant. So we have decreased the number of assembly lines from 6 to 5 to assemble heavy duty trucks in our 3 plants.
Then just before vacations, we have stopped to assemble the medium duty trucks in Ghent, and now we are assembling all our Renault and Volvo medium duty trucks in one in one facility located in Normandy, France. During the Q2 and it will start in a couple of weeks, we are going to start to trim the cabs in Gasseberg for the trucks that we are assembling in Gasseberg. And we will stop to trim the caps in the Umea plant. And the Umea plant will be a fully focused cap plant dedicated on the 3 core processes, stamping, body in white and painting. By the way, as the Blavil plant in Normandy, which is a sister plant.
Then we have saved surfaces, both in the GaN plant and in the GasLogo plant. And it's then it has created a fantastic opportunity to deploy our Volvo Operations concept. What is this Volvo Operations concept? The Volvo Operations concept describe the guidelines to engineer a lean assembly and a lean logistics processes, starting from the station of the operators pulling out diversity from the line, we call it the border line or the line facade, pulling out to some logistic areas we call the kitting zones, and you will see this zone this afternoon. Then the operators are sending parts or modules, physical modules designed by our production our product engineers.
And these physical modules are assembled just in front of the stations where is located the operator. And I told you that we are pulling out the parts diversity so that our operators are really focused on the quality and on the efficiency of the assembly activity. Then so starting from the line, then you have the substations where we are assembling the physical modules just in front. We have just to close the aisle to move the module. And then we have the kitting zones where we are, in fact, preparing the different parts needed for the operators and several receiving areas.
And we call this optimized flows as a fishbone factory. So what we are really moving is from, in fact, an engineered design facility to a logistics focused facility. And then we decided to have 2 main drivers to support the European Optimization Program. The first one was really to be focused on the best practices. Let identified the best practice, for example, how to prepare an axle.
We have some components to assemble on an axle. Let's go to Japan. Let's go to our Aguioplan. Let's go to Coitiba. Let's have a working group traveling in these different factories, traveling in Bourg, Ghent, Blaville and Tuve.
And let this group of experts, this group of operational people supported by manufacturing engineers identifying the best practice And let's call this best practice our standard and let's apply it. So we have this high focus on best practice sharing, but it's something that you have to organize. And we have done that, and we are continuing to do it. And then as mentioned by Michael, we have this high focus on increasing our efficiency and increasing our cost efficiency. But we know that at the same time, it's at stake to improve also the ergonomy for our operators to reduce the viability as a consequence to increase the efficiency.
And if we have this type of approach, then really we can engage our operators in continuously improve the workstations. And we do it through our Volvo production system as described by Michael. And if I can summarize what is the Volvo production system, it's really this way to daily manage our operations and to daily continuous improvement continuous improve our operations. So all these structural changes has supporting us by reducing a lot our blue collar mining, so a little more than 600 fixed positions. And at the end of 2015, we will have decreased our cost by we will have made a 20% cost savings in the scope described on this slide.
Now let's come on 2 main structural changes. The first one is medium duty. So we had enablers, which was a common truck platform, the same suppliers and also common assembly process, common ISIT platform. So really, the challenge was to move the assembly of the trucks built in Ghent to
the Blavil
plant on the same line and do it in a very short time frame. We have done that in 6 months. And the Bravil plant was challenged to reduce the total fixed cost by 21%. They will do it. Then the second structural change is between Tuva and Ghent.
And we really challenged this. The starting point was 2 plants, Duve and Ghent, producing the same products, sharing the same main equipments. But if you are visiting Tuborgans, you didn't have the feeling to that they were really producing the same type of trucks. We didn't have, for example, in place the same internal logistics. We didn't have, in fact, the same line facets.
And so we decided to go for 90% commonalities, 10% difference due to the fact that we have existing building in the gas turbine plant and in the Geth plant and also to allow our operators to come with suggestions. We are now in the process to fully apply the Volvo Operations concept that I described to you, and we are getting the full involvement of our operators in this type of continuous improvement activity we called Kaizen events. Then we have clear work distribution and specialization between the two plants. The Gasabot plant is a medium volume plant with producing high variability of our products. The Gasselberg plant is also our intra plant on one hand.
And then the Ghent plant is really the high volume plant focused on the full efficiency. Let's come back to commonality. And what now we are sharing inside my organization is commonality is not something that is going top down from regional or global engineering organization, but it's really an enabler to improve the performance. We were used to restricted communality focus on the toolings, toolings and equipment and for sure, the packaging coming from our suppliers. And now we are really in the process to convince the teams that commonality could be really an enabler to continue to improve efficiency.
Let's go from restricted commonality to result oriented commonality. We had to invest, as an example, lines to dress the axles and to dress the engines. You will see these two lines this afternoon, both in the Gasabag plant and in the GaN plant. We defined we selected the same suppliers, the same concepts. We will have and we have now the same border of lines for these 2 sub lines.
We have defined the same way of working, and the next step that we will start in 2016, we will have is to have the same shop floor organization. And then we have now networking in place through this best sharing approach between manufacturing engineers, between logistics engineers and next step, we will also do it between production engineers. And what is about, as a production manager, for example, for the base module, have an issue, have problems to solve. I'm in Ghent, and then I'm calling my counterpart in the gas upholt plant. How did you fix it?
Did you encounter this issue on one hand? On the other hand, my operators gave me brilliant ideas to improve the process. Then I'm sending a mail, I'm sending pictures to my counterpart. And when you have this real twin commonalities, twin factory approach, and it's by far easier to have this sharing of experience. So at the end of 2015, we have lean assembly in all the 4 European truck plants.
We will have this Volvo Operations concept describing again the best way to assemble cabs, to assemble trucks, to organize internal logistics in our 4 plants. We will have the best practice put in place in assembly and logistics. Continuous improvement is now really in place in all our plants. We have standardized improved production leveling for all the plants, and we have the same way to do productivity, balancing the different stations. We have fixed cost reduction in place because we moved out two lines, and we decreased the number of the white colors.
And for the future, for the for what we have we will have to do during the next years, we have been able to strengthen our common manufacturing culture. Just as a summary to share with you, and again, before you got Camille's presentation, before you go on the shop floor and to see how we have improved, how we are improving our processes. We are confident that at the end of the year, we will reach our targets. Definitely, we do believe that we are defining a new standard to assemble cabs and trucks. We are and it's really at stake.
We are building on our people skills, on the engagement of our people, and we are building a common industrial culture. So now it's time to go in more details and have a focus on the changes that Camille and his managers have implemented in Ghent. Welcome, Kamal.
Thank you, Olivier. Hi, everyone. I'm Kamal Sid. I am leading the cabin vehicle factory in Ghent, and I have the pleasure to be your host today. So I think I can talk on behalf of all the Ghent employee when I say that we are very excited to get this unique opportunity to share with you the transformation we are going through on the Ghent side.
So I'm sure you all know Ghent has been the 1st CO2 neutral factory in the automotive industry, but let's have a look on the operation we are performing here, mainly 2 operation. You have the cabin vehicle assembly, cab trimming, final assembly for heavy duty trucks, but till June last year also for medium trucks. And we have the fitting center where we fit together the ties and the rims not only for us but also for TUV in Sweden and for the Volvo Buses plant in Poland. And we have also logistics services present on the site with the manufacturing and logistics services, inbound and outbound management flow and also the distribution center. And you can see here the significant number regarding the activity.
But let's have a look to what happened the last 3 years on the GAN side. First of all, 2012 and '13 till early 2014 was the year where the years of the largest product renewal ever in Gantt. It was an extremely challenging period, having in mind that we built on the same line the old and the new models in the year of high volume, if I refer to 2013, putting a huge stress on the logistic supply chain, but we did manage. We secured a high level of quality and delivered the trucks as promised to our customer. Then in 2014, we launched 2 optimization program.
1 was mentioned by Olivier. It's the European Optimization Program for the cabin vehicle assembly activity but also the urban efficiency program for the logistics services. And in the meantime, Michael mentioned that we initiated continuous improvement reinforcement because we know that in the continuous improvement that most of the potential lies. And in 2015, we are heading full steam at completing the optimization programs, both in logistics services but also on the cabin vehicle assembly, and we are strengthening the continuous improvement. Let's have a look on the impact of the European Optimization Program on the cabin vehicle assembly.
First was the closing of the medium duty line. This was effective in June last year, and we removed 200 fixed position. Then we increased the base volume on the heavy duty side from 128 to 160 while preparing the capacity of 200 a day in 2 shift. And you see where we are coming from. These are significant increase in terms of base volume but also in the capacity.
And while doing that, always having in mind the optimization of our manufacturing logistics, also quality, lead time and cost efficiency as the drivers. We can say that in the European footprint, Gantt is clearly now the high volume heavy duty truck plant for the Volvo brand. What does that mean? Concretely, let's have a look on the physical changes. We have here the cap trim and here the final assembly.
You have here the perfect translation of the Volvo operative concept mentioned by Olivier and especially here, the fishbone concept. We have pulled the diversity and complexity out of the line, managed that on a sub assembly area really close to the point of use. And we have stretched the distance between basically to make it very simple, the entry point sorry, the entry point to the point of use, very lean flow, minimum transport and this is an enabler for a 20 percent productivity target. The same here goes for final assembly. It's history repeating when it's about the concept, pulling the diversity out of the line, subassembly close to point of use and having not any longer a central warehouse, but more points entry points for the goods receiving, having really a full feasible concept, sorry, on the logistic side as well.
And of course, you could have a look on all the changes when it's about the equipment. I must say that the last 12 years, it has been intensive construction work in the factory while still producing. But you will have a look by yourself on all the changes. Some KPIs. We see that we are moving in the right direction.
Quality, we're talking about the first time through. I'll be measuring the number of trucks going through the process without any intervention, good at the first time. If we look to the new FH introduced 2 years ago, we are now at 75%, and we are heading to 80% and having 90%, which is a world class target in mind for 2016. And I must say that the quality of the truck is very fantastic. I mean, compared to the we are even higher than the level of quality we had on the previous range.
Lead time as well, moving from 81% to 93%. Just for the record, we had yesterday 100% delivery precision, high time ever, and we are heading to 95%. Parts availability at point of use, this is our capacity to bring the parts at the point of use at the right moment, from 97% to 94%, heading to 98%. And on the cost efficiency side, looking to the hours per unit, you see that it's going down, which is a good trend. And we are heading here to 54 for the trucks, both logistic and production and 18 for cabs.
But of course, it's not about structural changes. Michael mentioned that clearly. It's also about continuous improvement. And I want to highlight here some initiatives that we started in the continuous improvement field. On the introduction there, it's really making the problem visual at the station where it occurs, and the operator can basically stop the line if the problem is not solved.
It creates a lot of stress, and we pay a lot of attention to solve those problem. Prioritization and daily problem solving on the shop floor, cross functional team, standing in front of the board on the shop floor and dealing with the issues, making sure that all the wood cultures are identified and eliminated and standardized work as a foundation for our training and also a foundation for continuous improvement. Then we have standard work being established, and this is the best practice we know so far. So it's something that can evolve if we found a better way to do it. And you see here the achievement when it's about quality, 8% on the FTT, 40% on the full frequency, quite significant.
Here on the lead time side, production leveling, it has been mentioned by Olivier, and Michael mentioned the stability in the process. This is a huge enabler to bring stability into the process. What you have here is, in fact, the daily sequence of the different model on our rigid line and the red one being what we call the heavy variant, 8x4, for instance. You see that it's a very difficult situation to cope with, not only for the operator online because it has to face some PIKS, overload, but also for the supply chain. And imagine this picture applied to our supplier.
