I'd like to start by introducing the whole team that I have with me today, with no particular order, starting with Anders Osberg, our CFO. We have Håkan Karlsson, responsible for business areas. We have Martin Weissburg, still VFS President and Volvo CE President to be. Joachim Rosenberg, sales APAC and joint ventures. We also have Mikael Bratt, who is Group Trucks Operations. Peter Karlsten, sales and marketing Europe. We have Torbjörn Holmström, Volvo Group Trucks Technology and also the CTO of the company. We have Dennis Slagle sitting there on the first row for sales and marketing Americas, North America, and South America. With us today, we also have Bruno Blin, who is responsible for the sales of Renault Trucks plus the southern region in Europe.
We have the guy who is famous on YouTube now, Claes Nilsson, standing 20 meters above in the Gothenburg Harbor on the hook, responsible for the Volvo brand, but also then the Nordic part of the sales of EMEA. Please, in the coffee break and whenever you have time, discuss with the team members, and they will happily answer the questions you have and the different things you would like to discuss. I would like to start just a few minutes before we let those guys come on stage and talk about their business and their transformation by recapping somewhat. We talked about it, and I have talked to you about in the two capital market days that we have had before in 2011 and 2012 about the changes that we're embarking to.
I think it's good sometimes to reflect also and to put things into perspective, what we are doing and what we're trying to do. When it comes to the period from 1999 to 2011, we then created the Volvo Group as it is today. It was an acquisition-driven growth. It was a number of bold moves into new products, new regions, new brands, new markets, and it then built us from being a local or a niche player into the global brand that we are today. Moving our turnover from SEK 100 billion in 1991 to SEK 300 billion in 2011. At the same time, taking major decisions about product renewals, decisions that we now see today, and you see a lot of that in the backdrop of me going forward here.
We also had a very clear discussion and definition when I came in in 2011 and said, "Listen, now we have had this growth. We are where we are. We have an enormous asset. We have an enormous asset in our brands, in our people, in our markets, and we need to make sure that we capitalize on all those investments being done over the last decade." Because we want to have a group that is actually performing world-class. That was, if you remember, also the financial target setting that we had from the board in 2011 that we want to be up there. We want to be up there in terms of profitability. We want to be up there in terms of growth. We want to be up there. We want to be world-class.
When we looked at the status coming into it, we had this consolidation and transformation still to be done in order to reach that. We had all the assets, and we still have all the assets. We needed to do something with it in order to move into the future. The future is then a world-class and profitable driven organic growth company with the world-class profitability. In order to achieve that, we started a transformation. I would like to emphasize the word transformation. This is the period we are in the midst of right now, which is a lot of focus right now, and it should be a lot of focus on that. I want to highlight that the transformation we're in now is there for a purpose.
It's there for us to prepare ourselves in order to go into the 2016 and onwards being a transformed company. Anyone who has done big transformation knows that the only way of succeeding with big transformation is to be extremely disciplined and plan the transformation in structured steps. You have to do the first thing first, you have to do the second thing second, and the third thing third. If you don't do that, you lose the transformation aspects. What you have a risk of actually ending up is that you're going to end up in change. I'm going to come back to the definition where we talk a lot about internally the difference between change and transformation. This is where we are right now. We are exactly in the midst of the transformation process.
I will come back just a few minutes now to talk about the structure that we have, because I think it's important for you looking at the rest of the presentations coming in the afternoon, that you can relate back to the structure. There is a structure and there is a pace and there is a schedule, and that is what is very important in transformations. I also would like to highlight that I'm going to transfer over to the trucks right now, but this change and the transformation we're talking about is valid for the full group. Therefore, if you look at the right-hand side of the slide, you see that when I talk about the group asset, it is not only the trucks, it's also Volvo CE, Volvo Buses, Volvo Penta, which we then call the Business Areas right now.
If we start with 2012, I would actually, if I look back and see on this transformation process, someone would ask me, which one was the most critical year? Which was the critical period in order to succeed with the transformation? I would definitely say 2012. That was the year of building the foundations. We talked about it last year when you were here, but if you look at the size of and the width of all the activities that we actually did during 2012 and implemented during 2012, it created the basis and the foundation for then go on to the issues that I will talk about later and which you will see later as well. The reorganization is much more than a reorganization. It's a new way of working. We have talked about the accountability. We talked about the speed of decision.
We talk about taking decisions and actually be bold in taking decisions, taking decisions that was not taken before, but is actually necessary to take. Culture, when it comes to actually how we work together, making sure that we take out red tape, making sure that we push decisions through once they're taken in a good and speedy way in order to get to the market and in short to move forward. Efficiency, something that is very much on the agenda right now and will be for 2014. Where do we see that we have the efficiency? When you do a transformation like this, the strategy is of utmost importance because that is for the organization, and particularly if you have an organization of 115,000 people, they need something to relate the transformation to. The strategy is that guiding document.
It is the map that we are following through in order to make sure that we end up where we want to end up and that we focus on the things that we want to focus on. Special for this transformation is, of course, the brand positioning and the way that we actually took the brands as a brand by brand approach and moved it into a consolidated and well-defined brand portfolio, meaning that we are covering a bigger chunk of the market. We will talk more about it later, but I think in the backdrop of me, you can actually see the result and the first result of that brand positioning. When we come to 2013, and I've been very clear on that, when it comes to 2013, the focus was and is very much on the product launches.
It is the largest product launch program that we ever have done in the Volvo Group. It is massive, and the result you can see behind me, and some of you have been out test driving it as well, of a huge investment taken actually four, five, six years ago, now coming into a crescendo during this year. I just want to highlight that if you have a product launch of this size and complexity in the organization, this is impacting much more than just the salespeople. This involves the procurement people. It's the engineering. It's the finance. It is the marketing. It's the communication. If you're really going to make this a success, you need to engage the whole company in launching products like this. That has been the focus this year.
We wanted to make sure that the investments that was made during five, six years actually was well taken care of and actually being executed in a way that we start to get the payback on these huge investments. Both Bruno and Claes and Joachim will come back to that and talk about where we stand in that relation right now. During the autumn, and I think you start to see a clock approach in our transformation. During the autumn in 2011, 2012, and also now 2013, we come out with the focus area for next year. The focus area that was launched during 2012 was the product launch. In 2011, it was a strategy, and now we're then implementing it. What we have done this year in September, we carried out with efficiency. Efficiency is the theme for next year.
It's the efficiency program that we have launched, both in terms of the staff and support function organization, but also all other efficiency improvements that we're going to do because they are, of course, an integrated part in achieving the strategic objective, both for the group trucks, but for the group in total. You can see what we have done there in terms of announcing. This is the clock. In the autumn, we define both externally and internally, what is the focus for next year. If we take a jump into 2015, what we see will be the conclusion of the strategy. That is, of course, to take now the effects of the new launches of the efficiency program, and also in terms of the production changes and production setup that we are doing and that we also have announced going forward.
Good afternoon. I will give you a short status update about where we are standing when it comes to the transformation in EMEA. I will start with a short recap what this program is all about. It is about network restructuring. Since the beginning of this year, we have been driving a huge restructuring in the European system, in the distribution system, with the objective to improve service quality and geographical coverage. The second part is to utilize our brands in a more clever way, in a better way. Aligned with the brand positioning strategy, we would like to develop all our brands to its full potential in our region.
For us in EMEA, this means that in Africa and Middle East, we can work with a whole brand portfolio, but in Europe or inside the European community, we can only use Renault and Volvo because we have very strong legislations making it difficult for other brands to enter into Europe. The third leg of this program is to enhance the efficiency in our sales and marketing organization. When it comes to network restructuring, what we really are working for to do is to create a state-of-the-art distribution network with a very good and strong financial performance. What we're doing is to increase the density of the network, and we're using then a dual-branded strategy, and I will come back and talk a little bit more about that later on.
Good afternoon. I will give you a short status update about where we are standing when it comes to the transformation in EMEA. I will start with a short recap what this program is all about. It is about network restructuring. Since the beginning of this year, we have been driving a huge restructuring in the European system, in the distribution system, with the objective to improve service quality and geographical coverage. The second part is to utilize our brands in a more clever way, in a better way. Aligned with the brand positioning strategy, we would like to develop all our brands to its full potential in our region.
In markets where we have a strong market position today for both brands and where we have a sustainable business, we are keeping what we call a separate network. In markets where we have one brand or perhaps even both brands, a weaker market position, there we are now allowing that one dealer are supporting two brands, that we call then an integrated market. That is what we mean with the dual-branded workshops. Around those dual-branded workshops then, of course, when you are supporting two brands or both brands, then you get an increased running population around the dealership, means that you get a better turnover for the dealer and for the workshop. When you get a better population to explore with aftermarket services, of course, you can improve the profitability for the network.
With increased profitability, the dealer can invest in better competencies, better facilities, and better tools. Then you come into a positive spiral. You start to be better in supporting your customers. Customer satisfactions are improving, hopefully then sales and market shares starts to go in the right direction. That is a little bit the idea behind the whole strategy. Where are we standing? What we are aiming for is to improve or increase the number of service points with 200 in the total network. Here you can see the distribution between Volvo Trucks workshops today and Renault Trucks workshops. We are going to increase 50 new workshops or points where you can get service for Volvo, and we are going to increase the Renault side with 150, so totally 200.
At the same time, going down to the bottom part of the chart, we are going to reduce the number of overall workshops from 2,400 to 2,100, meaning that we get a better population around each and every workshop so they can explore more of the market services, so to say, from that population. This is the way we then can improve the profitability in the network, which is very important. The trick we are doing here is to use dual-branded workshops. So in the end of the program, 550 of the workshops will be dual branded, meaning supporting both Volvo Trucks and Renault Trucks. So in the end of this journey, more or less 25% of all our workshops in the EMEA region will be dual branded and 75% will remain separate. I will give another example also on where we can enhance the efficiency.