So what we did by introducing the production leveling, we spread out the variant. We have put then more stability into the process, working with average number in a week window, which is an enabler for us to better distribute the workload, so bringing more efficiency, stability into our internal logistic flow but also to our suppliers. And the achievement here is the delivery precision. We are actually now above 93%. Continuous improvement, high focus.
And I must say that once the product introduction were behind us, we could highly focus on the continuous improvement. And you see here the trend, 600 kaizen event in 2014, which pulled close to 10,000 improvement proposal from the operators. We are going to 1,000 kaizen events identified and planned in 2015. So with a target of SEK 3 20,000,000 annualized cumulated savings towards end of this year, SEK 150,000,000 being already achieved compared with commission cost of 2012. What is the trigger towards the continuous improvement activities?
Cost deployment, something we introduced last year. We have a very detailed breakdown of our cost structure, And here, we're talking about the hours per unit. So being an assembly factory, it's a man intensive activity. Most of the cost lies on the operation, on the manual operation, both in production here but also in the logistics. So we have classified this by added value, non added value, and we have a systematic approach to tackle those waste.
If I'm talking about the added value on a production, you will see that during the tour. We talk about Kaizen event eliminating added value, 3 ms Analysis. 3 ms stands for muri muramuda, Japanese word, meaning that we take care not only to not only eliminating the waste but also making sure that the ergonomy is improved and the viability is also taken away because we know if you make it economically friendly, you will make it simple. You make it simple, you will make it easy. On the logistic, we apply the fishbone concept, as mentioned, but we also identify the waste through the use of value stream mapping.
And on the kiting area, you will have plenty of examples this afternoon to support the operators and to increase the quality and also the efficiency. We use help device we call pick to light to support them in this activity. This is bringing an average 30% productivity on the kitting area. So we know well our West. We have systematic approach.
We have the competence. If you don't have them in house, we know where to find them in GTO. All these concepts that I've mentioned were totally not developed here in Ghent. We have probably copied all those concepts from my colleagues within GTO. Cost deployment, for example, it's something we copied from Powertrain.
So we are on track. We have a good plan. And you will see this afternoon the concrete example, concrete translation of what I've shown here. And you will be able to judge by yourself where we are heading to. Then a word regarding the logistics services.
I mentioned that we have initiated an optimization program here. And the outcome is that we are centralizing all the Volvo CE parts in the Gantt warehouse, now Gantt becoming the main distribution center in Europe. We have also decided to outsource the cross docking activity, which is happening today. We are talking here about AT fixed position that will be removed. And the synergies that Michael were mentioning will be also here increased by implementing global system, IT system for the warehousing.
So now a few words about the visit of today. Some practical things before we go to lunch. We have foreseen for you 8 station stops. We will discuss production leveling. We will show you the new axle engine line, side members intake, cab logistics, cab dashboard line.
You will really see here how we have put into practice all the concept that you have seen here. You will be able to get also the figures from the floor when it's about quality, ergonomy and efficiency. And we will have also 2 stops for logistics services, the efficiency program as such and also the productivity initiatives in the distribution center. How to be organized? You all have a batch with a cover on it.
This stands for a specific group. We have 8 groups. We have 1 guide per groups. They are all with a yellow jacket, very easy to recognize. You will get, for your own safety, a safety jacket.
Try to stay in the footpath, and you will be also given headsets to hear the presenters. So now it's time for lunch and I'm looking forward to meet you again for the visit. Sorry, I'm going too fast here.
No, no, no. It's excellent. Thank you. Thank you so much, Kamal. Now we have had a bit of a deep dive into our manufacturing operation.
And before we walk out into the plant and take a look, we'll have a 45 minute lunch. So we'll start to gear up for the plant visit at 12 sorry, 1 So now it's lunchtime. Thank you for this morning.
Thank you.
We are just moving into group track sales. But before doing that, I hope you enjoyed the tour. And I think many of us improve our Japanese knowledge quite substantially with new expressions and meanings of Japanese words. It is important, though. I do a lot of these.
I was in TUV yesterday, and the same activities that's going on here at Ghent is continuously, as we speak, going on in all the other sites around the world. And when I look into the improvements on the sites, I think that you can conclude that laying out a production network, which factories to keep, which factories to close, moving lines from here to there, that is not so difficult to do really. It's just a matter of doing the analysis properly. Learning the methods theoretically on how to implement the continuous improvement systems is also not so difficult. The key is the engagement, the ownership and the implementation by everyone in the factory.
That is where the money and the savings are coming from. So when I am standing in front of 1 of 100 of these boards, I look in the eyes to the people who present and see if I see the engagement, the ownership and that they know the issues down to the screw and bolt. And if they do that, then I know that the money will come. It could be €6,000 it could be €6,000 it could be €600,000 but the money comes. And you know, it's just right now 300,000 more of these out there that you saw today.
So I hope you enjoyed it. To me, this is a little bit like my Superman jacket. I always put that on when I go out in the factories. It doesn't give me any strength. I've tried at all.
So I take this one off now. And Joakim, how are you? The floor is yours. Thank you.
Thank you, Lof. I wish I had a Superman jacket. So good afternoon, everyone, and I hope you enjoyed the tour as well. My name is Joakim Rosenberg, and as of 1st January, I am responsible for our commercial operations on the truck side, so sales and marketing. And you heard Olof say this morning that it is one of the areas, if not the area, where we have the largest changes this year.
And therefore, I thought I would start by explaining what changes have we done. And if you look on the left hand side here, essentially up until the 31st December 2014, we were organized in 3 Continental truck sales and marketing organizations. That means, amongst others, 3 Continental headquarters. It means 3 owners of the 4 different wholly owned brands. And of course, it means to some extent slightly different ways of working.
Putting it in 1 global truck sales organization gives a number of advantages. We have one headquarter. It's based in Gothenburg. We have one way to prioritize between the brands because there's one owner of all the brands. We have 22,000 colleagues in one organization, and we have one way of working Then of course, as I'll come back to very soon, business is local in our industry.
So we do need to allow for those market differences, but it needs to be a conscious decision, right? So consciously, we're working exactly the same. Consciously, we're allowing for local or regional adaptations. It can't just be a happening then. Now the advantages of having 1 global group truck sales organization or GTS for short is amongst others that we can globally coordinate our commercial priorities.
Everyone is seeing the same picture. Everyone is talking about the whole group truck sales. That's one very important aspect. Specifically then, the opportunity to sharpen our focus on the brands and the product line is facilitated in this new structure. I'm not saying it wasn't possible before, absolutely.
I'm just saying the new organizational setup facilitates a sharpened focus on that. That's on one side. That will benefit the customer. On the other side, it also enables more cost efficient setup, 1 headquarters that are 3 Continentals. We will have 7 regions and I'll come back to that and they will be empowered, they will be accountable and I'll show you on the next slide how we sort of split the world in those seven regions.
And in addition, of course, when it comes down to the market, as you saw here today, by the way, in Ghent, it's really down to the detail. It's the same in the market. It needs to be speedy, it needs to be quick, it needs to be executing. And if you take that structure and you add it to the many historical strengths we have in the Volvo Group, then of course, our ambition and our clear target is to be the best commercial team in our industry. This will give focus, it will give speed and it will help the customer.
This is a breakdown of the SEK 191 1,000,000,000 of truck sales last year. You can see that the largest region is in North America. You can also see that we've split Europe in 2, Europe North and Europe South, and they are roughly of the same size in terms of sales. You can see that Latin America and what we refer to as EMA, which is Greater Eastern Europe, Middle East and Africa or EMA is roughly of the same size. You can also see that Asia, China and Japan is roughly of the same size.
Now the key to understand here and I take it from many of your questions today as well as I picked up is that the business is different in the regions. Of course, in Europe, Europe, Europe, Europe, Europe, Europe, North, they, of course, belong together. But barring that exception, the business is very different. It's left hand drive, it's right hand drive, it's different specifications. Is the norm to have big fleets or is the norm to have owner operators that buy one truck?
Is the norm to have many tractors or many rigids, so on and so forth? So our business is different in these different regions, and that's why we split them this way. Olof introduced this slide, and obviously, the key here is to understand is that the performance compared to where we want to be is different along the brands, along the product lines and along the regions. And of course, we will need to go on this greenification journey that Olof mentioned. And of course, we cannot do everything at once, right?
So there are some priorities here. Some of the priorities, given the size is obviously in North America where you can see the yellow color for both the Volvo brand and the Mack brand. But remember that towards the end of last year, if you take the Q4 isolated as was mentioned in the last quarterly update, North America was green. So it is clearly going in the right direction and I'll give you a few examples of that. In addition, due to the size, of course, the Renault brand in the EMEA region as well as the UD brand in the APAC region are priorities.
Again, doesn't mean we will not fix everything, but like with any major challenge, you need to eat the elephant piece by piece and then you need to prioritize in sequence. On the right hand side of this graph, I've tried to summarize our overall levers to go along this journey. We are on a brand journey with several of our brands. I'll give you an example on the back brand on the next slide, but it's true for the UD brand as well and the Reno brand as well. So the brand is still on a journey and we're taking step by step and we do measure this.
So we know that we're going in the right direction. In addition, as you know, we have invested significantly in our new product ranges for the Volvo brand, for the Renault brand and for the UD brand. And of course, there's a leverage coming out from that. That's true on the hard product or the truck itself, but it's also true for the new kinds of services and the upgraded services that we can attach to the truck. And that's also very important.
I'll come back to that. In addition, and this is a continuous journey and you're never really done, we of course need to review what and where we sell or the offering portfolio, if you so like, as well as when we have decided what to sell where, how do we go to market. And this is something we'll be focusing on even more in some of the areas going forward then to make sure that we can greenify this picture. Aftermarket is very important in our industry. It is in all automotive industry.
And as you'll see, we have built population in many of the regions going forward. So we have built many population in many of the regions. And therefore, going forward, the importance of even more capturing the aftermarket is critical. It's going to help us to have an even more balanced business model in some of our regions. In addition, the penetration of captive components, for instance, the engine and the transmission that you can see over here is also helping us in this regard as well as the enabling of big data or connectivity, the fact that the vehicle can connect via telematics to the dealer, to the customer.
Last but not least, the cost structure needs to be adapted, and I think that we have been clear on that. We have the SEK10 billion program. This will, of course, support here and something that is true on the commercial side in terms of selling expenses, also true as you've seen today on the industrial side, for instance, in our operations, but also in our R and D part of the business. So this is a was a short introduction into what is group truck sales or GTS. What I'm going to try to do now is to give you a brief overview of each of the 7 regions that I spoke about.
I'll go a bit deeper in some and maybe less deep in 1 or 2 of them in order to respect the time that we have. I'll start from the West with North America. The market in North America is if you look across the globe of the major markets, North America is the one currently that is pulling the most. From 13% to 14%, the market went up roughly with 14%. And as we announced in our Q4, we expect roughly that kind of growth as well between 2014, 2015, reaching around 310,000 heavy duty units.
North America is essentially 3 countries for us: Canada, the U. S. And Mexico. And when you split it down, we can also see that it's primarily U. S.
That is growing, both in terms of size obviously, but also in terms of growth. It's primarily the U. S. That's pulling. But let's not forget Canada and Mexico, they are substantial markets.
Put together, we're talking about 50,000 trucks roughly. There are not that many markets in Europe or the rest of the world for that matter that hit 50,000 trucks. In terms of the group's performance in North America, the recent years have been good to us. We have improved our market share. We have improved our penetration of our captive components, and we have improved our performance overall.
In addition, we are also shaping the industry. We are leading the industry when it comes to, for instance, introducing the automated manual transmission, the I Shift on the Volvo truck side as well as the MDrive on the Mack truck side. From an aftermarket perspective, again, building on some of those captive components, We increased last year with a rather good number 18%, and we see no reason why this should not continue. So the market is pulling and that's also then of course important to trade off this price versus volume balance, which is always in focus for us. But right now, with the order intake, it's very important to make sure we get the right price realization in North America then.
What we've done the last, let's say, 5 years in North America has a lot been also around distribution. Distribution in North America is exceptionally important. It's always important because if you ask a customer basically anywhere in the world, the number one buying criteria when choosing a truck is actually what kind of network can you offer me because the truck goes to the network that often, right? So in North America, there's no single district or no single point which covers more than 1% of the country, if you take the U. S.
As an example. And therefore, having a consistently performing network, which has the right coverage as well as the right performance is critical. It's critical in all countries, but it's particularly critical in the U. S. Then.
And we have expanded our network quite a lot. And as I'm sure you know that in the U. S. As an example, we don't own dealerships. So it's private money that has come in, and you can see quite impressive expansion numbers here, 100% more technicians, 60% more salespeople, etcetera, again comparing 2014 with 2010.
So USD435 1,000,000 of private capital being injected into our network. And then it's, of course, extremely pleasing to see that in 2014, those investors or those dealer principles had the best year ever in terms of profitability last year. As I said, we are also shaping the industry in AMTs and we have, which I think Olaf was clear on in the Q4 report, a very positive momentum with the MAC brand. We have revitalized the MAC brand. We are number 1 in a number of segments, both the historical ones, like for instance, the refuse and construction, but we also see new kind of segments like the natural gas where the Mack brand now plays a leading role.
And we have great hopes for Mack going forward as well. All time high after sales in North America per vehicle in operation, that's a key measurement for us on the aftermarket side. How much do we sell per vehicle in operation, which is defined as basically how many trucks are rolling in a particular country that we have sold over the last 10 years and that are still on the road. And of course, on the image side, remember that the U. S.
Is in a market where both the Volvo brand and the Mack brand is on a positive So we have more to do in this area. So So we have more to do in this area. So these are some of the aspects of North America then. If we move a bit south to Latin America, right now the market is not exactly in the same position as in North America. In general, if we take Brazil, which is the biggest market in Latin America, the GDP growth is not exactly the same or at least the forecast is not the same for this year as has been realized in the past.
There was also a recent change in the FINAME rules, which are quite important when it comes to stimulating the demand for trucks. And therefore, we took down our forecast in the last quarterly update. We are, of course, monitoring this on a daily basis. We are, of course, assessing on whether or not that is the right number. But right now, we have no reason to change.
And if there is a change, we'll come back in our next quarterly update. Also the other markets outside Brazil, Chile, Peru, Bolivia, etcetera, if you go through them, it's not as strong this year as it was in previous years then. That's our estimation. Now one of the things of Latin America for the Volvo Group is obviously that we have moved from strength to strength pretty consistently in Latin America over the last few years. And you can see behind me 2 quite impressive graphs.
One is showing the market share and you can see it's basically straight line going up and one is showing the population. And of course, it's also given the market growth then going up even steeper, you could argue. And of course, that is a wealth of opportunity to even more than address the aftermarket. And here we will be bringing in, of course, both the basics, which we already have with the parts and the service and the contracts and all of that, but also, of course, as the market matures, we have a wealth of portfolio of ideas and opportunities and services and offerings that we can pick from the rest of the group. That's one of the advantages of being part of one of the largest players in the industry.
Volvo is the image leader. I'm sure you're following this very closely. Not only are we the image leader in the truck side, we're also extremely well appreciated employer in Brazil, not only when you're measuring the automotive industry, but actually if you measure across all industries. And you can see also here that there's a bullet point saying that there's a price pressure. Of course, given the downturn, That's going to be the situation then.
And given that, a few of the priorities for us in Latin America this year then is, of course, to make sure that we capture the aftermarket. Of course, we will sell. We'll make sure that we defend our market share and try to improve it even further, but we also need to even more increase our focus on the aftermarket, not saying it hasn't been there before. And I'll just give you a few examples. You can see that we have expanded our network in Brazil and you see quite impressive numbers there as well, plus 28% on the outlets, even higher numbers for the service base and the technicians, etcetera.
Or dual or multi branded. And as I said also in terms of driving penetration then, taking what we have already available in Latin America, but also picking from the rest of the group's portfolio of services and offerings then. In addition, we should not forget the fact that we have recently introduced the new Volvo range, the one you saw being produced out here in Latin America, in Brazil. And of course, we need to manage that introduction in a good way given the market situation. We need to make sure that we establish the right price point and we need to make sure that the network is prepared to take care, of course, of that truck.
So it's not just when we do a launch, it's not just a matter of sort of having an event and saying we have a new truck ready to sell. It's also making sure that each technician is prepared to serve that truck when it comes to the service point. And that's actually the bigger part of doing a launch is making sure that you're prepared to serve. So that's Latin America. Let's move to Europe.
In Europe, what we have said in terms of market forecast is that we expect a moderate growth forecast for 2015. Obviously, building on the geopolitical situation, the economic environment, etcetera, Europe is, to a very, very large extent, a mature market and the development is generally linked to the economic evolution, of course, which is slightly different than from the developing economies. We have also seen good starts in a number of the Germany is one example, U. K, etcetera. And we also have seen a slightly slower evolution in some of the other markets than, for instance, France or Belgium and Poland.
So that's how we see the start of the year. And when you look at the group's performance then on some of those key markets, you can, for instance, see the market share evolution on the bottom left there in Germany. And of course, it's very pleasing for me to have seen the January results then in 2015, knowing that they are significantly better than the numbers that you see on that graph then, which was end of 2014. In terms of our performance, last year, Volvo Trucks took market share. And generally, in Volvo Trucks, the new range is exceptionally well accepted by the customers, both on the European continent, but also, of course, in other places where we're launching it then.
We have seen good improvements in Germany and Germany is the largest market. As I said, that improvement is continuing into 2015 then from what we can see. On the Renault side, we lost some marginal share last year. We have lost some momentum with the Renault Trucks brand. We had a later introduction for Renault Trucks than many of the other brands in Europe last year and that has taken a small toll on the one hand.
On the other hand, we now have a number of areas where we are working very hard and there are a number of actions which we can see already now giving results. We are very strong, for instance, in the 2nd 3rd largest country in Europe, which is France, and you can see there on the curve that it's starting to flatten out and bending up then. That's the idea. Of course, Nordic, the Volvo Trucks is very strong in the Nordic region. And again, last year, we were number 1 in the Nordic region.
Some of the key improvement opportunities that we're working on, on the European continent is to come even closer to our customers to make sure that we simplify the organizational structures that will drive speed. It's easy to say, but it's difficult to do. It's very important when the customer is standing in front of you at the moment of truth in the service workshop, it's very important that the person who's standing there knows exactly what to do and how. Same level of detail that you have seen in the factory today. Remember, a service workshop is actually a service factory.
So that needs to be clear all the way out. And of course, we have made these huge investments, which we talked about in the new ranges, and we are there to take share. Make no mistake about it. We have a big network all around the world, also in Europe. Part of it, we own.
And of course, for the part we own, but also for the part we don't own, we need to make sure that the customer gets the best retail experience. So we are training also the workshops that we, let's say, don't own. We train those mechanics and of course, we also train our own mechanics and salespeople. And we need to improve our retail operations even further. That is key.
That is the moment of truth. I took some time and elaborated on rental trucks just now, and I also want to share with you, of course, what are we doing then to boost the rental truck's performance. We have this new fantastic truck, the Truck of the Year, okay? And the truck is great. It also is recognized and demonstrated by our customers.
And that, of course, will have an impact to a much larger extent than before, we believe, on the residual value of the truck. And if that is true, then the customer gets a better equation and is willing to pay that extra margin or to buy more trucks. So that's the equation seen from the customer's point of view. So we will take share with the new range because it's a good truck and also, as I mentioned, because we have a number of services connected to that truck, which were not enabled before, but are enabled now. For instance, when it comes to connectivity, Optifleet, which is the Renault Trucks telematics solution, is one such example.
And if I go back 2 to 3 years, we have 10 times increased the penetration or 1,000 percent to sort of put it in quantitative terms. In addition, as you know, we have combined the service network in a number of the countries in Europe. That takes time to do. It takes effort. We're shifting around and now we can see the benefits of that coming up.
And that is also something, of course, we will leverage for Volvo trucks as well, but not at least for Renault trucks. And if I remember well, we have increased the number of service points for Renault trucks with 34% year to date than compared to what it was a couple of years ago. In addition, of course, as with all new automotive products, there is something to do on the product cost side that we are working on the industrial side of the equation. Will also drive performance, will also help us to boost the rental trucks volumes. Moreover, in the European context, as with the other context, as with the other parts of the group, we have a structural cost base that we need to address and we need to approve.
And there are a lot of activities going on to address the structural costs slightly less deep in, in Eastern Europe, Middle East and Africa. Maybe suffice to say for now that one market which is very difficult right now for all the players and for us is obviously Russia. And you can see the dip in market share there. We had and still have a euro based price list. Some of our competitors had a ruble based price list.
And if the only measurement is volume, yes, that's what it looks like. But if you think about profitability, I'm very happy that we had a euro based price list. If you look in South Africa, on the left hand side, you can see a continuous growth and you can see that we are around 26% of the market in South Africa then. In terms of the brand, it's roughly the same story. The Volvo truck range is extremely well accepted as is the Renault trucks where we have launched it.
But of course, from a performance point of view, there's more to do on the rental truck side. On the UD truck side, we have a phase out in these markets of the let's call it the current offering and we have a phase in of our new Questor truck, which I will come back to in a few minutes. The focus in this part of the world is going to be for us to consolidate our strongholds. South Africa that I spoke about is one of them. In addition, we need to think through and are, of course, already taking action on Russia.
Turkey is another big market where we need to define the path going forward and also Algeria, which is about seemingly potentially changing legislation in terms of what industrial footprint that is required in that country. So these are some of the major markets where we have a big share of the market in many of them where we need to think through exactly how we want to set it up. The key though here is going to be selection because there's 100 countries here in this region, right? So we need to select which are the growth markets in Africa, for instance, or in Middle East that we want to place relatively more emphasis on and which ones do we want to, let's say, not forget, absolutely not, but not push as hard because we can't be putting priority the same priority on everything then. One structural change that we are about to do in this area is to make sure that we move our regional setup into the market.
Today, it's set up in Western Europe, in Sweden and in France. And here, the idea is, of course, to come closer to the customer. And one example of doing that is to move the regional setup into the market that it serves. For Asia and Oceania then, it's also a lot of countries, so I'll split the discussion in a few buckets. If we talk about Australia and Korea, these are mature markets.
For instance, the Korean heavy duty market typically varies plusminus 500 trucks. It's around 11,000 heavy duty trucks at any given point in time. They are, for us and for many other players, important profit contributors. I'm very pleased about the market share evolution there. You can see Australia on the left hand side as well as Korea in the middle and it's all going roughly in the right direction then.
For Southeast Asia, of course, the markets are growing with a GDP of normally around 5%, 5.5%. But in terms of truck terms, we have not seen exactly the same growth path the last 1 or 2 years as has been the case in the past. We had some political turmoil, for instance, in Thailand. We had it in Indonesia and so on and so forth. But of course, looking forward with potentially the opening up of mining and other activity, we'll see.
But right now, it's below the historical growth path. For India, there's clearly a revival in the heavy duty market and also potentially an opening up of the mining activity, which has been more or less restricted from the government for different reasons recently. I'm sure you noticed also the lowering of the interest rates the other day in India to further stimulate. And there are numbers coming out recently which talks about GDP growths which are quite high in the range of China or even higher for this year then. In China then, speaking about that country, we see a lower European segment and again remembering that European segment in China is very, very small.