This was the previous organization when it comes to the market companies for Volvo Trucks in EU30. We had nine of them, and we also had nine on the Renault side. Now with the new Volvo Group organization, it has enabled us to merge those organizations together. So we have gone from 18 market companies down to 8, and this has already been done, and that was effective already from January 1, 2013. To summarize a little the status, when it comes to the network, as I said before, in the end of this journey, we are going to have 550 dual-branded workshops. Already in the end of the year, I must say that I'm very pleased with the pace that we are executing these plans. In the end of this year, we will already have 210 workshops dual branded.
Thank you, Peter. I love to do that. It's been a fun journey and a fun 15 months launching these beautiful trucks that I have behind me. Started with the FH launch in September last year. I will now describe where we are, what we have done, the customer benefits of these products, and some of the effects and results that we already see now. Let me just take a minute first to position the Volvo Truck brand.
Volvo Truck brand is the group's real global brand, sold in more than 130 countries. It is also a truly premium brand, competing with the premium competitors wherever it is participating. Strong heritage with the values of quality, safety, and environmental care, and also a heritage of adding features, innovations that customers appreciate and are prepared to pay for. We have used the Driving Progress umbrella for our marketing activity during several years and are continuing to do that. We started to launch the FH in September last year, commercially. Started production beginning of this year, ramp up during the first six months, and full production after vacation. Also during the spring, we did a commercial launch of the FM, FMX, and FL/FE, and also with production start after vacation this year. When we developed these products, there were four areas that we primarily focused on.
Improving fuel consumption, we all know how important that is for our customers. We have a strong reputation for good fuel consumption on our Euro 5 drivelines. That has been even further improved with features like the I-See, which is an added feature on the I-Shift gearbox. We also, of course, emphasizing now in Europe on the Euro 6 driveline, where we will have different options for different types of transportation, and we really believe that we have an extremely competitive driveline, and thereby also a really competitive fuel consumption. Even better handling. Those of you that have driven the Volvo Trucks out there, I think you can experience how easy these trucks are to drive. Even for me as an amateur driver, really with going from the classic, which is a really good truck, to the new generation, you really feel and see and sense the difference.
More space for the drivers. Some of our international haul drivers are spending maybe up to five, six weeks in a row in the cab. For them to have a cubic meter more of space, it's extremely valuable. A motivated good driver is also very good for its owners. High uptime. Of course, our customers prepared to pay an extra EUR for the product is also expecting high and good uptime. There is a lot of ingredients and innovations in this product that enhances uptime. We have now with our service and maintenance contract, the Gold Contract, also an uptime guarantee for our customers for the first time, I think we are unique in the industry with that. Talking about innovations, we also have a number of industry-unique innovations.
Just mentioning a few of these, Volvo Dynamic Steering makes it very easy, effortless for the driver to drive a heavy loaded vehicle, even in a construction pit. Not only that, when you let go of the steering wheel, it automatically goes into the central position and drives straight forward. I-See is a fantastic innovation where, through the GPS, you can download the road that you are driving on, and it has the geography of the hilliness of the road, and you can optimize the gear shifting of the I-Shift gearbox and thereby even further improve the fuel consumption. I-Park Cool to take a third one. Today, when you, in a hot climate, should sleep in a cab, you need to buy an extra accessory to put on the roof of the cab to cool the cab.
Now, with this I-Park Cool, it has an integrated cooling system, you comfortably can sleep in the cab, even in a hot climate. Of course, innovative products and innovative features like these also requires innovative marketing. That's why I think some of you at least have seen those YouTube virals where we try to boost one or several of these features. Between the four or five different virals that we have now published, we got almost 70,000 clicks on YouTube. Thank you. Million, 70 million clicks on YouTube. It is a difference. Absolutely. Of course, the latest one, which is the one you see up to the right with the VDS. Without this dynamic steering, Mr. Van Damme would have had difficulties to remain on these rear view mirrors, and that's a fantastic feature.
That leads me also to talk a bit more about the launch activities as such. Of course, the YouTube virals is just a small portion of everything we have done. We have had massive activities here in Gothenburg with test driving, with more presentations of the different features of the products. Here in Gothenburg, we've had more than 11,000, almost 12,000 customers, as you can see. On top of that, of course, we are running a lot of local activities with test driving and where we have met another 10,000 customers. We have launched it for our internal network, what we call the commercial crew, 8,500 people, and we have had almost 500 journalists here. On top of that, we have been running a massive training activity and are continuing to do so.
As you can see, we have trained more than 5,000 sales and commercial crew people. We had initial technical training for the key technicians with some 1,600 people. That's now spreading out in the markets, of course. All in all, I think this has been a great journey, fantastic journey, very motivating for our organization, but also, as Olof said, a very massive burden to manage this in a good way. The feedback from the market is extremely positive, and with the market, I mean both from journalists, what we read in the press, but maybe even more important, when I now meet customers who have tested these new vehicles, they are extremely pleased with the experience, extremely happy with what they see and feel and sense and hear from their drivers. This gives us very much confidence going forward here.
We also now start to see the result of this. Considering that we went full-time, full-speed production only after summer, we can see that we now have more than 22,000 orders of the new truck. As you know, in parallel, we have also been selling the classic truck. We have invoiced more than 12,000 trucks so far. We have been able to realize the gross profit margin ambitions that we had in our project. We now also clearly see the benefit in our penetration in the market. The October EU 30 market share was the best ever in Volvo Trucks history with 18.7% market share. With a slow start to this year, we have now also passed last year in accumulated market share.
After October, we had 16.2% market share in EU 30, which is actually the best market share that we have had since 2000. Now we also start to get some November market share figures. I can just conclude that in Germany, in November, we had 12% market share, which is also the best ever market share figure we have seen in Germany. With that, I think we are very pleased with the launch that we have made. Great confidence with the feedback we get from the market. During the autumn, we received this award. Voted by 25 trade journalists in Europe. We got the International Truck of the Year award for 2014. With that, we will, with confidence, move into next year. Thank you very much.
Good afternoon. I'm very pleased to stand in front of you this afternoon to talk about the launch of our new range, to talk about our evolution, as we have called it during the summer period. This is really a revolution for the Renault Trucks brands, involving, I would say, all the people that are working in the Volvo Group for the Renault Trucks brand. I would like to start by talking about the fundamental customer needs. Our customers are professional. We are in the B2B, in the business to business. Of course, they are investing in trucks, and they are expecting to make profit from that. Our trucks are profit center. Our customers, they have commitments with their own customers. They need to count on their investment. They need to count on our trucks. A truck should always be available for them.
A truck should never let them down. Of course, a truck should make the drivers very proud because as it was mentioned by Claes, a motivated driver is very important for the owner of the fleet. It's about personnel. It's difficulties to recruit people. It's to keep them motivated. I met some customers some weeks ago. We had the pleasure to deliver the first trucks to this customer. He was telling me that the first T range that he's getting, they will be given to his best drivers, because to motivate them and to motivate the other drivers. What are our answers from Renault Trucks? Of course, it's about efficiency, and especially on the fuel efficiency. This has been a real focus. We have a special shape on this truck. We have been able to improve by 12% the aerodynamic.
With that, we are able to save up to 5% of fuel compared to our previous range. I think the fuel efficiency is really in the DNA of our new range. Robustness has always been a cradle also during the development of our new range. Robustness for reliability, but also robustness for the resale value. This has always been a weak point in the past of Renault Trucks. Selecting the right material, the right production, and the right design. Then, of course, comfort. Comfort level has been really improved in this new range. We have been focusing a lot on the seat, on the resting area, on the lighting, because, of course, it's extremely important for the drivers and for the owner.
The drivers, being less tired, being less stressed, will be able to give a better productivity. It's also important for his own safety and for the safety of our trucks. With this R revolution, once again, it's an enormous change for our brand. It's an enormous investment from the Volvo Group. This is 7 years of development. We have involved 50 customers, drivers, fleet owners, fleet managers, owner-operators. They have been working with our own engineers, involved in clinic tests, pre-series, influencing the design of our trucks, especially in the interior cab. They have got pre-series, and we have some difficulties now with the customer that got pre-series. We have difficulties to get our truck back because they are so happy with the feature and with the performance, they don't want to give them back to us.
Of course, we have been working a lot to secure the robustness through the testing activities. 300 test vehicles, 10 million kilometers from -40 degrees Celsius up to 60 degrees Celsius, from the North Cape down to the Arabic desert. This is the first time that a truck maker is renewing its full entire range in once. Our new range that you can see on the slide from 3.5 tons up to 120 tons in specific activities. From distribution, the 2-meter D cab, up to the long haul age, with the high sleeper cab. Of course, with the construction, this is, once again, the entire range that we have renewed. This is a big step, an enormous step, I would say, between the previous range of Renault Trucks and our new range. Of course, we need to have the product meeting the customers. Our customers need to drive the trucks.
They need to feel the improvement. They need to feel the new performances. This is far to be just a facelift. I think they have to realize that the Premium, the Magnum are phased out now, and that they are replaced by the new Renault Trucks T range that we have behind us. This is why we have launched this quite extensive launch program to have the customer really realizing the step. They believe us, but they want to measure it. Still we are at the beginning of this program. The demo trucks are just hitting the dealership as we speak. Even if we are at the beginning, we see some very encouraging sign. We have been able to get roughly 2,500 orders, which is very encouraging. Yes, a very extensive launch program starting in Lyon with the Reveal show, June 11.