And the reason for that is that these segments in China for the European imported trucks is tightly linked to infrastructure and housing, and that is a market which right now is not at its peak in China. In terms of our performance then, Volvo has been the number one brand in Asia, Australia for a number of years. We have strengthened that further and we are number 1 in most of the countries in this region. When it comes to the UD brand, which I'll come back to on the next page, we had some teething issues on our new truck as well as some market restriction issues, which I'll cover soon. For Mack, which is essentially in Australia for us in this part of the world, we see an improving performance.
Last year was all time high in terms of unit sales in Australia. And for the Ayesha brand then, we have many strengths. We have the bus side, which is growing heavily. We have the export side. We have the light and medium duty side.
And of course, now with the launch of the new Pro 6,000, we are then focusing even more on the heavy duty side then. So I mentioned the new Questler truck and I received some questions on that during the day so far as well. What we have done is that we have so far limited the very broad offering that the Questa enables. So, so far in the market, it's been an 11 liter 6x4 combination. That's it because we wanted to sort out and secure the potential quality issues and the industrial matters as well as the market points.
We see that opening up now, and therefore, we will broaden the offering on the Questor this year. We'll add the 8 liter engine. We'll open up the 4x2, the 6x2, the 8x4, the hub reduction axle and all the different combinations that the Questor platform is built on. That, together with sorting out some of the market issues because we have seen some increased protectionism in this part of the world, will hopefully help us to drive growth. But at the end of the day, the most important thing is, of course, that the truck delivers in the eyes of the customer.
And therefore, I'd like to share with you this example. This is the most demanding operation that this truck will sort of be exposed to. It's a mining operation. It's an advanced customer, which has a lot of equipment in Indonesia, and this test has been going on for many, many months. And what the customer has done, not us, what the customer has done is taking the quester and putting it head to head with the current, let's say, incumbents that this customer is using, which happens to be the market leader in Indonesia.
And the data on this page is not coming from me or the Volvo Group, it's coming from the customer. And without going into too much into detail, if you have 14% higher payload and 11% fuel consumption, which is better than the next guy, obviously, you have to conclude that the truck is a pretty good truck then. Speed, acceleration and of course also a higher emission standard because we start with Euro3 in the Volvo Group and Indonesia at present is Euro2 then. So on many dimensions, this and this is not the only test obviously, we feel more and more confident about opening up and broadening the offering and thereby also, of course, increasing the volumes. In Japan, last year 2014 versus 2013 had a good growth in Japan.
I think it's in the range of 25% or it is in the range of 25%. This year, we're expecting more of a flattish evolution. If I look at early indications on the market in January February, it's going slightly up. So we're, I think, roughly right there. The market is supported both by replacements, but also construction.
There's a lot of construction going on in Japan for 2 major reasons. 1 is still in certain parts like the Tohoku region and other regions of the Great East Japan earthquake, which happened in March 2011, still being rebuilt. And then also Tokyo was awarded the 2020 Summer Olympics, which Tokyo is preparing for. So there's a lot of construction still ongoing. For your information, there's still 100,000 people in Japan that hasn't returned to their home yet, which are still living in temporary housing 3.5 years, almost 4 years after the earthquake.
And then we have the Abenomics, of course, with the 1st, second and third arrow, which I'm sure that you're very well informed about that also drives this market. In terms of profitability, it is different on the heavy duty side and the medium duty side. On the quant side, the heavy duty, we have a good healthy business. We have a new offering coming in, and it's also consuming a fair share of aftermarket. And in Japan, the customers are very loyal to the OEM when it comes to aftermarket.
On the medium duty side, we have a cost issue, which we are, of course, working on to make sure that also that part of the business becomes even more healthy then. Then we have, as I've spoken to you before about, the retail excellence program, the REX program in Japan and the summary there is essentially taking the Volvo Group's way of doing business into Japan. How do we sell a truck? How do we serve a truck? How do we take care of our people?
Which processes do we have? Which IT systems do we have? Etcetera, etcetera. It takes some time, but you can see on the KPIs at the bottom that they are going in the right direction. The one on the left is actually showing you how many trucks does a salesperson sell, so unit sales per salesperson or sales force productivity.
And you can see that it's going up and the one in the middle shows you the growth of the aftermarket business. So we are pretty confident that it's going in the right direction. You can see the market share also, the curve starting to turn around and of course, we have high hopes to improve that even further this year then. So that's the 7 regions then. So if you put all this together, what are then the priorities on the commercial side for 2015?
Well, 1st and foremost, we need to sell and serve. Regardless of any potential restructuring that we're doing or new ideas, etcetera, at the end of the day, there are 1,000 and 1,000 and 1,000 of customers that are being serviced in our many dealer points and service points every day. We need to take care of them. We need to leverage, of course, our new product ranges. This is a huge investment and it's time to make sure that we I wouldn't say harvest, but that we get the payback from that.
Optimizing the price volume by region, of course, that is different. The North American situation, for instance, is different from the Latin American situation, is different from the European situation and so on and so forth. And of course, in several of the markets, you can see me talking about an even further greater emphasis on the aftermarket and that means different things for different regions. So that's running the business. Then also taking this opportunity to review the business, to create now the group truck sales, making sure that we implement one way of working, making sure that we structurally get benefits of the new setup, making sure that we leverage the possibility to sharpen our focus on our brands and our product lines.
These are some of the examples in the establishment. Driving retail excellence, I talked about that. Thinking through what offering should we have, what does that brand market product combination look like? Again, that's an ongoing business. But with the map that Olof showed you and that I've also showed you, it's clear that we have more to do to make sure that we even get even more bang for the buck in the market.
Making sure that we review our distribution coverage, making sure that we increase the performance inside the workshops. Again, it is a bit difficult to transmit that to you on a PowerPoint, but it's like the plant that you have seen. To hear that we have 300,000 IDs per year targeted here for 2015 in GTO is one thing. And then you go out and you see all the IDs that are coming into reality on the factory floor. That's the same thing at the service workshop.
And then last but absolutely not least, make sure that we drive out now the structural cost and the cost efficiency then. And we have a number of opportunities to do that. And obviously, as GTS, we have our fair share of the SEK 10,000,000,000 program then. There are structural changes that will that are sort of in the planning and will go on, simplifying the organization and making sure that we have the right size in this area going forward. So those are some of the priorities that we have and the most important ones then in GTS going forward.
With that, I'd like to introduce my friend and colleague, Marty Weisberg, who'll take you through the CE part of the group's business. Thank you very much.
Good afternoon. My name is Martin Weisberg. I'm pleased to be with you this afternoon to speak about Volvo Construction Equipment. I'll be sharing with you the very strong strategic foundation we have and how it links to the priorities of the marketplace moving forward. We'll be speaking about the obvious correction in the emerging markets for the industry, but for us as a key participant and the impact that's had on our results, especially recently and also activities started a while ago to drive profitability improvement, short term cyclical activities, but also the structural activities and then some summing up.
Volvo CE is a very strong strategic foundation and we have scale. We are a top 3 participant in the construction equipment industry. In 2014, in our served segments, we're number 2 in units and number 3 in revenue. We are very well invested and some of the cornerstones of our strong foundation, which I'll talk on each of these now, is our products and our investments made in our product range and technology, the competitive advantage we have, which is our dual brand approach and our dual brand strategy, I look forward to sharing this with you. And we're a global company from an industrial footprint, distribution, effective dual brand distribution around the globe.
I'll be showing in the slides to come that in addition to the strategic foundational aspects, other aspects that you will see link not just well, but in an important way to the trends, the dynamics and how the market is moving and how we're moving not just with it, but quickly. Starting then first with some of our We have a very strong product portfolio, very competitive in our core segments. I'll be showing you soon how in our served market, which is quite large, 800,000 units, 70% of those units are excavators or wheel loaders. So keep that in mind, if you would please. Globally in wheel loaders, we're the number one market shareholder, both brands, Volvo and SDLG combined.
Articulated haulers, which is a smaller segment, but we're number 2, close back to being again number 1. And in excavators, which is the largest segment of our industry, we're number 6 with room to grow and we are growing, gaining share profitably. And number 4 in what we call we have segregated in the compact equipment and then the general purpose production equipment, medium and large size, where we're number 4 globally with an outstanding product and gaining ground. We have, as Olaf has said, as Joakim has said, Mikko Bratt and others, as a group and at CE, we have continued to invest wisely in our product line, listening to the customers and driving things ahead. Not least amongst those has been from a regulatory standpoint, very successful launch of the Tier 4 final engines, already with almost 4,000 units in service, some of these already with 5,000 approaching 6,000 service hours, very solid quality, industry leading technology.
We continue to invest in this product lineup, new ranges, new products, upgrades. Last year, we concluded the acquisition of the Terex Truck Business, which is the Terex Rigid Truck and the Terex Articulated Hauler, which are now part of our product portfolio as well. The marketplace has indeed shifted over the years and we've talked about this on the truck side and there are some parallels to the construction equipment side too as we look at the value proposition that customers look for as the markets themselves have shifted. And again, as you think of our served market of about 800,000 units, which I hope you agree is quite large, about 70% of that or 550,000 units fall into what's more the value segment. The remaining 30% more into the premium and high end segment and we cover all of those value propositions increasingly adding to that.
If you start then with our SDLG product, which is our second one of our 2 brands, Volvo and SDLG. It's the company that we own 70% of, Chinese based manufacturing, number 1 manufacturer of wheel loaders in China domestic and continues then to drive offering that value proposition very important in this large and growing market, not just in the developing marketplaces, but increasingly as I'll describe in some of the mature marketplaces as well. And then the Volvo brand, if you will, in the upper right, especially with the larger equipment, the premium product, the large production pieces, premium pricing, strong aftermarket business, the heritage of our company that we continue to leverage in a very strong way. However, one of the trends that I'll describe is that even in the premium segment, one size does not fit all. So we continue to work on our product positioning and taking the Volvo branded piece more with product cost reduction, but always maintaining the brand promise to brand equity, durability, quality, reliability into the high end segment, because what sells perhaps well in Europe may sell less well in North America and these are shifts that we've been making.
On the value brand, as I will show you, we are expanding that offering with some of the shifts that we're range, premium, high end value increasingly as we add, but how do we bring this to market? We at Volvo CE and in the Volvo Group, we have a competitive advantage. We have the 2 brands, we have the products, We have SDLG, which is a premier leading Chinese domestic manufacturer, very strong in China domestic marketplace. We add to that outside of China, the Volvo CE distribution network, one of the strongest in the industry, well capitalized, well established, multiple points. This allows us then to drive our dual brand strategy, which I'll speak about more in a minute.
But first, let's speak about our export strategy. Today, SDLG is in the number one position of Chinese domestic manufacturers when it comes to export. So today, we're in the number one position. Our goal is not just to stay number 1, our goal and what we will accomplish is to expand our lead and grow this because this is our competitive advantage. We have the Chinese manufactured product, we have the outside of China mature market and developing market distribution.
To give you some figures on this, both brands today, we have dealer groups or ownership groups, if you will, of 3 60 dealers. Those 360 dealer groups, be it family businesses or whatever, combined represent or provide 2,600 dealer locations, sales, service, parts, combination thereof. So as you look at the global map and think 2,600 touch points to customers, very strong. Within China, the SDLG distribution network and the Volvo C distribution network are to 98% separate. Outside of China, what we're doing and we'll continue to drive, we're leveraging the SDLG export opportunity by taking the strong well established Volvo CE dealers and having them add to their business structures and SDLG distribution, typically separated but under common ownership and perhaps with shared resources.
Today, of the Volvo CE dealers not in China, say 200 plus or so, about a third of those are also SDLG dealers. In Latin America, this has been going on for a few years quite successfully, not just in Brazil, but throughout. In Southeast Asia, it's been going on for a while and we continue to build then and we measure our dealers not just on Volvo share, but also on SDLG share. A recent accomplishment and surprising to many of our competitors is that in the United States, this time last year of our Volvo distribution network, not one was also an SDLG dealer, not much of a demand in the U. S.