After we have had local shows in the Euro 6 countries, in Poland with 1,200 customers, in France, where we have shown 80 trucks, we have got and we have invited 3,000 customers. In total, it's 18,000 customers, prospects, and journalists that have been involved in this activity. Of course, we have had a lot of test driving, 1,200 customers, 460 journalists. Another very important activity, a massive training activity for our network. 1,800 salespeople and commercial staff have been trained to really be able to sell our new range. Of course, product demos has also been our focus with 700 trucks. All the feedback from the journalists, from the customer are extremely positive. They are talking about very low noise level. They are talking about the high quality of the materials, the fit and finish, the ergonomic.
They're talking about the fuel economy, which is, of course, extremely important. I think one of our great pleasure during the test drive is to welcome back the customer after they are coming from a tour with our new truck, and to see their smile and to see the big wow that they are telling us, because they are really surprised and they are understanding the big step that we are doing. This is, of course, extremely encouraging. I would like just to encourage you also to look at the film that is behind the truck, where you can see all the feedback and interviews from journalists that have been testing our trucks. Of course, we have to focus to position this new range in the market at the right price, and of course, to start to drive sales.
One big focus has also been the residual value, which has, as I said before, had been a weak point for Renault Trucks in the past. We really focused from the beginning of the development of this truck in different aspect, high quality and durable material, bigger cab with more room, intensive testing routine. It's not enough. We are also improving our used truck organization and processes. Speaking of the flow of used truck, selling truck in our retail because we want to increase the share of our used trucks sell in our retail network. This is extremely important to strengthen the value of our second-hand trucks, but it's also very important to keep the population, to build up the population, selling parts and services. This is a very good transition to the next slide, because service is also a very important area for us.
I will just take some of the services that we are proposing, offering to our customers, starting with the fuel economy, with the Optifuel solution. This is a complete package, including first to select the right truck for the right usage, to train the drivers, because it's of course a very important parameter when it's come to fuel economy, to follow the performance with a telematic equipment. Another important topic for our customer and for the people that are investing in our trucks is to secure the operating cost and to be predictable in term of operating cost. With the Start&Drive contract, the maintenance packages, the maintenance contract, we are offering different level of maintenance contract. With that, we are able to secure for our customer the maintenance cost. Trucks is, of course, an asset, and an asset need to be managed.
This is why we have the Optifleet package, where we are with this equipment, our customer are able to track the trucks, to follow the driver behaviors, to check the consumption, and of course, to optimize the usage of their equipment. To conclude, I think Renault Trucks has got the best product range ever. This is not a new facelift, this is a new generation of trucks. With all the effort that we are doing to promote this new range, to strengthen the resale value, I think we are in a very good position to recapture our historical strong position. With what has described Peter just before, when it's come to the network transformation, we have also great opportunity to grow, especially in Central Europe and in Eastern Europe. Thank you very much.
Now I think it's time to switch to Asia, I would like to ask Joachim Rosenberg to join me. Thank you.
Thank you. Thank you so much, Bruno, good afternoon, everyone. It's my great pleasure to share with you some of the exciting news that we're doing in the Asia-Pacific region. I've chosen to structure this presentation in five sections. The first one will talk about UD Trucks in the growth markets. The second one will touch a bit upon UD Trucks in Japan. The third one will be talking about our joint venture in India, VECV. The fourth one, our pending strategic alliance with Dongfeng, DFCV. Fifth, bring it all together to try to explain what we're trying to build in the Asia-Pacific region. Let's go to the first one, UD in growth markets. If we take a look at the unique product portfolio and the brand portfolio that we have in the Volvo Group, you can see examples here, of course, behind me.
In the Asia-Pacific region, we sell and serve all of the Volvo Group truck brands. That's one sort of important message. The other one is that in Asia-Pacific, the volumes are more in the lower left corner of the chart behind me than the upper right corner. The UD brand in growth markets becomes very important. You can also see that it's distinctly positioned compared to the other brands. Obviously, in order to be successful, one needs to align the value chain to make sure that we can leverage this possibility to increase our addressable market. In order to do that, it's important that the brand is distinct and clear. For those of you who had the chance to go into the UD truck behind me, it's clear that it doesn't have the leather seats. It doesn't have some of the very advanced premium interfaces.
It excels on the essentials. The customer will get all that the customer needs, but not more than the customer wants. That's the basic positioning. It's a good, robust, durable truck. It will do the job. Secondly, being part of a Japanese manufacturer, of course, the Gemba spirit, so well known in Japan, is very important. Gemba means going to the place where the value is created. So in a factory setting, it means going to the factory floor. In a commercial setting, where I work, it means making sure that the dealership gives the right service, the right omotenashi, as it's well known in Japan, the right service level. Thirdly, making sure that we deliver a smart and modern experience. This is not traditionally the strength of Japanese OEMs. You can see just by looking at the design of the truck behind me, that is different.
It's not only the truck, it's the whole package, it's the aftermarket, it's how we communicate, it's how we take care of our customers that's going to make the difference there. Of course, being UD, Ultimate Dependability, is a very strong heritage from the past that we will carry on into the future as well. Pulling all this together is the new brand promise, going the extra mile. That's new for UD Trucks. It means that our products will go the extra distance, and our people will make the extra effort. Going the extra distance because of the reliability, because of the quality, because of the uptime, because of the fuel efficiency, et cetera. Going the extra mile. Putting it together, it's not only about the product.
From the product strategy, what we are about to create or what we are creating is a modern, modular, CAST-based, CAST, Common Architecture Shared Technology, range from light duty to heavy duty for the growth markets. What is very important in these markets is the word affordability. The price point in these markets is different from the U.S., it's different from Europe. Affordability is key. You can also see that it's a full value range that we're aiming for. Quester is the first step on that journey. It's the heavy duty. I'll come back to that in a short while. Secondly, we need to have a value chain delivering our value product. It's very important, of course, if you want to secure profitability, that it's adapted and aligned. Therefore, we have changed the business model.
If we're selling in the growth markets in Asia, we'll source in Asia, we'll manufacture in Asia, we'll sell in Asia, we'll serve in Asia. The older model of doing it in Japan and sort of trying to export it overseas is a model that we don't think has the same profitability prospects. That, of course, will have impact on our operations in Japan, something that Mikael Bratt will come back to after the coffee break. Now, with these things in place, it gives us an opportunity to broaden the market coverage along several dimensions. Of course, new customer segments and how deep we can go the share of wallet or the scope of the engagement, how deep can we go with those customers? We're caring more about the aftermarket than we did before, for instance. I'll come back to that.
Also, of course, in terms of geography, yes, Asian markets, also Middle East, Africa, Latin America. I'm not saying all countries in those regions, but there will be countries in those regions. That will underpin the growth of the UD brand. As I mentioned then, we will need to adapt Japan setup because of this. That also gives opportunities in Japan that we can leverage back from our, let's say, growth structures. Let's focus on the first point, which is product and Quester. Quester is a real heavy duty truck specifically designed for growth markets. This is the first time ever that UD Trucks has specifically designed a truck at all for markets outside Japan. With real heavy duty, I mean a real heavy duty cab with a real heavy duty chassis and a real heavy duty engine.
The funny thing is, that's not just a first for UD Trucks, it's the first for any Japanese manufacturer. There are no other manufacturers that has a specific heavy duty truck with all those attributes developed for growth markets. They are still using the older structure that we were using before. Secondly, the Quester is a new range, a new platform for the group. It's very wide, but it's on one modular platform. It can address needs in long haul, in distribution, in construction, in mining, et cetera, but based on one modular platform. This obviously gives efficiency. Thirdly, there are a number of unique features for Quester for these kind of markets and these kind of customer segments. For instance, the engine brake, for instance, the hub reduction axle.
This is obviously available in European markets since a long time, but that is not common at all in these markets that we're talking about, the growth markets. This is a game changer for UD Trucks. I dare to say, I believe it's a game changer for Japanese truck manufacturers in these regions. It has been extremely well received by our customers. We ramped up production recently. The first deliveries of Quester is next week. I spoke about the breadth of the range. I just wanted to share with you some specifics around that. You can see here that Quester comes in 8 different axle configurations, from 4 by 2 to 8 by 4. There's a standard cab, there's a high roof cab. There is a single axle reduction, there's hub reduction.
There's 3 different gearboxes, there's 2 different engines, and so on and so forth. Why do we have that breadth? Because our customers operate very different businesses. As long as you can do this on one platform, again, unique for UD Trucks in the Japanese automotive manufacturers or truck manufacturers. As long as you can do it on one platform, efficiency is still there even if you have the breadth. We can go to new customer segments by doing this. I talked about the engine brake, I talked about the heavy-duty cab. I won't go into the details, but there's 1 feature I would like to talk about. That's the one in red here, the Fuel Coach System. This gives the driver real-time information in a very simple way on how he or she is driving.
In addition, of course, it can be downloaded, it can be stored, it can be sent, it can be checked by the fleet manager, and so on. You might say that's nothing new, and it is nothing new in a European context or a U.S. context, but it's not common in an Asia-Pacific context outside the developed markets. It's extremely simple because many of the drivers in these markets they don't read, right? It's based on symbols. You can see the symbols there, right? It means please press the accelerator or please change the RPM. If you're in the engine sweet spot where the engine is working most efficiently, you get two thumbs up, right? That's where you want to be. It's that simple because that is what is required in those markets. The product is not everything, right? Network is extremely important.
Of course, distribution is important. I just wanted to share with you two examples from Southeast Asia. We are aggressively expanding the network for UD Trucks in the Asia-Pacific region. You can see here the example from Thailand. Thailand is a Volvo Group-owned network that we're investing in. It's dual branded. It will sell both Volvo Trucks and UD Trucks because obviously there's no overlap between those two brands at all. You can see the growth rate there on the screen, plus 240%. It will be ready, fully implemented by September 2014. In Indonesia, we have a partner, the Astra Group, the largest automotive company in Indonesia. In Indonesia, by the way, it's not possible for a foreign company to invest in retail. Astra Group is investing in retail, you can see almost doubling the number of dealerships, also by next year then.
Substantial growth also on the distribution side and well underway. Like for Claes, like for Bruno, both on the Volvo side and the Renault side respectively, we of course have had a significant and extensive launch program for Quester. You'll see a lot of numbers on the screen, essentially, there's a big rollout. You can see it goes to the end of 2014. We're about a third on the way. We're touching thousands of customers, many hundreds of journalists, et cetera. Very well received. Of course, as both Claes and Bruno mentioned, it's not only about the event. It's a huge training exercise to make sure that the network is ready on the sales side, on the after-sales side, to take care of these new products. This is big because obviously with Quester, we're moving from a mechanical stage to an electronic stage.
The engine has an EMS, an engine management system. That is good because on the aftermarket side, it means that not everyone with a wrench can basically fix the truck, right? It means that you need special diagnostic tools, it will attract the truck to the authorized network. From a volume perspective in manufacturing, which Mika will come back to, we are gradually ramping up Quester production during 2014 to secure quality all the way out to the customer. It's very important. Let's talk a bit about the aftermarket. Many of the things that we take for granted in more mature markets, like service contracts or service scheduling or things like that, is not as prevalent in Asia-Pacific. This is, in general, true. It's true for Chinese manufacturers, Korean manufacturers, Indian manufacturers, for Japanese manufacturers outside Japan.
What we're doing now is we're taking the basics of how we do business in other places in the Volvo Group and making sure that the Quester in the growth markets also gets benefit of our knowledge in these areas. As we all know, having the aftermarket is important to make sure that we retain and own the customer interface, and it's also helpful from a profitability aspect. There's a big emphasis now when we have the chance to have a Volvo Group engineered UD Trucks product to make sure that we get as much of the aftermarket as possible. That concludes the section on UD in the growth markets. In Japan, UD is, of course, also our main brand, and in Japan, as we all know, that is not maybe considered as a growth market, so efficiency becomes very important.
What we saw early on, and enabled by the new organization, was that we had the chance now to further the efficiency. What you see on the screen is during one year, substantially reducing the support resources, here defined as non-revenue generating employees. At the same time, reinvesting part of that efficiency gain, increasing the number of colleagues in the front line, selling trucks, selling parts, serving trucks, and so on and so forth. The net reduction is minus 12% on headcount, but again, I would like to emphasize that the number of people generating revenue, in fact, increased with 13%. A substantial efficiency gain in the back end. Wholesale versus retail, you might wonder what the definition is. Retail is if you go and work in the dealership. Everyone else is wholesale. That's the simple definition of how we split wholesale and retail.
It doesn't stop there. At the same time, we realized that we have more to do in our Japanese operations. We launched a three-year transformation program, retail excellence program we call REX. It has the eight modules you see on screen, and on the right-hand side of the screen, you see the one-year outcome. It's comparing year to date Q3 2013 with year to date Q3 2012. You can see a number of KPIs. For instance, units sold per salesman increasing with 20%. The bottom line, the market contribution increasing with four percentage points. The parts penetration increasing with three percentage points, and so on and so forth. We clearly see positive early results from our efforts. Of course, there is much more to do. We will continue with this program throughout the strategic planning period to 2015 for sure.
This is important for the whole Group Trucks because Japan is one of the three largest markets last year for the Volvo Group. Not in terms of units sold, but because we own 137 dealerships in Japan. We have more than 3,500 colleagues in the front line. From a top-line perspective, Japan is one of the largest markets for the truck business in the Volvo Group. This has substantial impact. Again, good early results, still more to do. That's on Japan. If we now shift gears and we move to VECV, and with the main focus in India. In India, we have a changing market landscape. First, let's recap where the market is. As many of you know, the market in India overall has been struggling for the past one to two years.
Also in November, the market was down quite a lot year-on-year. Year-to-date comparing to last year, heavy-duty is down 25%. There are short-term challenges for sure. In India, the market is in the basic segment. It's down to the left-hand corner, what you see here. India is very special. India is the market in the world with the lowest price point, worldwide. There is a duopoly. There are two manufacturers on the heavy-duty truck side that command currently more than 90% of all heavy-duty truck sales. Here, the Eicher brand is the clear leading challenger to this duopoly. I'll get into the details shortly. Also we see new solutions appear between the Eicher brand and the Volvo Trucks brand that you see on the far upper right corner.
Here, Volvo Trucks is the clear market leader in the premium segment in India, commanding almost two-thirds of all imported trucks and taking market share this year. VECV, our joint venture in India was inaugurated in 2008, and since then, we have pulled a number of levers to improve the business situation. We have put Japanese Volvo Group colleagues in the plant for five years, raising the quality level of the trucks coming out substantially, improving the fault frequency, the mean time between failure, all those things. We have revamped completely the manufacturing setup. I'll come back to that. We have taken the processes, the way of working into the joint venture and reinforced, both on the sales side and on the after-sales side, the processes and how we do things.
As I mentioned before, it's quite common for Asian OEMs not to pay as much attention to the aftermarket as to selling the vehicle. That is obviously something in our context which is different, and therefore we have reinforced the focus on the aftermarket quite a lot. Obviously, injecting Volvo Group technology in an adapted fashion. All of this is done and underpinned by an excellent relation with our partner. You take those things. Then you can see that the market shares have evolved quite nicely. We have been able to retain our 30%-ish on the light and medium-duty. The buses have improved quite a lot. On the heavy-duty, we have basically a one percentage point gain year-on-year. This is, of course, good. It is not enough, particularly on the heavy-duty. I'll come back to that.
We are okay, but we want to see much more. I'll come back to that shortly. On the operating margins, you can also see VECV coming in at around 6%. You can see main competitors struggling. This is, of course, because of the downturn, the unprecedented price pressure that we see in India today. Two days ago, Eicher launched its new range. It's a full range renewal. 11 new models, light-duty, medium-duty, heavy-duty, and buses. I mentioned that we weren't really happy, or we weren't satisfied, I say. I think taking a percentage point per year is acceptable, but we're not satisfied with that.
We will have two new heavy duty ranges that we launched then two days ago, the Eicher Pro 6000 series, which is the yellowish truck behind me, and the Pro 8000 series, which you can see on the slide at the center of the page. In addition, we have for the first time ever for the Eicher brand, developed dedicated export variants. A first. Before, we developed for India and tried to export, so to speak. Now we will, of course, develop dedicated variants. We will take the Eicher brand to Africa, to the Middle East, to, of course, strengthening the South Asia position, and also over time to the Southeast Asia. We are broadening the footprint for the Eicher brand. Needless to point out, the engines are, of course, compliant and also prepared.
As Mikael will talk about later, the Volvo Group's on-road, medium duty platform center factory is in India, in Pithampur, in the joint venture. You can see on the right-hand side of the picture some of the new and upgraded features that comes with this series. Very high hopes, launched two days ago, including 200 journalists, a lot of attention. Actually, for a first for a truck manufacturer, trending on Twitter, apparently in India two days ago. Has never happened before. This is backed by, as I mentioned before, state-of-the-art facilities coming online. We have a new engine plant. We have a new bus body plant. We have new assembly line. We have a new paint shop and so on and so forth.
This strategic investment is an INR 25 billion investment, 18 of which are completed and seven which will be completed from today until the end of 2014, fully funded through own generated cash flow. The company VECV is debt-free. From an industrial structure, this is a single integrated facility, and of course, that gives high efficiency gains. These industrial assets are already producing as we speak. Of course, we have then blended the best of the Volvo Group's technology and processes with the traditional Indian way of frugal engineering and, let's say, very high cost sensitivity. This has resulted in what you saw on the previous page. In India, we are satisfied, and now we have the new product line, we have the new assets coming online, and of course, we would like to see a continued market share increase.
If you put all the market shares together, it has basically doubled from seven-point-something in 2008 to 13.8% year to date 2013. DFCV and preparing for the strategic alliance then. As you know, we announced on the 26th of January this year that we had an agreement with Dongfeng Motor Group company that we will have a strategic alliance. The Volvo Group will have 45%, and Dongfeng or DFG will have 55%. The company will be called DFCV, DF Commercial Vehicles, at the transaction price of CNY 5.6 billion. We received the EU approval, the antitrust approval in May. On November 20th, so around two weeks ago, we received the MOFCOM approval. That is the Chinese antitrust agency as well, and we are expecting to receive the NDRC approval, the National Development and Reform Commission, within short.
We believe that after we have received that, there's around a six-month lead time to finalize the transaction, and therefore, our current assessment is Q2 2014 for doing that. From a management team perspective, we will have four management team members nominated from the Volvo side and four from the Dongfeng side. Of course, all eight of them officially appointed by the board of the legal entity. Dongfeng has been the leading Chinese manufacturer for both medium and heavy-duty trucks for the past nine years, is still so today. You can see the volumes. You can see that there's a volume increase in 2013 compared to 2012. The Chinese market, for your information, is up 17% year to date October on heavy duty. You can see that the financials has improved as well, and it's trending around 3.5% or so, and that the market shares are stable or slightly improving.
We're talking around 28,000 people in the strategic alliance once it's finalized then. On the product side, there is a strong product range already covering all these segments: distribution, construction, mining, et cetera. Behind me, the red truck is a long haul truck, but you'll notice that there's a new truck on the picture, the one in the front side on the picture. That's the new long haul flagship, which has already been displayed at the Auto Shanghai in April this year, as well as the China Commercial Vehicles Show in October. It will come out and be ready for production first half of next year, and it takes the game one step up. The basic engine won't be an 11-liter engine, it will be a 13-liter engine. It has leading aggregates and has had very positive reception in both Shanghai and Wuhan when displayed.