For Chinese manufactured construction equipment to be fair. As of today, we have 20 SDLG sales points in the United States tied to Volvo CE dealers and it's growing by 5 every month. A year ago, we were selling 0 SDLG wheel loaders in United States. Today, we've penetrated that and while it's very small still, but strategic, we're the number one Chinese importer of construction equipment wheel loaders into the United States. This is an important competitive advantage that we have around the globe.
It's evolving, it's developing and we're pushing a lot of resources and focus on this. It's a key part of our strategic initiative. Every Chinese manufacturer, including SDLG, which is us, has an export strategy. But we have the export strategy coupled with global distribution. And as Joakim said, it's the promise of the aftermarket, it's the uptime, it's the reliability.
Even the best products need repair and service and parts. This is what is going to allow us to continue to drive this unique competitive advantage. A little bit more about the product, if I may. And this chart is our served market in units for the entire industry. Again, picture 800,000 units or so.
And you can see that wheel loaders and excavators, about 70% of that. Why is this important? Because we're leaders in wheel loaders and excavators. Let's talk about this. Wheel loaders again were number 1, market share both brands globally articulated haulers number 2 and excavators, while we're not yet in the top 5 globally, okay, we continue to drive and grow on both the large equipment, the medium size and large, 10 tonnes and larger and on the compact, which is a large and growing market.
I point out the excavators because it's a very important and significant growth opportunity for us that we're driving to with significant focus and energy. We have the focus on the core products. We continue to invest in our core products and we continue to work with and train our dealers to sell these core products and support them, both brands, all countries around the globe. We have the products, we have the value coverage and we have some geographic strongholds. We're not completely satisfied, as I will show you, with how good we are in every part of the world.
But again, this is our served market, okay? And we're not in Japan, but we show Japan because of the product we sell, this 800,000 units, a lot of it's sold in Japan, but we have none there. Market And we'll talk about China with more detail coming forward, followed by North America, Europe and you know the score. And we're in all these places other than Japan. In China, again, Volvo CE is number 1 in market share, both brands combined.
In Europe, we're number 4 and gaining ground. In Greater EMEA, we're number 3. In Europe, we're number 4 and we're number 1 in medium size and large machines. Volvo branded premium and some high end production construction equipment, high quality premium product, very strong aftermarket business. In North America, we have significant excavators and in North excavators around the globe, North America, all products, but excavators in particular, we're very focused and we know how to grow it and we know how to do it with our dealers.
So from the past few slides, you'd say, well, everything's quite good for Volvo Construction Equipment. But as you know, we've had a difficult year last year and a quite difficult Q4. Part of this is cyclical. Part of this are the structural things that have already been announced that we're fixing. So I'm going to talk about first some of the emerging market activities that have affected the industry and have certainly had a big impact on our financial performance.
This is clear. The red line is unit this is unit sales, serve market, the red line is China. And you can see a dramatic growth up and equally dramatic growth down. As you know, our view is that China unit sales, and again still the single largest market in our industry, So even in a bad year, quite big. China unit sales in 2015, as we've said, we feel will be down from 2014, but we see some points of stabilization and we are leaning into China, not away.
The blue line, the rest of the bricks, let's say, again, where we're impacted, Brazil, Russia, India, Indonesia, not the same dramatic, right, but still down. Impact on industry and certainly on CE. Let's talk more about China specifically. As we've stated, as Olaf has stated, this correction has had an impact on our results. We wanted to share with you a little bit more detail on this.
This compares 2011 versus last year 2014, both brands revenue mix. And as you see in 2011, 31% of our revenue was from China, last year 20%. So both in units and in revenue, a drop of almost 50%. And in those good day heady days of strong growth in China, Those were a lot of larger pieces of equipment, especially in the Volvo side excavators, bigger equipment, good margins and the mix now has shifted, still a lot of good sized excavators, but more of a balancing between the compact equipment and the larger production equipment. As you see though, while the impact has been significant for us by this chart, for Volvo CE, China remains even last year number 2 region for revenue and number 1 region for units.
In a few slides, we'll speak about what we're doing in China to secure our base and leverage our investments there. So the geographic changes, the emerging markets had an impact on us. Like many of our under industry participants, mining's had an impact on us. As you may be aware, Volvo CE does not manufacture or sell the very large mining equipment. We're in the 100 tonne and lower.
So we're not in the very, very large, but we support and are very active in the mining equipment of course in mining industry of course, okay, not just in China, but also in rest of Asia Pacific as well. And you can see similar to the China pie charts, mining went from both brands total revenue of some 21% to almost cut in half, 2011 to 2014. This has an impact on our earnings. Mining pieces are larger pieces, bigger pieces, premium product, more margin, stronger aftermarket. So we share this with you so that you have the visibility, okay?
The next question then is, what are we doing about this? Because we don't sit and just be victims of this. We have been taking action and we are taking action to drive our profitability. And I now show the same slide that Olaf started with earlier. Joakim has shown recently same information that Olaf showed but split by our 2 brands and again, this is our internal reference point.
And as you can see, we don't grade ourselves so well. We're not happy with this. We're driving past this. This gives us and we have the focus of the targeted and very selective activities and solutions to drive and not kid ourselves that the global average is going to pull us through. It's good to have good global averages, but we have to perform in each region, in each product line and each brand.
And we have that focus and we have the activities to drive that in a very good way. To be more specific, I'll speak about some of the activities and the list is quite long, but just to give you the highlights and I'll talk about it both short term profitability improvement or cyclical and then more long term some of the structural. On the cyclical, starting many quarters ago, we started hitting the brakes on spending and expenses, cutting back the frames, selling and administration, R and D, same as the total group. Also, managing inventory in line with demand. And some of these activities in a I think a very good and responsible way showed up in the Q4 as our absorption then was less.
But I think we've managed inventory down in a reasonably good way, but not at the expense of being able to respond quickly to good opportunities or increases in demand. We've maintained the flexibility and the ability to respond to upticks, not if they come, but when they come around the globe in our marketplaces. And common sense indeed, but we're much sharper and analytical on managing our mix and driving absorption factors and mindful of the currency, some of which are in our favor. And then on the industrial side, as Mikko Bratt pointed out from a group perspective and applies to C as well, driving industrial efficiency both on a variable cost and a fixed cost. One of the messages that I want to give is that these aren't new activities as of because we had a bad Q4.
These are activities we've been driving for 5 quarters and we continue to accelerate these activities with more to come. Now more on the structural side. Before I go through the slide, one of the I think one of the most strongest examples of structural changes, you can even say cultural changes at Volvo CE was, as we announced last November, was product portfolio changes, which we will admit we had been a little slow perhaps to react on. But last November, we announced the complete exit from the milling machine business. Why?
Because it hadn't been a moneymaker for us for years. Others do it better than we do, quite frankly. Refocus those energies on our core products and what customer wants, customers want. And even bigger for us was ceasing on Volvo branded backhoe loaders and motor graders, the design and manufacturing as and where we had been doing it for a generation plus in our Western facilities and switching the design and manufacturing of backhoe loader and motor graders to our SDLG facilities in China to leverage that investment. Then that's part again of our accelerated SDLG export strategy to still in select markets provide backhoe loader and motor grader SDLG branded value product, not the premium product.
That's an example of product positioning changes. The premium product, we quite frankly was not our best investment. So structural, more sourcing from China, leveraging our investments there, finished goods but also components back into the Volvo system, product positioning I spoke about, industrial footprint changes with the backhoe loader exit, we're exiting the CE side of our plant in Poland. We've taken down capacity throughout our industrial network over 2014 2015. And as announced last year, headcount reduction tied to the product shifts from Western to China plus other non product related headcount reduction just for efficiency measures of 1,000 Volvo CE employees, which is progressing ahead of plan.
On the commercial side, and I'll shortly speak more about China and North America because both of them deserve more attention, We're driving our activities in both those markets, rationalizing the product portfolio, again, best examples having been the backhoe loader and the motor grader Volvo brand. And as you'll hear in my almost my at the end of my presentation, more focus, investment and accelerating our activities and our energies in aftermarket business. It was like truck, it's big, it's profitable, it's important and we want to get more of it, but we have to continue to invest in the next generation of the aftermarket. China, what are some of the activities there? And you see on your left hand side, what's the situation, which you all know if you've read a paper in the last 9 months or so, significant margin for our industry, excess equipment inventory sitting, low capacity utilization at the factories industry wide, but low equipment utilization, monthly hours that the equipment is running.
So in China, we have a few periods still yet for us to work through this correction. But what are our activities we're doing? Still one of our largest and most important markets that we're leaning into and leveraging our investments. We continue to take a strong aggressive commercial view of this. There's still going to be a spring in China.
There's still 200,000 pieces of construction equipment sold in China. We still have the strong dual brand presence in China and we will continue to leverage this, maintain and grow our share and continue to drive on our strategy in China. We do need and are continuing to work through this downturn, which is not easy, but we have the skills and the resources to do this. Also in China, driving the export business, as said, leverage our industrial investment, which is good and strong and the expansion of our technology efforts. 3 years ago, we launched our new tech center in Jinan.
So we continue to recruit, invest and hire the best and brightest engineers in China because again, as a reminder, we are a Chinese construction equipment manufacturer in addition to being a global equipment manufacturer. And to be big and strong in China, you have to be in China, not just with manufacturing, but with technology, product development and support. North America, solid, quite good conditions right now. This year 2015, flat to reasonable to last year. Obviously, for us, not our traditional home market, even though we've been there for quite a while, right, but strong domestic competitors who take strong notice of our dual brand strategy and take very strong notice of the quality of our products.
We continue to drive distribution development in the traditional way, but also North America in North American market, the rental business is a very important large and strategic aspect. We continue to work with our dealers who are already leaders in this to develop their rental fleet capabilities within their dealerships and we provide them the tools to do this. It's one of the keys to us driving our excavator share in North America. Of our regions, North America is one of the strongest for us in aftermarket, again, a testimony to the strength of the Volvo CE distribution network in North America. We continue to push that and leverage it, dual brand strategy that I spoke about.
And I think North America is actually one of the best examples of where our changes in our product positioning are not just important but are strategic. So if you recall the graph with the premium high end and value, North America is a good example where we are shifting the product cost and product specs of some of our premium products, Volvo branded, into more of a lower spec, better price formula because we haven't been gaining the share that we need in North America. And the customer's voice needed to be listened to a little bit more closely. So again, within the same product category, but driving that down. And the focus in North America as we have been doing with some significant success last year is increasing share and doing it in a profitable way.
Much like in the truck business, certainly in our bus business within the Volvo Group and in our Penta business, at Volvo CE, it's not just about the hard product. It's about the complete Volvo Group offering, the integrated commercial offering. And so we take the hard product that I've described and the markets that I've described and we add to that the capital. Volvo Financial Services is a competitive advantage of the Volvo Group, perhaps not unique to other large construction equipment manufacturers, but not all of them have a top captive. It really allows us to drive the business even more so than trucks, I would say.
The sale of construction equipment, especially in mature markets, is very much driven by financial merchandising and programs and has been for a while. It's also important because it allows us then to not just gauge, but to provide the capital to our distributors for them to continue to build their rental fleets. We take the hard product, we take group capital, we add to that our strong focus on the aftermarket and then we drive this further as we go into the next generation, which is connectivity, very similar to what Joakim Rosenberg spoke about. It takes me then to my second to last slide. The market is shifting.