Products, of course, is not everything. We also need the industrial structure. Here you'll see a lot of numbers, and I think the key takeaway on this slide is that there is a well-invested industrial structure in Xi'an. The numbers are very large, normally in the hundreds of thousands. There are current factories, there are new factories coming online, and it's all following an industrial plan. If we take the DFCV company, today, pro forma so to speak, it is very much focused on selling trucks in China. Therefore, looking forward, there are a number of levers that can be pulled to create value. Of course, we will make sure that we have a good technology structure to make sure that we continue to lead on the vehicle as such in China.
In addition, working much more on the aftermarket will be something we'll be focusing on. Looking outside China, today only 5,000 or 6,000 trucks per year are sold outside China for the Dongfeng brand. As we have stated already on January 26th, we have here the dual purpose of both strengthening China as well as taking Dongfeng to become a major player around the world in relevant markets. In addition, there is a large degree of components business in Dongfeng, and here we see that we could accelerate the sales to external constituents where that makes sense, of course. The wave one export countries are identified, and to the extent it is allowed under the legislation, we are preparing on how to move forward with these priorities. If you put all these pieces together, what are we looking at?
We're looking at creating a significant business in the Asia-Pacific region on trucks, where business under management, including then the whole JV revenue, business under management is over 100 billion SEK, and annually selling more than 300,000 units. This is a few years down the road. That is what we're talking about. In order to get there, one, we believe, needs to have a global approach. We need both to make sure we have the industrial structure and the volumes and the efficiency in order, but also that we are local. Why? Because in China last year, in the world's largest market for heavy-duty trucks, 97% of the trucks sold are Chinese. In Japan, 99% are Japanese. In India, 99.5% are Indian. You can see that Southeast Asia is very much Japanese.
In our view, if you want to be a real player in these markets, you have to be Japanese in Southeast Asia, you have to be Indian in India, you have to be Chinese in China, and you obviously have to be Japanese in Japan. With our brands and our position and the trucks that you see behind me, we believe, of course, we are extremely well positioned to, going forward, take care of these market opportunities. For the European part of that business, which you can see is about 2%, Volvo Trucks is the market leader, and we're taking market share this year as well. We will continue with the Volvo Trucks business. We also sell Renault Trucks and Mack Trucks. If you want to be a real player, you need to be Japanese, Indian, and Chinese.
Back from coffee, and we're soon going to hear Mikael talking about the production side and the operation side of the house. I just want to sort of wrap up, and I hope you wrap up the first part.
Yeah
I hope you get a good feeling for the complexity and the effort that we have done when it comes to those product launches during 2013. Actually, we have to remind ourselves this time last year, there was no guarantee that we would have this truck standing here. There was no guarantee that Claes could be standing here reporting our record share of market shares. There was no guarantee that we had a Quester and the others out there. The only thing we knew at this time of the year, last year, was that we have an amazing amount of work to be done, and that we had to fix it because we wanted to get this done during 2013 in order to move into the next phase of our transformation. I must say that the sales guys are getting the credit now, standing and talking about it.
Definitely, if you look at both Mikael's organization and perhaps particular Torbjörn's organization, in terms of GTT, has put in an enormous effort during this year. I summarized it, but I didn't said it's on the slide. I would summarize 2013 when it comes to the launches as busy, costly, but successful. That what we have done, and now we move on to the next phase. Mikael, you will talk about operations. You will also give a little bit flavor to the complexity you have had during this year, but then looking forward. Please, Mikael.
Thank you, Olof. Thank you. I'm really happy to be here today to share what we are doing inside Group Trucks Operations and the activity plan we have in order to reduce the manufacturing costs inside the Volvo Group. I will be covering in my presentation, not only, I would say, the manufacturing cost per se, but I will also talk a little bit about our logistics costs, talking about inbound, outbound logistics. Before we get into the activity plan here, I would like to say a few words about what this enormous product launch has meant for us within in operations. As you have heard from my colleagues here in the beginning of the presentations here, it has been an extensive exercise for the whole company here. We have had numerous of challenges here. We have introduced, as you have seen, the Volvo Renault lineup in Europe.
We have had the Quester in Asia here, parallel to that, we have also had the Euro V, Euro VI challenge. During this period, we have kept the old, or I would say, the classic products inside the Volvo Group here. We have had dual offers, meaning dual production, in terms of the variants here. If we talk variants, I would say we have a double number of variants in the European system today compared to a more classic setup here. What this has meant for us is a lot of extra manual work. We have, I would say, gradually ramped up the workload inside our plants. What you see on the slide here is an illustrative workload chart.
Don't start to calculate on what you see here because it's just there to really show how we, during 2012, gradually have increased the workload in our factories then coming into 2013, seeing a true peak, then we will see the gradual phase out of this workload during 2014. When we have this kind of new product introductions we have in the cabin vehicle, well, I would say in the, especially in the assembly factories here, introduced a new concept that we haven't had before, which is the pilot plants, where we, together with technology during the product development phase are testing out new ways of assemble the vehicles. I will come to that later on here.
When we then have brought them into the normal production, and then for those of you that were in Tuve, you see that we have one dedicated line for the new product. We have also added on a fair amount of extra resources to secure the quality of the new products. Even though we have these pilot plants testing out the new products, we also have a number of variants that go directly into the production, and there we really need to make sure that we have enough manpower to secure that. That has meant a lot of extra people just to manage that, securing quality and so on when the truck comes offline. With the dual offer, we have also have a significant amount of more material inside the factory.
In terms of part numbers, we have roughly 10,000 part numbers extra, right now compared to what we will have when we get into the new products, meaning more space for managing this and also more manpower to manage the logistics there. A lot of extra work there. I'm happy to report that we now see that the new products has come down in terms of manual adjustments, I would say. We are pretty much back to where we have been with the classic products now when it comes offline already. The additional work at the end of the line. It's coming down significantly here. We are doing good progress here. We see here that the dual offer will come to an end in the first quarter when it comes to Volvo.
We'll just continue with the CKD markets after that for another quarter, and then on the Renault side, we'll come to an end in July. We will see it gradually coming out. We have talked about the training this morning, earlier today, about the commercial crew, et cetera. We, of course, have had enormous training exercise inside the plants as well. During the introduction of these new products, we have also introduced new ways of working in our factories. We have done significant investments to upgrade our facilities to the new production ways. For that, we have trained more than 10,000 assembly workers year to date here. A lot of focus on the training side here as well. These new products will give us the opportunity to take a significant step forward when it comes to improve our industrial productivity.
The product itself is not only improved in the sense of the market aspects, as you heard before here, but also from a production perspective. We have a much higher modularization in the products today. For example, you see on the slide here, in the picture, the front module where we have the bumpers, the lights, and also some electronics pre-mounted before it comes onto the line. We have on the cab side, for example, pre-assembled doors. We have the dashboard coming in complete into the cab, et cetera. A lot of great opportunity here to simplify the assembly process and securing higher quality end products when it comes offline. We have also seen improvement when it comes to the design of the product. For example, we are putting on the routing of the cables on the chassis upside down, which helps the operators to do it quicker.
The interfaces between the modules is supporting the assembly time significantly here. This has given us opportunities also when we have upgraded the plans to take a step forward when it comes to our fish bone layout. Also the internal logistics is significantly improved. For those of you who are in Tuve, I hope you notice the difference between the old line with the classic product and the new line with the new product here, and the line facade, which has come down significantly here and for sure helps to support the logistics set up there. The end result of the combination of the product and the upgrade of our plants gives a much more efficient assembly process, higher first time through, and better economics for our operators.
I would say a very challenging year, but a very successful year and has helped us to take a step forward for what we are trying to achieve within operations here. Let me then zoom in and be a little bit more specific on the activity in terms of improving the manufacturing cost here. During 2012, when we formed the new organization and the new structures, we had Group Truck Operations coming together, we started early on here to create a really good overview of the potential by having one operational unit inside the Group Truck Operations here. You could say that we have the number of hypotheses already during next year coming into the launch of the strategic objectives during the third quarter here.
The ones that are in scope here in terms of manufacturing cost is the strategic objective 1.2, which is about reducing the standard cost of sales by 10%. Even though we have a much broader scope, the manufacturing cost and the standard cost of sales, I will still focus on that during the day today here. When we came into 2013, then, we have brought these hypotheses into a very detailed planning phase. During the first half of this year, we have brought these into roadmaps, a very clear distribution of responsibility inside Group Truck Operations here on who does what and forming then the decision basis that we have used now during Q3 and Q4 to put this into implementation. 2014 and 2015 will then be the implementation year.
For us, when it comes to really making the structural changes here, the vacation periods in '14 and '15 will be a significant time in this two-year time period. You will see the improvements coming in here stepwise and back-end loaded with more heavier changes in the structure here. I will give you some examples on what kind of structural changes we have in pipeline here. I would say we are on track and on time in our way towards the strategic objective 1.2 here from a manufacturing perspective What you see behind me here is the current locations of Group Truck Operations. This is a footprint based on legacy, the history of the Volvo Group, the acquisitions that we have made, you saw earlier on here today, have resulted in this footprint today.
For me, it shows a great potential to streamline and optimize the industrial footprint throughout the globe here. Today, Group Trucks Operations is organized in a number of operating units. So you have for the cabin vehicle, you have a regional setup with Americas, EMEA, and APAC to correspond to the sales and marketing organization here, because that's where the product's coming out towards our sales and marketing colleagues. Then we have a global setup for powertrain production, supporting not only the truck side, but also the rest of the group. The same goes for Logistic Services, which also is a global setup. We have already today started to change this map. We have started consolidating a number of activities throughout the group here. As a starting point, you could say, we have something we call the industrial plan.