Volvo CE is staying with that and getting a half step to a step ahead of that. It's away from selling iron to selling productivity. Our customers are telling us and we're increasingly providing solutions where it's more cost per ton moved than it is how much does that excavator cost. And the ability to do this and do this well requires data, requires analytics, requires the connectivity, telematics, machine controls, smart machines. So we're here to tell you that we are investing in this increasingly.
We're driving these solutions because the market is moving this way And it's moving and the speed of change is increasing. And we're keeping pace with this plus. Summing up then. As Olaf said, we're well invested. We have the assets.
We have the products. We have the coverage with our dual brand strategy. We have the distribution to make the sale. We have market leading positions from both the product and certain geographies. We have the STL that leverages all above and we have the technological leadership that we've invested in for decades decades.
So this is that solid strategic foundation that I hope then that you see and agree to a large extent links and ties to where the market is and where the market is moving. But we're not happy with our financial performance. And we have cyclical aspects and we have structural aspects and we've discussed today the strong actions that have started not just recently, but a while ago, okay? We need to continue to drive this profitability. As Olaf said and as Joakim said, we are driving to the green.
We're driving for the green, you can say, but we'll keep it on the fairway. These activities are well underway. They're being executed on now with more to come. We have the traction and we have the momentum to drive towards our goal again. So this ends my presentation.
And with that, I hand it back over to our CEO, Olaf. Thank
you so much, Mare. And then I'm not only as closing, I'm also now starting the presentation that's closing the CMD for this year. And what I would like to spend the next 20, 25 minutes with you is actually to talk about the fundamentals of creating a stable and profitable and successful group going forward. And in order to do that, if you put yourself in a helicopter and look at what kind of ingredients do you really need to have in order to build? What platform do you need to have?
And these are the basic platform that EPAN needs to have. You need to have the leading brands and products for each segment. And I think what we have shown today, what Joakim has shown, what we have seen out in the production, if you look at the industrial footprint, we're not only talking about invested in hardware, it's all system that benefits that from what I think you have and you follow us closely. And you can see all the novelties that we come up when it comes to product and product features, but very much connected to our core values in terms of safety, quality and careful environment and also the add on features that we do in all our new launches that we're doing. And finally, the global distribution presence and the global distribution network that is absolutely needed to do that.
It's good to have all those pieces 1 by 1. But the real trick is, of course, to combine that if you really expect to be a global player and combine it in different dimensions, and I will come back to that a little bit later as well. And the direct feedback is, of course, for the centerpiece of this picture. The direct feedback, if you're successful or not, is the market share, it is how successful you are around the globe. And here is, of course, something that is important, to create a critical mass in the regions that you're in.
And if you look at those consolidated numbers, and I take the heavy duty trucks now as an example, you can see that we do have that critical mass. We are 20 plus in all the regions with our combined market share, and that is very important. Why is that important? It means that there is enough volume there for our dealers to make money, to have the balance sheet in order to continue to invest and grow with us in the different regions, and that is extremely important. But the Jewel brand and the combined market share is of very little value if you can't manage a house of brands.
And I will come back a little bit later how we're addressing that issue because that is extremely important. But having that critical mass then has transformed into and those are numbers. You can see the number of touch points or service points we have in the different regions. And as Joakim has said and as you know as well, we are growing that population every year quite substantially. Again, not only from a numbers point of view, rooftops, but also with content in terms of the people working in it.
And it is very important to look at the distribution network and service as a factory. It should be the same kind of approaches we have seen here out in the factory of today. And then finally, looking at the products. And I mean, if you then take the different aspects we have, adding all those products that we have gone through, if you take that in combination with all the investments we're doing, well, then you have actually our basis, our platform for moving forward. And if you then add to that a competitive cost base, which is then the huge work that we have been doing over the last years, then of course, that is what we have to build on, and that is our prerequisite to take the next step beyond 2015 and into the future.
And it's also good to recognize that the large investments, of course, investments in this industry comes in waves, and those are not quarterly waves. Those are 10 year waves. But we have 1 10 year wave behind us now, both in terms of the product side, but also in terms of the investment in the industrial system. And of course, this enormous investments we have done has been a burden to our financial results over the last years in combination with everything else we have done. I talked about the House of Brands, and we are extremely proud.
And as I've said many times to you, I think this is one of the key assets that we have. The foresight of previous management in the Volvo Group to really go from local or Western Regional, going really global in this industry has been tremendously good. But this sort of development has also come to a cost, and that is again what we're addressing with the €10,000,000,000 program. But this asset now, it's our responsibility to take to the next level because there is no other competitor that have that kind of span all the way from the basic segment all the way up to the premium segment with the Volvo Ground. And it's take a lot to create and also to manage this house of brands.
So let's take an example and focus in on the premium and on the high end segments. That's the Renault, that's the Mack, that's the UD in Japan in particular, and it's then the Volvo brand. So how do you deal with actually creating the scales of economics and making sure that the house of brand is an asset and not a liability. Well, the first step is to look at the high volume components and the key core components. And we have talked about this a number of times.
When it comes to the engine, the engine platforms, we talked about the transmission, but we haven't talked that much about the blood system of a truck. And the blood system of a truck is the electronic architecture. Today, there is so much intelligence built in, in a truck and the way the whole truck is managed is so much dependent on the architecture you have in the truck. It decides the feature levels. It decides so many things, how you run the engines and so on and so forth.
And these 3 together, we have been working for a long time. And on the engine platform, we have moved from always, okay, Christa, now it's 18 to 2, and then we added 1 on the medium duty. So we are basically 3 engine platforms. The transmissions we talked about, we are basically one platform for the automatic manual transmissions, and that is the M drive and the I shift and so on and so forth. But it's not only within the truck business.
We're also then utilizing that both on the buses and on the sea and, of course, of Penta. So the whole group is sort of forming around this volume. And as you can see from a value point of view, we have moved from 5% in 2,001, and we're up now to 65% value commonality within the group. Will that ever be 100%? The answer is no.
And I will come back to why that shouldn't and should never be 100%. The next step of managing this is, of course, to see how do you actually develop your trucks. And here, the CAS, the common architecture and shared technology comes in. And on the left hand side on your slide, you see this green, yellow and red truck. And basically, the system is that you decide in the beginning what is absolutely common, and that is green.
That is the common architecture really where you can scale up tremendously. Engine is such a thing. Transmission is 1. But also, you can see some of the structures, you can really benefit from a lot of commonality. Then there is yellow one, which is variances of that, like the fuel tanks and other things.
And then you have what has to be brand unique and what is the differentiator. And that is basically, for instance, the cab to cab shape and so on and so forth. And what you do then in the 3rd step is then that you add what you exactly what you saw today, a common production system, a common processes and also one production flow that takes care of this. And that means that you can utilize the scale of the high running components, get the cost down of that, you can design in a much faster way, and then you can, at the end, create a really separated and for the customer, a differentiated truck that is exactly to spec, to cost, what he wants to have. And then you can also, with utilizing the combination of volume and specification, utilize all the investments we have done over the years and thereby managing the house of brand.
And this is something when I'm coming back to talking again about the greenification of our brands and regions, here we have a huge opportunity, and we need to work further on that. We have come a long way. As you can see, we have actually expanded 40% in the last 10 years and partially on our number 30%. But here is more to do going forward as well. And we're actually starting the same journey now if you look at the basic and the value segment.
So the benefit of Dongfeng and Ayesha together with the Questor is not the brands. It is, of course, the brands by itself, but it's not only that. It's also the fact that now we can start this journey also on the value and the basic segments. And that gives us a cluster which is big enough addressing a market that is very big in those segments going forward. And here we are just starting the journey now looking at the engines, starting at the cabs, starting at the transmission, the structures and so on and so forth.
And this is something that will be ongoing. But as you saw in the previous slide, this is definitely something that comes over time and takes years to manifest. But you have to start somewhere. You have to start sometime. We have started, and we will continue to do this going forward.
I think this slide shows that we have been successful in that. I mean, if you look at the heavy duty trucks, number 2, the heavy duty engines, 9 liters and upwards, we're number 2. If you take 10 liters and upwards, if you're interested in statistics, it's actually number 1. And then we have talked about construction equipment, buses and marine diesel engines, very strong positions as well. And that's good.
But it's definitely and we believe there is definitely more to do. By taking the greenification map, as we talked about, and focusing on the different areas, we have the untapped opportunity to move further with that because we have the assets that we believe is the foundation for doing that in the future. And what we have been doing, and I've talked to you that many times, it's the 2012 to 2015 period in this company's history is not only the €10,000,000,000 program. It is so much more. It is what you saw out there in the factory today.
It is about the branding positioning. That is only a couple of years old. That didn't exist before. It is about the organization, the way you're working, the functional if you didn't you wait now, right? It is about the now this is interesting to see if I can come back on that one.
It is very much about the culture of the company as well. And what we have to do now is to make sure that the improved cost base that we will have after this year, which has lifted the profitability of the company proportionally because they're general activities, as we said, mainly. We need to take that, combined with the asset I just talked to you about and focus the activities going forward now into respective business area, brand and region and step by step taking that one. And that is exactly what we are looking on, and it has to be very much focused because this is not only about the technology, it's not only about cost reduction, this is so much about culture. You should remember that this company and this group came during 10 ish years from a very specific growth culture, very specific and targeted growth culture.
The Board put the growth targets to the management, and we lived in that environment. And that has been very, very helpful. It has been extremely good in creating the base that we now benefit from, but it did come to a cost. And we realized that 3 years ago when we said that the cost base that came with this expansion is too high, and we need to get that competitive. Hence, what then became the SEK10 billion program.
So we have to correct that. And when we're done going through this now, it has to and it has been very much a cost culture during this year. But I can assure you, cost cutting only is not a business idea. You need to create a cost cautious culture that is hungry for making money. And that is exactly what we're doing now, moving in from this period of the company into 2016, focusing on the profit, creating a cost conscious but profit hungry organization that wants to make money.
Because everyone, at the end of the day, wants to be part of a winning team. And I can assure you, we are creating a winning team as we speak. Summing up, I hope that we have transmitted to you, as a team, the confidence that we have that the activity actions, not only what you have seen today, but the 1,000 and more than 1,000 activities around in the group actually drive us to what we want to achieve. And at the end of the day, the theme of this day is closing the gap, and the gap to close is to become number 1 or number 2 in profitability in our industry. So I hope you had a really good day, and thank
you so much for coming.
And now comes the Q and A. And then I will ask my colleagues, yes. I guess, Christo, I know the line now. There will be microphones handed out for you. Please raise your hands, and we will come to you, right?
So come up.
All right. Hampus Stengelau, Handelsbanken. I have two questions. This is maybe a bit simplifying a bit, but you've been talking all of this of bits and pieces, and there's a big chunk of cost savings to be generated this year. And I would be more interested if you would like to say, what is the major event to like really push forward this SEK 6,700,000,000 in savings this year?
Second question is more on the market intelligence side. If I look at profitability for the sector the last 3 years, it's lower if we compare it to before the crisis in 'nine. And my feeling is, where do you see competition moving in terms of cost savings, etcetera? And how do you feel you are going to be positioned compared to them, let's say, after the end of this year? Those are my two questions.
Thanks.
Okay. I'm a very generous person, so I'll let Johan think about the first question, so you get a really good answer, and I'll take the first one the second one first. And basically, I can say that, I mean, when it comes to competition and cost savings, we are not sort of the lone people in the world who is driving cost and trying to be more efficient. But I think at the end of the day, the interesting point is what is the starting position? What is actually the inherent potential in the activities that you're doing?
And there it's I must say that without having any comparison, but I can assure you, and as I talked to you many times, the potential coming from this growth phase going into the cost efficient move that we are now is, of course, enormous. And I've always said that when we're done now at the back end of this year with the SEK 10,000,000,000, we are taking an enormous step towards the target we want to see. But will we be there or not? Nobody knows. It depends on where we're seeing.