The industrial plan, that is the guide or I would say, setting the direction for us in terms of how to change this global footprint we have today into a more optimized footprint for the future. Here we are talking about taking us from, I would say, European, U.S.-centered organization to a truly global organization here, supporting the segmentation on truck side, the global ambitions in terms of the different brands to make sure that we have a true brand, neutral and supportive organization across the group here. Also today, we see that we have an imbalance in terms of capacity. We have, in certain areas, a lack of capacity. We are running flat out in some part of the systems, while we are having a redundant capacity in others, which, if we combine them in a good way, could offset each other.
But we have built this up over the years as a brand unique structure. Therefore, we see a great opportunity to better utilize the fixed assets we have inside the group by being more balanced. I would also say on the flexibility side, we need to be more flexible. I would say both in terms of being quicker up and down relative to the overall market demand in terms of pure volume, but I would also say, also improve the flexibility when it comes to the product mix that we have inside the group here. So we can quicker respond towards the market expectations here. I would say historically, we also are very much a premium organization focusing on the premium segment. Also here, it comes back to the fact that we need to better serve from the basic segment up to the premium.
So we need to be, I would say, for the value products, more focusing on the value chain in that aspect. So we match the different levels of segment here. Coming down from today's sub-optimized structure based on the legacy of the Volvo Group, moving into a more optimized setup here. If we then dive into the manufacturing costs and the cost per se to putting these products together, we are targeting the reduction in two ways, you can say. We are looking at the variable costs and activities around that, and on fixed cost. As you can see here, fixed cost is roughly 40% of the manufacturing cost, while variable is 60%. We have also looked at it from a pure manufacturing perspective, but also on a logistic perspective here, where manufacturing is 70% and logistics 30%.
There is, of course, synergies across these two areas also because some of the structural changes we are doing gives the opportunity to better improve on the variable cost as well here. Let's start with the fixed cost side. We have today a number of activities being rolled out as we speak around the fixed cost structure. We have something we call the 50 list. That is a list of the different ideas we have. We, on hypothesis, you could say, they are then validated if they fly after a more deep analysis that moves into a decision category, and we take the decisions to move forward and start the implementation part of it. If it's not, we put it aside or review it from another angle here.
It's a constant, I would say, review of this 50 list, securing that we actually look behind every stone and making sure that all opportunities are put on the table here. When we look at some of these examples, let me start with Asia here, and I will have that as a deep dive also to go through a little bit more what we are doing there, because I think Asia is a little bit special here because it's both a growth case. We see expansion needs from an operational perspective, but also we see rightsizing, especially when it comes to Japan there.
In North America, we are doing a number of things there, consolidating the footprint, I would say primarily then within the Reman area, where we are utilizing Hagerstown, that has done a fantastic job over the years to consolidate their operations in that site, freeing up a lot of space. We have space available to consolidating operations into Hagerstown if it fits to overall strategy here. We have some examples you see on the slide here. We are also doing further improvements of Hagerstown, where we improve the assembly sequence in Hagerstown to implement a straight flow, which will have a significant impact on the manufacturing cost there. We just recently, this week, announced that we are closing our CKD operation in Florida and to move that into our main plant there.
I will come back on the warehouse footprint in North America on a later slide here. In Europe, I think you can see here that the number of activities in Europe is slightly higher, it's also here we have the longest history, therefore needs to do more adjustment here. You have seen during the spring here a number of announcements. We do a similar exercise in Skövde when it comes to the assembly flow there. We have a study ongoing when it comes to Logistic s Services activities. We have already started to exit some of the external business that Logistic Services did in the past. If we see that it doesn't fly from a modern perspective with these ambitions we have on a group level, we take the decision to exit them. I would say we are also looking at the plant structure here and powertrain.
We have, for example, now announced the closure of Leganés where they produce the crank shafts, and that will come to an end now during spring 2014. You see a number of structures there. On a global level, we have also something we call White Collar Efficiency. The White Collar Efficiency is on top of, I would say, the structure changes, is to make sure that from an as-is perspective, that we have the right number of white collars here. Of the total 35,000 people inside Group Truck Operations, roughly 8,000 are white collars. There is a significant number in terms of white collars here that we are looking through. If we move back to Asia. As I said before, Asia a little bit special here because it's both a growth case and a rightsizing case.
You heard Joachim before here talking about the Quester that we have launched in August here. For that, we are building up a completely new industrial setup. It's a new product, meaning new suppliers, new industrial structure, where the center of gravity right now is Thailand, where we have the first productions of the Quester. There we will stepwise build up a capacity up to 20,000-25,000. We are also in India building up the capacity in our Bangalore plant. These plants were in the past CKD plants for Volvo, roughly 1,000-1,500 capacity on the CKD side, and now becoming a part number factory with this type of capacity. It's a huge change in these sites. We also have China together here with our current joint venture that we have had since a couple of years back.
Also on the building up side, I would say, is the engine plant, the medium-duty engine plant that we have together with Eicher, where we will stepwise come to capacity of 100,000. Today, we are around 25,000 capacity in that plant. There we sourcing also long blocks to be dressed for Europe here in our facility in Lyon. It's a truly global setup around the medium-duty plant in Pithampur. If we go to Japan, which I said is a rightsizing exercise, we are putting the capacity at 13,500, and we will also have secured then capacity swings ±20% around those levels. You could say that Japan setup will be Japan for Japan going forward. We have started to do a number of things there already. We have also there started to consolidate our footprint in Japan.
We have moved in activities that have been done outside the Ageo site. We have roughly 10 manufacturing sites outside Ageo, and we are reviewing these, and gradually we have already started to move them in. We will have also Ageo becoming a more vitalized site than what we have today. We have also stopped some external business there. We are looking at the core activity, securing that that's what we are doing there. A lot of things going on in Japan right now to get it calibrated for the future. The announcement we made a couple of months ago around European optimization in the cab and vehicle area is what you see behind me here. What we are doing is actually that we are taking out one heavy-duty assembly line. We are consolidating that here in Tuve. We will have one assembly line going forward.
We are moving medium duty from Ghent to Blainville, we are then taking the trimming activities from Umeå down to Tuve. When all this is said and done, we will have a capacity in Tuve of 75 trucks per day in one shift, optimized at 60. We will have Ghent at 200 trucks per day in two shifts, optimized at 160, and we will have Blainville at 80 per day and optimized at 60, and trimmed in Tuve. Umeå focusing on their core processes, which is stamping body in white and paint of the cabs. This is creating a lot of opportunities now when it comes to the internal logistics, I would say, in all the three assembly plants, and we can then move forward towards the Volvo assembly concept.
You see in Tuve today, we have a lot of forklift traffic, for example, that will completely disappear. Besides the logistics improvements, it also will become a much safer factory for all our employees. Also in the U.S., we are doing one significant change, and that's around our logistics services activities and the warehouse structure, where we have the long history of the Mack brand in the U.S., the build-up of the Volvo brand, and then we have had Volvo Parts setting up activities in the old structure here to support the rest of the business areas here. Now we see that we can consolidate this into two central warehouses, one for fast and medium-moving parts and one for slow parts. One big gain here is, of course, that you separate these from each other.
The gain is, we could say in general, that fast and medium-moving parts requires a lot of staff, less space, and slow-moving requires a lot of space and less people. By separating that, we will get good efficiency gains on both the surface as well as the staffing side. We move that down to two central warehouses. We will close three of the sites. It will be Dallas, Memphis, and Atlanta we will close down completely, while we will downsize three others here. Besides the cost savings we see here, we will for sure see, and I would say more importantly, also see improvements towards the customer base here. We will be able to expedite orders much quicker. We will have shorter cutoff times, and we will have good improvements when it comes to the logistics efficiency when it comes to overnight shipments here.
A lot of benefits with this exercise here. That was the fixed cost side. If we then move over to the variable costs, you could say that we are here working very much around the Volvo Production System to support the variable cost improvements here. As I said, the fixed costs, the structural changes we are doing enables us to do much more in this area. When you look at this slide, you see that we have for sure great improvement possibilities inside the company. The scale here shows the Volvo Production Audit Score. It's how well we rank the different plants in terms of set number of activities. The best one here is scoring three and a half points in our internal system. It goes down to half a point here.
With this, we see that internally, collectively, we know how to do it well, but we have not in the past been able to get all the plants up to the same levels. I would say even the two ones that are performing very well here are not performing well on the same things. Even there you see great opportunities by sharing best practices. I would say we are not only pushing best practice sharing, but we also really encourage people to seek best practices. I think that's something we really see taking off right now, that we have plants at the bottom half here that can quickly gain traction here by looking at the best ones directly and by themselves. I would say we have a very good momentum here now to see improvements coming along.
In the beginning of the new organization, I went around to basically all our major sites in a very short time frame. Normally, if you visit a plant every now and then, you don't get the same impression, but I did this is just in a few months. I must say the strong feeling after all these visits was that it's the plants that is making it here, is not the ones that only have started the journey to have the visible VPS tools in place. It's the one that really have taken it to the DNA and really embedded in the daily work here. We see that now being spread throughout the organization in much higher pace than what we have seen in the past.
If we take the new organization here in Europe, for example, we had never had really good contacts between our cab plant in Umeå and our cab plant in Blainville because they were operated in separate business areas. Today, when we have all operations under one roof, it's open doors between. We have early started actively around the cab side here. I must say, just in, I think it's 25 weeks, we have seen a 20% improvement in OEE coming through in one of the plants here, just by sharing what we already know inside the company here. I would say a tremendous leverage in the organization is coming through here in this area.