But I think also it's important to say that life doesn't stop after 2015. We have already now started to gear ourselves into the next phase in our culture, the next phase in our focus, and that's the Swedish the Swenglish greenification slide, I believe.
I'm not quite sure if
I followed your question. The 6.5% you referred to the
I was referring to the 3.3% you have already generated and the remaining 6.7%. And there's a lot of bits and pieces, and I was wondering if there's a major event that you could kind of comment on that would realize the last part of this year.
Okay. I think to start with, when we talk about the different parts, you remember it's kind of fixed cost in manufacturing or structured cost in manufacturing, R and D and S and A. I would say Michael came off fairly well and pretty early in this process, and that's why you can see a lot of focus there, and that's also started to show in the SEK 3,000,000,000, SEK 3,500,000,000 that we have done so far. Also within admin, quite a progress and also to start to level our R and D on the, you can say, the right level. So I think the I have to actually look at Mikael sorry, Joakim here as well.
Where we are now picking up speed when it comes to putting the selling the expenses on the right level is actually within the selling. While at the same time, of course, all the efforts that Michael is doing is continuing through and also on R and D. But you can say it started a little bit earlier there. Thanks. You're welcome.
Okay. It's Colin Gibson from HSBC. I've got 3 questions, and they're all for Martin. So congratulations, you've lucked out. First of all, I wanted to go back to your Slide 35.
That's the ones with the colored boxes. And now I am actually colorblind, so I may have just been reading that slide wrong. But it looked to me as if you were saying that profitability in North America was weaker than profitability in China, which would be a surprise for my earnings model in 2014. So is that really what you meant that you may that your margins were worse in North America than they were in China in 2014?
As I recall, the profit it's a 2014 full year, But if you include both brands, China, we it was better than the Volvo brand alone where we had the impairment in the 4th quarter.
Okay, okay. That's clear. My second question was, again, thinking about impacts on profitability at the moment. You talked a bit about the situation in China. What about the impact of the strength of the Korean won?
Can you say anything about that?
Exactly. No, I think the Korean one has been working in the wrong direction for us for actually for quite some time, you can say more or less the last 12 months or something like that. And yes, that's what it is for the time being.
Okay. Okay. Thanks very much. And then back to Maarten for my last question, which was a more strategic question about VCE. We're an audience of paid cynics.
So if you tell us you're number 3 in the world, we're going to say, well, number 1 is good, number 2 is good, but number 3 is the first of the losers, right? So to believe that world number 3 is something worth being, I guess it would be helpful to understand that number 6 position in excavators, which is, of course, the world number 1 product across the whole marketplace, That number 6 position, which sounds quite weak in excavators, how geographically concentrated is that? Are you like number 6 everywhere? Or are you number 1 here, number 1 there, number 1 there, but just not everywhere?
We have very strong parts and we have some weaker parts, right? In China, we're strong. Volvo branded excavator, SDLG excavator gaining strength as well. In the United States, our excavator has an outstanding reputation, but not a big enough of a population And this is part of the rental fleet issues, the dealer issues, but also some of our product positioning. I'd say in Europe, not as strong in excavators as we are in our traditional haulers and loaders.
So there's room for growth in excavators globally. And we take this as an opportunity. And I disagree with if you're number 3, I didn't hear you exactly that you're the first loser. In a market of 800,000 units with the critical mass and scale that we have and the products that we have, we like our number 3 position and we're not necessarily driving for growth for the sake of growth to say that we're number 2. We're driving to maintain the critical mass that we have and drive the profitability, and we can do that with the assets that we already have.
All right. Thank you.
Hi. It's Rob Wertheimer at Vertical. A general question and a specific, if I may. So it's obviously a competitive environment. You're improving very rapidly, and some of the investments you've made over the past several years hopefully starting to pay off.
Do you feel as though can you even tell if you're improving faster than competition, which is to say will you be able to keep the margin that comes from all these savings or will it get price competed away as people also improve and price down. I don't know whether you think price cost will be positive in the next 2, 3 years or whether everybody improves and gets down. And specifically, North America's North American truck is one area where pricing maybe hasn't been as robust in the industry, not certainly for you as people would have expected, do you expect that to turn as orders continue to be strong?
I think if I take the general, then Joakim, you can take the specific. One of the strategic targets we do have, which is still very, very valid even though we don't follow that up on a quarterly basis is the price realization strategy target. And I think you saw the chart out there, every station you were setting the strategic target. And the first one is and I must say that give or take, I'm reasonably pleased with the price realization that we have seen, particularly on the Volvo side, particularly on the Volvo side with
a new
introduction. That's for sure. Then I would say that we have, as Joakim said, a work to be done on the Renault side. But in general, the culture and the attitude has been that now we have a once in a lifetime opportunity and duty to the company to make sure that those new products comes in on the right price level because otherwise you will have to fight for years before you get the right price level. And that we have succeeded with.
I'm not sure I can predict the pricing behavior of the customers all over North America. But if we review some of the facts, facts are that we have the best quality in our products that we have had in a really long time, and we follow that obviously very thoroughly. We're filling those products with more value. The automated manual transmission, the AMT over here is one example. Our customers are benefiting from the best fuel economy they've had in a really long time.
The order intake is very strong and our customers, considering the interest rates and considering the fuel prices, are making more money than they have been doing in a long time. So if you put all of that together, where I was coming from was saying that in that environment, we need to make sure that we realize the price we want to realize.
Okay. Michael Rabe, Kepler Cheuvreux. Just two quick questions. First of all, more on the long term strategic outlook. Going beyond 2016, to what extent do you think you'll be able to sustain your current industrial footprint in trucks in Europe?
Or do you think you'll probably have to trigger more concentration of production volumes in fewer factories than is the case right now? And then also talking about scale economies going forward and perhaps foreshadowing a little bit on your next generation medium duty engines for trucks and all other product of yours. To what extent is Deutsch still going to play a role in that game? Thanks.
Okay. If we start with the structure, Michael, on the European side.
Yes. I think it's very clear that the structural footprint changes that I talked about before here, that is what we have in our plans. No other restructuring activities in terms of footprint questions is on the radar screen. We are working with the plans we have, and we see great opportunities to improve productivity in that existing footprint, and that is what we're going for.
And when it comes to the medium duty engine side, we do have Deutsch, as you know, as a supplier on sea, and that is will continue, and that's the plan going forward as well. So Deutsch play a role in the total sort of engine setup structure we have and have done so for a long, long time.
Yes. Bjorn here at Randalski Bank. A question on Construction Equipment again coming back to Construction Equipment. You said you're number 3 in the world, but that's, I guess, basically that you're number 1 in China and pretty far from 1 elsewhere on the Volvo brand. Do you really have the is it possible to organically grow enough in regions outside China to really take the desired position?
Yes, absolutely. We have areas where we can grow in all of our core products, not the least of which are the larger excavators, which again is a key piece. We have growth ambitions and plans in the compact equipment to continue to grow in the wheel loader segment. We're very strong in the higher end, the larger wheel loaders. We have growth opportunities around the globe, especially in North America in midsize wheel loaders and in compact wheel loaders.
There's good segments of the marketplace in our key product platforms where we want to sell more and we have the products. We may need to adjust some of the product positioning and the product cost to be a little bit more competitive and quite frankly to be more profitable. But these are the plans we have in place, so there's certainly the ability and the plans to drive this organically to reach this.
But you said, I think, back in Q4 that you were breakeven in China, which I guess is very good achievement given the severe market reaction we have had there. But that tells us that you are loss making in elsewhere. And Europe has been pretty flattish last few years and North America is pretty strong. So something must be very difficult for you. And you also had a big restructuring program a couple of years back for construction equipment.
So again, do you have the size that you really need to have in Europe and North America?
We have significant investments made in our industrial platform. We are have more capacity than we're able to utilize right now. We're driving our activities to bring down the fixed costs, right size the industrial capacity, while we drive the organic growth with the good products and in the good markets that we have. 4th quarter was a difficult quarter and we made some decisions on inventory and we took some of the pain in the Q4 on this. You're right, Europe is a traditionally and still a solid marketplace for us.
We still have products that we have to continue to drive, product cost and product profitability within our existing ranges. We have the plans to do this. This is why we showed the colors on the grid. We can continue to drive it to green with focus on products by brand and by region. So without getting into great detail, we're driving this in the right direction.
It's not going to happen overnight, but the plans are in place and we're doing this.
Last question, you also said that value segment is now 70% of the market. If you look a couple of years ahead, where do you think value segments will be represented?
Probably getting larger, not getting smaller. Do we think it will go to 80? No. Do we think it's going to continue to pick up? Yes, it's a trend.
We don't think it's the ramp up is continually growing so big, but we don't see it getting smaller than the 70%. I just would say it that way.
And when we take SDLG into Europe?
Excuse me?
SDLG brand into Europe?
We're looking at this now. Our European Volvo dealers are asking when can they start getting some of the SDLG product. Thank you. Pleasure.
Yes. Tim Rokossa, Deutsche Bank. You're in the back. A couple of questions as well, please. And the first one is, I was actually hoping you can quantify some of the nice slides that you have shown us today a bit more in detail.
So for example, this 300,000 ideas that you are targeting for this year, is there somehow a measurable impact of that? I know it's probably bits and pieces here like we've seen today in the plant visit, but somehow like a back on the envelope calculation that you would associate with a certain idea that's out there? And then also for the colored slides that you've shown us, what's your benchmark for that? How do you determine what is a very good performance, what is a low performance and what's a mediocre one?
I didn't really catch the first question, but I think it was for you, Mike.
Yes, I can touch upon that. We will not quantify what 300,000 implemented ideas will mean, but and I also stated that it's not the number itself that drives, it's the content of the ideas and you saw some example here where you have quite big ranges between the different ideas here. But when I talk about driving them 5% productivity per year, of course, those implemented at least is the key success to accomplish that in connection then with some structural activities and also with securing it through the process maturity here. But we would not quantify what that means per ID or anything like that because I don't think that's meaningful either.
Dan, when it comes to the we need to come up with a name or the picture instead of greenification picture, but the map where we show all the different colors. Basically what we have done is that, first of all, we looked at where do we see improvements, where do we where are we pleased with the performance compared to a number of different reasons, but mainly, of course, internally and see where do we have the opportunity. So it's a little bit of a mix and it's more of an indication where we do see improvement potential and also indicating both to you where we're going to focus on in the future, but also internally. Again, we try to be transparent to show that these regions, brands is now under scrutiny and there will be a lot of activities that we need to focus on that.
And then maybe 2 quick ones, 1 on Construction Equipment and 1 on Trucks. The announcement yesterday to sell a stake, at least a part of the stake in IQOS, will that have any consequences on your strategy regarding that brand at all with the joint venture? And on Construction Equipment, maybe just quickly touching up on the positive signs you've seen of stabilization in the Chinese market. Just to really understand the situation, is given the capacity utilization that we've seen, given the high inventories that are still out there, is the stabilization really enough in China to change the situation significantly? Or would we not require to see pretty strong growth actually?
The first question was very direct, and the answer will be very direct, no. No change
whatsoever. And the second question, if I may, Olaf, is some small signs stabilization in China, not seeing stabilization in China. China is in a significant correction mode still. Equipment utilization, hours per month that our customers are utilizing equipment still low. We're waiting to see that come back up we can comfortably say that we're at the bottom.
So we don't think we're there yet. In general, though, amidst this downturn, this correction, we're seeing the industry regain its stability and its footing. Dealers are much more skilled at used equipment remarketing. We see the strengths of the channels coming back up. We're seeing some of the larger customers, the big fleets starting to place the orders for infrastructure.