I will not go through in great detail this slide here, but it's just to show you that the way we're moving forward here is, of course, with the Volvo Production System in combination with our future factory concept and the Volvo assembly concept, where we have a very clear target style for each and every of the, what we call them, the cornerstones. That is building a very strong, solid base, when we're then looking at the products together with Volvo technology, and therefore we can make these steps, as you have seen with the new products that we have been launching here. A lot of emphasis in this area. We have also now put all these activities into one global organization here, and therefore we see this momentum coming through.
If I summarize, you could say the activities we are doing inside Group Trucks Operations here, we need to focus on three things, that is really on top of our agenda. It's not only supporting the strategic objective 1.2, but it's actually to a very large extent, supporting most of the strategic objective in one way or another. That is through focusing on quality, lead time, and cost efficiency. Quality is critical for us. First of all, it is a customer commitment. We need to deliver the product that the customer expects and paying for. That's the number 1, I would say, in this list. If we don't do that, we are not only jeopardizing the customer's trust in our product and in our abilities, we also having a cost effect here by managing that situation.
The way we are looking at quality is, of course, through what we call fault frequency 1. It's within the one month period from the products leaving the factory. Then, of course, it's a responsibility together with technology when we look at the broader aspects there. The manufacturing quality is right in the middle of our activities here. First time through is a very good indicator on how we're performing here. I would say the first time through is also, I would say, common denominator for many of our KPIs in operations. This really shows how the truck is coming off the line with a green okay at the end from the beginning, without the manual adjustments I talked about that is required when you introduce a new product before you get everything right in all the processes, et cetera. Lead time.
Here we're measuring lead time on the factory delivery precision as a KPI. It's a critical one, making sure that we honor the commitment of delivery time towards the customer. If we don't manage that right, we will see that in the inventory in one way or another. Then, of course, the cost efficiency to say, which is what I mostly have talked about here today, which we're then measuring on variable cost per unit and of course, fixed cost in absolute amount here. These three focus areas is always with us in Group Trucks Operations when we're looking at our activities here. With that, I would like to summarize this presentation here to say that We feel that inside Group Trucks Operations, we have traction on the activities towards manufacturing cost reduction, and by that, also reducing design cost of sales.
We have clearly one target in the organization. We have rolled out a comprehensive program. I just touched on a few of them here today. It's well underway in our organization. I've been, this year alone, around meeting up to 11,000 face-to-face like this of our colleagues in Group Trucks Operations and discussing the activities, and I must say I get very good feedback when I talk to the team there. Full attention and commitments toward the goal and the focus is end of 2015 for everything we do here right now. Thank you. I will finish there.
Thank you very much, Mikael. We now come to the implementation and the follow-up on the strategic objectives. When we met last year, I promised you to come back in exactly one year time. That was 25th of September last year. I am afraid we are a little bit late because this capital market day is now in December, but here I am, and I'm going to report back to you, as I said, on where we stand on the 20 strategic targets that we do have. When it comes to the strategic target, I think you are well aware of them. They are well-published, and I must say that the reason why we went so transparent is, of course, for you in the market analyzing, making sure that you have a good understanding what we're trying to do.
It's also, as I said last year, a great tool for us to be completely transparent also internally to our 115,000 people and coming back to actually addressing those issues, explaining why and why they are so important to achieve. Again, this year, I will focus on the one point, that is the increased profitability, the 1.1 to 1.26, and I would like then to go through there one by one and give you a quick update on where we stand. This one you also know. We then also last year, very transparent, translated for you the impact that we saw then would come at the end of 2015. There's nothing new in this. If you take the targets, including the headwind factor, and multiply by a running rate of 300 billion, you come to the SEK 9 billion.
New for this year is that we're giving you also the sort of the improvement phasing over the next three years for you to better to jibe when are the improvements then coming into our result. We have not talked about the BAs, and I will not talk too much about the BAs going into this as well, but I would like to highlight the importance of that. I don't want to leave you the impression from last year and this year that this is a truck-only exercise. The focus on Volvo CE, on Volvo Buses, on governmental sales, and the other areas that we have, and Volvo Penta in the BAs is something that we are increasing.
The appointment of Anders now coming in, strengthening that up is a good sign of that because when it comes to the strategic challenges, both on the Volvo CE side, but on bus, of course, and on Volvo Penta is there, and we need to really make sure that the traction is coming on the 0.5 points that we have there as well on the BAs. Leaving that and going into a little bit of an update, and basically, you have heard some of it. Now you see it specified in terms of the strategic targets.
If we start with the 1.1, which is, of course, a crucial one, now with the new platform that is coming in, that we actually manage that in the right way in order to get the gross margin increases that we need to have with the new technology and the investments that we have done. There has been a good progress on this. Peter reported on the— and Claes, sorry, on the Volvo side, when it comes to actually realizing the gross margin. We have been working very hard on that all over the different regions. We have communicated to you that we have, in Brazil, increased our market share combined with actually also increasing the margins.
This focus has really taken grip in not only Europe and the new products, but also we're looking into what other products can we attack now in terms of increasing the gross margin. Where do we have pricing deficiencies now when we look at this as one group? That is a very interesting and good discussion. This program is rolling forward with good progress, and you can see some of the activities that we have ongoing right now, and special attention we do have now, and as Bruno pointed out before, it is extremely important then that we now get the residual value ambitions on the Renault. Bruno mentioned that a couple of times. That has been a weak point. We need to make sure that now with the new range that we go into and also get the residual value that those beautiful products actually deserves.
Joachim and his team has now, of course, also in the beginning of the Quester launches, making sure that in the different markets, coming out with the right product price, and therefore, also securing the margins. Good progress on them, and you will see then when I come to the phasing and the actual Q3 result that we have had, that this has played a major role during this year. This one is basically what Mikael was talking about. I think the important thing here is that all major decision has been taken. That means that on the fixed cost side, as Mikael was addressing, we have a timeline on this. This means you cannot go in and do the European footprint optimization in one go.
It has to be done in a phase one, and that's why it's so important that we took the decision, coming back to my clock before, that we took it early enough in order to be able to introduce it and get effects coming into the end of 2015. That is now the plan, not only for that European manufacturing, but also the other decisions that has been taken. If you look at the number of decisions that Mikael and his team have taken during the spring coming into this autumn, it constitute a huge change if you just add them all together. That is exactly what you describe, both on the structure side and on the operations.
In focus now in 2014 and also into 2014 is an area where Mikael didn't talk about, which is a very important part when it comes to the 1.2, that is the material and purchase cost. We have a huge amount of activities ongoing in a cross-functional setup in order to really drive the combination of getting the product cost effect. That means getting the purchase material down, but doing that in a very conscious and responsible way, not to jeopardize the quality of the final product. That is also an ongoing project that we have going on, and it's hundreds, if not thousands, of activities ongoing there as well. Improve product quality. You can ask me two years ago, you can ask me now, you can ask me in five years, we'll always be on there.
There is always something we can do, even though we have very good product quality. As Mikael said, when it comes to the new FH and the assembly times and the quality coming out of the factory, we have coming down really quick on the new FH. Now we have to do it on the Quester. We have to do it on the Renault Trucks as well going forward in terms of quality. We have also done a major activity in U.S. when it comes to really making sure that we also improve the quality of the U.S. products going forward with good results. Also, of course, at the end of the day, we have to ensure, because this is a back-end loaded program, we have to make sure that we don't sleep, because if we sleep, then of course it would do.
Far so good, but we have to keep a very high focus on that as well. This is a very challenging target, and I think everyone understands that. Next one, decrease wholesale selling expenses to 5% of sales. I just want to clarify once again, I did it last year, but when you look at the selling expenses in the profit and loss, we divide that into two. One is what we call retail selling expenses connected to actually selling the product. That means that everything that goes into retail, including mechanics, is retail selling expenses. You have the back offices, you have the regional structure, you have the market communication, you have all the other functions that sort of, you can call it back office functions, but they are now supporting the retail expenses. That's where we want to get higher efficiency.
Coming back to the picture Joachim showed, it's a brilliant example. Calling it a revenue generating and non-revenue generating. That's exactly what we want to do. We want to increase the revenue generating. We want to expand. Now looking into the EMEA and looking at the dual branded workshops, we need to do a lot of activities there. On the back office side, that's where we need to go on efficiency. Here is then very much coming into the activities we have talked about before. Strengthen the retail excellence in Japan. Joachim can talk about that. The EMEA optimized the distribution of support functions in EMEA. That's the program that we launched, the EMEA program, as you remember. That is very much focusing on that one.
I just want to stress that when it comes to the execution of that, Peter pointed that out, that with the staff reduction that we need to look at during this program, that will be finalized in 2014. As Peter showed, you will have some activities going into. All in all, I would say that if 90% of this program will be finalized in 2014, there will be some small activities in 2015. Attention will be very much on actually executing now on the headcount reduction and take out the launch costs. That is extremely important that we now see the launch costs really coming out, and we start to see that already, and it will accelerate next year. On the strengthen the retail, the secure, sorry, the increase on dealer soft offer absorption.
Again, a definition that I would like to make sure that you understand. A dealer who doesn't sell one single new truck but still makes a zero result because of soft product sales, he has a soft offer absorption of 100%. Actually, that is a measure to show how good is the dealer to actually capture soft offer in order to cover for his cost. If he cover 100%, he's making breakeven. There are actually then dealers who are actually covering more, and that's good for us. If that is progressing, then you actually build up stronger dealers, and that means also that they can take the ups and downs without having any problem from a financial point of view.