We don't yet see that trickling down to the subcontractors and the sub subcontractors, the onesies twosies. We don't I don't call it a stabilizing market. We think there's a few periods still before we can start seeing it come the other way. We see 2015 as being lower unit sales than 2014 in China, but we're optimistic about it regaining its footing, certainly coming soon.
Okay. Thank you. My name is Zijano from Mizuho Bank. I have 3 questions. And one is about the aftermarket.
I'd like to know the target level of the percentage against the sales on including the scenario for the increase how to increase the level? The second is about the
variable cost.
I would like to know the target for the variable cost percentage or what is the key driver for increasing the variable cost I mean, percentage. 3rd is about the construction equipment. We heard that there are some issues in quality management for regarding the export from China and we'd like to know how to solve this issue or how to overcome.
Okay. I think if we start with the last question, that was
And forgive me, the question was quality issues on Chinese export products. We have no today significant large quality issues on the SDLG product that we're exporting from China to the rest of the world. In fact, the quality is quite good and customers are quite impressed. To ensure that we're protecting against this because we're leveraging the Volvo CE distribution outside of China for this export, we're making sure that we're protecting quality, parts availability, service technicians and training. Thus far, the quality has not been a problem.
Reception from the marketplace is quite strong. Thank
you. Okay. And then the variable cost side, Michael?
Sorry, could you repeat that question?
Sorry. You told me that you told us that the variable cost percentage is around 60% at this moment?
No. What I described there in that slide was that the variable cost is 60% of total cost and the fixed cost is 40%. So that was the answer.
So I mean, do you have any target image for the 2016, for example, for 60% to 64%, 65% in 2016?
No, we don't have that kind of target to see what is variable and cost. I mean, of course, there is an advantage to have less fixed and more variable and be able to cope with the market swings, but we don't have a specific target to communicate around that.
Graham Phillips from Jefferies. Two questions, one on the truck business and the other one on the construction equipment. We've learned today a lot in this factory and what you've been talking about today to us on the slides about the improvement in quality. So can you give us indication about warranty provisions? What will have happened to them, say, in the Q4 in the truck division compared to a year ago?
How much benefit have you had from that? And it'd be nice if you give us some accurate numbers. But if you can't and you won't, is there much more room to bring warranty provisions down as a percentage of sales? How do they compare against, say, peer group or competitors? And then I'll ask the construction one in a minute.
If we start with the truck and then we take the construction, of course. In general, you can say that the quality and, of course, what you have seen out here are rendering in an improved quality definitely. And what we see also the new product lines we're putting in place, we get very good feedback also on the product. Then, of course, we have a big rolling stock out there. And Jan, I don't know how much detail we give on the guarantees or the warranty reserves and the movements?
No, we definitely don't give any forecast on where the provisions will be at the end of this year. But as you know, the underlying quality per truck is when that comes through, it will definitely with all other things when we talk about volumes and so of course mean that we have to provision this. So that's the way it works. But on the other hand, if volumes increases, maybe the provisions are on the same level as before. But basically, we don't give any forecast on that.
I'm not asking if okay, if you don't give a forecast, could you say in the Q4 of the year completed and the 4th quarter previously, did they improve in trucks? Did the percentages of sales go down?
No, I don't comment on that either. Okay.
And then on Construction Equipment, and you talk about the Value segment. Do the margins differ considerably between the what you can make on a Construction Equipment and a value segment compared to the high the Premium segment?
Generally speaking, the margins on the Value segment are not as big as they are on the Premium segment, both on the initial sale, but also on the aftermarket. So generally speaking, yes, the margins are not as big.
Okay. So going forward then, it sort of puts a bit of a cap on where margins could go given that you want to grow the value segment compared to premium. And compared to previous years, if we look back at peak margins for Construction Equipment, if this mix is going to be different 5 or 6 years later from where the previous peak was?
I'd say we don't forecast that, obviously, but it's about mix and it's about leverage that we're going to be gaining. And I think it's important to point out that the value segment is complementary and incremental, and it allows us and our dealers to leverage fixed costs already invested in.
Thank you.
It's Mike Tindle from Barclays. Two questions, if I may. The first, today, we saw, I think, a pretty comprehensive and extensive review, I'm way out here at the back, of your production processes. But it does seem that for most of the activities there was an associated cost or investment. So I guess the question I have is
where are we in the
cost benefit cycle? Is there still more investment to be made to reap the benefits? Or are we now truly into the harvesting phase of all of the costs that you've put in? And then the second question, I'm afraid, back to CE yet again. In China, in CE, you've mentioned an industry inventory problem, but you've also said that you don't have an inventory problem.
So I guess my question would be, how do you maintain share when your competitors are more desperate than you are?
If we start with an investment question then, I would say that we are on a declining trend, so to speak, in terms of how much we invest in hardware in our industrial system. And I would say that what you saw here today also is not large investments in complicating fixed infrastructure. It's really about having a flexible industrial system inside the plants, and we can do that in a very cost efficient way, and that is what we will see being more and more implemented as we move forward. So I would say from industrial and system perspective, we are on a declining trend here, absolutely.
But am I right to interpret that to mean then that the investment is just ongoing? So the savings come, there is a cost benefit relationship and you just if you're in a positive territory, it just keeps happening. There wasn't one big investment phase, which is now in the past.
Exactly. So it's I mean, we look at it case by case, but as in pure amount of money, it's coming down in the total system.
And for CE, to answer your question about inventory, the comment about the balanced inventory at the end of the 4th quarter was relative to our global network, okay? In China, we have ample inventory to address all growth needs at the dealers, both new and used.
But I'd be right in thinking that your competitors have more inventory than you have though in China?
I'm sorry, it's difficult to hear.
Sorry, would I be right in thinking that your competitors have more inventory than you have in China?
I can't comment on that. I don't know. But I can tell you that we will have appropriate amount of inventory for the spring season coming up and that we have ample inventory sitting in China to make sure we don't miss on any sales opportunity.
Thanks.
On truck in North America, you seem confident in the order flow that you're seeing, but you haven't been willing to add, say, a skeleton 3rd shift. What would you need to see to ramp up production? And what kind of timing could we expect on that? And then conversely, it sounded like the Brazil outlook might have a little bit of downside risk to it. Is that at a low enough level right now that even if it was reduced, that forecast, would there be much of a financial impact?
When it comes to the ramp up here to meet the demands, I mean, we have a very thorough process here when we look at the sales volumes forecast. And based on also the order intake that we see, we are taking the steps necessary to meet the order requirements. And we're looking at the lead time also. As long as we stay within the parameters agreed with the marketing side here, we are keeping that. And then when necessary, we are making the steps up here.
And we have seen a slight increase here during spring. And we have I would say, we are still within the parameters that we should be and with the measurements we are taking also here. But we try to avoid major shift steps. And in order to do that, you need to see the necessity, definitely, before you take that decision.
Would you be willing to share those parameters? I'm trying to get an understanding. Is it 6 month lead time, 8 month, Just so we know what, if any, impact it could have on 2015 on the pension program?
From the potential ramp. We have commitment to meet a certain number of weeks towards the sales organization. And that is our guiding principles to see if we need to go up or for that matter also going down in terms of our capacity. What we're trying to do is that we don't want to go up in shifts unless we absolutely need it because it's a lot of incremental cost associated with that and also then the flexibility on the way down is limited and more costly. So right now, we are within the parameters with the sales and marketing organization, and we also see that we can meet this demand without going up in another shift.
So I mean, we are fine. And when we need to take the decision, we will take the decision. But I will not here predict how that will look like going forward here.
I was mentioning a lot earlier. I think the confidence in the cycle people question North America beyond 15 and your unwillingness to add an incremental shift or a skeleton shift does raise the question, how do you view the cycle after 'fifteen? If you had more confidence that you might be willing to add those costs. So not to give 2016 North America truck guidance, but I'm just throwing it out to you to see your reaction.
It almost sounded like it, but I understand you don't. No, I mean, what we're looking at and we do the 2 processes we have. 1 is the yearly process we do and we look at our estimation for the full year. And then we do that once a year and we don't speculate in the year to come. Then on top of that, we have the visibility issue.
And that means also how long visibility do we have not only on forecast but actual. And that is what's really drive us in terms of the decisions because you cannot really gamble on those kind of big decisions. You need to have the visibility. And that visibility is much, much shorter. So I mean, if you look at a normal market position, we have a visibility of 6 to 12 weeks.
There's a visibility in order backlog we have. And that's what was sort of guiding the short term adjustments that we are doing. So these are 2 parameters that we're looking at when we're balancing the production. And what has done happened in 'sixteen that we will come back and talk about to you in back end of this year.
I'll pass to Mike, but the comment on Brazil, please? Thank
you. It was unclear to me if the comment on Brazil was an industrial one or a commercial one, but on the
commercial side, as I think was clear from the
map with the different colors, relatively speaking, the Volvo brand, which is the dominant brand we have in South America and obviously in Brazil, carries a relatively speaking higher performance than some of the other cells. So on the commercial side, going down in Brazil further, which you are speculating in, would, of course, have some impact, yes.
I wasn't trying to put words in your mouth, but would you agree with that there's a little bit of risk to that Brazil down 19% as a starting point?
I think, as I mentioned, we gave our forecast in the Q4 reporting. We are assessing this obviously very frequently. And if there's a reason to change, we will do so in our quarterly updates. We only give one number per quarter, as you know.
Okay. I appreciate it. Thank you. Thanks.
So another one from the back. It's Fredrik Stahl from UBS. I want to go back to your brands, and I think it's clear on Construction Equipment, how you position STLG and Volvo there. But in trucks, I think it's less clear. And I want to ask you, when you one day start selling Dongfeng and maybe Questar trucks in Europe, will there really be room for the Renault brand in Europe?
Definitely, if you look at the market and the market development and what we see coming, I mean, here we're talking about slow movements in terms of market to market position and brand position movements because it's based on features, it's based on development of the underlying need and demand of the market and the customers. And I would say absolutely when it comes to the European market, it's big enough, it's diverse enough, and you would have the customer differentiation that is big enough to actually keep that proposition that we do have. And then we will have to see and what happens over time when it comes to other entries into the European market. But as I've said and we have discussed it as well, I mean, for me it's much better to be a part of and be able to decide how that should be managed if and when it comes rather than being sort of surprised with some entries. And by having both on the CE side with SDLG and both on the Dongfeng and the Aixin side, of course, we have very much part in that process.
But it's I definitely believe that the positioning that we have for which is called the high end, it's definitely a segment that we're going to see in Europe for long, long term.
Term. Hi, Mike Rabe again from Kepler. I'm sorry for having to get back to the Deutsch complex, but could you help me understanding what going forward the rationale would be behind retaining the work split between yourselves and Deutz or to rephrase things, why would you spend the money twice sacrifice scale economies? And if so, would the role of Deutsch, this constellation, still be as important as it is today?
The reason why and I think you can appreciate that is that the reason why I will not go into that is that, that is core strategy to us. How we are moving ahead with the different models, with the different platforms, with the different features on our core engine side is nothing we sort of discuss externally. Secondly, I can assure you that the cost conscious culture that we now implement, it goes very much also into how we develop the different products and for instance engines. So we, of course, are making sure that we don't spend the money price for the same thing. That's for sure.
Thanks.
You're welcome. Okay. If there is no other question, I thank you, dear colleagues. And before Christa gets all the floor for all the practicalities going forward. I just would like from my side and from my team's side, once again, thank you so much for coming, and I hope you had a great day.
And you're more than welcome to dinner, and we can continue discussions there. So thank you so much.
Yes. And then just some logistical information from my side. We have buses outside, some buses going to the airport, some buses going to the hotel for the dinner. For those who are jumping onto the bus to Brussels, I think you should hurry up to make sure we get that bus rolling as soon as we can. So please go to those buses.