It also drives a lot of thinking about how can we go further with a soft offer, and making sure that we sell more of these. There is a number of activities going there as well. I think the most important one is, of course, to increase penetration of service agreement. That is the key issue to actually get into that activity. When we then look at the R&D, I want to make very clear here and talk to some of you in the break, the R&D today is a one decision for the group. We take one decision for the group for the whole R&D budget. Before it was business area by business area who took their own decisions on the R&D, the adding up to it became the group's R&D. We have reversed that completely.
It's a sign that we are taking the decision, and then it's being executed in the total group. That has, of course, meant that we as a management team can take decisions according to what we want the R&D to be. We are aligning that into a long-term plan. We align it into the product and the brand positioning, and we're also aligning it into the actual reality. In this program right now, we have taken the decision needed in order to make sure that at 2015, we're going to fulfill the target that we have communicated to you that we're going to reduce the R&D to get to 0% impact from the switch between capitalization and amortization.
We are continuously monitoring that to make sure that by end of 2015, and you can see that also in the cash R&D side, that we are now starting to see that coming down. That is the second, if I look at the actions from Q3, that is the second major contributor apart from the gross margin improvement. What we have to make sure, though, is that we do not shoot ourselves in the foot. I do not want to come into a situation where we had that we go in for cost reductions only in R&D. When we reduce the R&D, it has to be according to a plan. It has to make sure that we take out things that do not impact the success of, for instance, the trucks you see behind me. We have to make sure that we have that.
Therefore, the scope of the plan has to be adjusted, but also that we now have to align the R&D plans to the position on the brand position situation we want to have. I think if you look at it and feel about it and hear about it, you see and hear the embryo of something completely new. If you look, if you talk, if you listen to Bruno, Claes, and Joachim, it is different brands they are talking about. If we then move on to the IT cost, which is then 2% of the Volvo Group total, here we have limited impact as per yet. The reason for that is that before you can actually do the harmonization, get the IT cost out in a substantial way, you need to migrate into common system.
Migration costs money and takes time, and it has to be done if you do not want to create a complete chaos. However, the migration plans and the things we are doing are working in the right direction. The impact we are going to get will come in 2014 and 2015. It is according to the plan, but it is limited impact right now. You can see then the activities. Of course, special attention here is that we also need to reduce the structural headcount when it comes to IS/IT and phase out of old systems. When we merged and when we looked at the total consolidations of systems around in the group, it was a lot, let's put it that way.
We have to make a plan, which one should we take first, which one should we take then, and we take them one by one to harmonize, looking at basically the most critical ones and the ones that will get best payback for in terms of harmonization and migration. By that, we give you the phasing of the SEK 9 billion that we have been committing to. Basically, you can see then on the slide that SEK 1.4 billion is then positively impacting the result in Q3 coming from these 20 objectives, or at least the first section of it. You can ask, where are those SEK 1.4 billion then in Q3? There are two aspects to it to me. One is the Q3 showed me how extremely important these kind of programs are.
It also showed me that SEK 1.4 billion is far not enough to take a real headwind when it comes in terms of currency, in terms of the R&D capitalization and amortization to double production and what have you. It at least you can say that if we wouldn't have done the SEK 1.4 billion, the Q3 would have been SEK 1.4 billion lower. That is at least the good thing about it, but it shows also the important thing. Another sort of effect of this is that when we talk to our employees, now coming back to this engagement issue, they start to realize how important these kind of programs are because it is about our future ability to continue investment and continue to succeed. We're going to have 3 phases here as well. Everything in this program is divided into years.
The first year, as you see, R&D cash expenses going down and the gross profit margin is the major contributor this year, will be around SEK 2 billion. That will continue, of course, next year. On top of that, it will be then mainly focused next year on the efficiency program, as I've communicated, and focusing on then the staff reduction. You can see that we will have a wave coming because announcements, and then you need to execute, and then you will see the effects coming at the back end of the year accumulating up. It's flattening out, and then you see another wave coming, and the second wave then is basically the product cost, what Mikael was talking about.
That is the activities that he will implement during summer break in 2014 and 2015, and then basically have the structural activities done, and there we start to see the impact coming at the end of it. It's perfectly logical. It makes, at least to me, perfect sense that you have this kind of development going forward. When you look at the accumulated reduction charges, you can see that also there you can divide it into sections. The first one, which we're taking now, is very much related to the industrial structure, the product cost that Mikael was talking about, the charges related to different activities. Then, of course, you will have coming into the efficiency program next year, and then you will have that one coming as well. These are the plan that we have in front of us to reach the SEK 9 billion.
Leaving the numbers and talking about what is perhaps the most important in order to achieve this is how can we get the whole organization understanding the difference between change and transformation? Change is something that you see. Change is something that to the outer world is happening to the company. Transformation is something that has to take place inside the company, inside our culture, and inside our way of working. That means also that we need to put a lot of emphasis on actually measuring how is our 115,000 people accepting this, and how do they see it, and how much do they understand. We are fortunate enough, so we have over the last, I don't know, 15, 20 years, done attitude surveys. We have managed to get into a culture that everyone answer the attitude surveys.
Actually, out of the 115,000 people, we are at 80%-90% answering rate, which gives a statistically enormously good basis for knowing what is it going on out in the organization. For us as a management team, this is a crucial information to know because if we see that things are not moving in the right direction out there, we will not see it in the numbers coming either. Luckily enough, or thanks to all the communication we have done, all the explanation we have done, there are a number of good things that we now see in the Volvo Group Attitude Survey. One which is of utmost importance is the understanding on the strategy and the reason why we are doing it. That sort of number of questions has increased substantially.
The most interesting movement in this survey is actually the question, do I understand what my work does in order to influence the strategy? Do I understand how I can contribute to the strategy? That has moved up substantially over the last years. Not only do we have an understanding about the strategy and the importance of it, we also start now, as Mikael has done very successfully, being out and talk to everyone on the line. How this work, this welding operation, how do you support the 1.2? When I come out and visit, and me and Dennis was traveling around in both South America and North America for two weeks, and we are visiting the plants. Wherever you go, you see the basketball, which is Mikael's, what do you call it, hoof, I think, yeah? Symbol of the 1.2.
Then you start to go out, and you see the boards from the different workplaces. When you ask the operator, "How do you contribute to the 1.2?" It could be a small cart that they are building, taking down some inventory with a couple of hundred thousand SEK or whatever, still, it is there. That is the attitude that we need to have very much in them. Another thing which is very interesting and encouraging is this improve the accountability and follow-up. It is a positive movement in the VGAS reporting that accountability and the follow-up is increasing. That is exactly what we have been addressing with the new organization, that people should know that you are accountable for something, you should also have the tools for fixing that accountability. That is also increasing.
Where we need to improve, because there is always something we need to improve, that is the next big phase, that is moving into a process-oriented company, where we actually now not looking at functions by functions, but looking at how do we solve problem in a process way. There we still have a lot work to do. That is in the plans. We need to start to do that. With this feedback now, we are starting special programs immediately in order to attack that issue in terms of understanding what is the problem, how can we attack it, how can we resolve it. Change versus transformation, incredibly important to get out to the organization and always have a measurement, how do we stack up, and how do we feel, and where do we stand vis-à-vis all our employees.
Without that, transformation is very difficult to do. I just want to end this presentation with two slides and really making it. First of all, I understand it is a huge amount of interest about this transformation period. It is up to 2015. We need to catch up on efficiency. We need to catch up on cost structures. We need to catch up on a lot of things. I hope you feel that what you have seen today, that we are doing everything we can to catch up on that. That's not going to be the game changer. This is something we have to do. That's something we're going to do. The real game changer is going to be this.
At the end of the day, there is much that goes into the product, at the end of the day, our brand portfolio, combined with all the people, all the processes, all the good things we're doing, that's the game changer going forward. We will continue to improve efficiency, we will continue to do a lot of things. Our position when it comes to dual or triple branding, the way we cover the whole market, what Joachim explained, the way we're building up industrial systems like Mikael described, the way we're actually moving in Europe as Claes and Bruno explained. The way we are attacking the U.S. and the South American market with the different brands, the way that Volvo Buses is operating with three brands, the way that SDLG and Volvo CE. That is the game changer. That is the real future foundation going forward.
We have a great respect and a lot of humbleness and understand it's going to be a heck of a lot of work, both this year, next year, and 2015 to perform the transformation. As I said before, if you ask me which year was the most critical in the transformation, that was 2012. If we can fix that, what you see behind us in 2013, I feel extremely confident that we can fix the efficiency during 2014 and that we can combine it all. [Foreign language] combine it all into the 2015 where you see the different issues coming back. Coming back to the SEK 9 billion improvements we have seen. I hope that you feel that we have transmitted a lot of confidence. I started by saying that having outdoor driving in Gothenburg in December needs a lot of confidence.
I hope that we have transpired to you humbleness, confidence, but also a structure and a clear way forward when it comes to meet the targets we have set out to do, and that we are on track of doing it. With that, I close my presentations, Christer, I think that close all presentations.
No more slides.
Thank you very much for listening to them.
If I can ask Peter and Dennis and Mikael and Joachim to come up on stage, and I've asked Peter and Dennis and Joachim to give us a two-minute business update on what are the current trends in the market starting in Europe with Peter.
I think I can have this one.
Oh, yeah.
Did you turn it on? Do you have turned it on now? No. Yes. I will start in Africa. Africa has not developed in the way we expected when we went into 2013. Actually, the market in Africa has walked sideways. We expect that Africa will be the same size in 2013 as in 2014. Big differences, of course, in different part of Africa. Northern part of Africa is slowing down in some countries very significantly. Morocco and Tunisia down 25%. A very important country for us, South Africa, is holding up quite well with an increase of 5%. Moving from Africa into Middle East. Middle East is holding up quite okay. The most important country there, Saudi Arabia, is actually growing with 7% this year. We are holding a very strong position in Saudi Arabia. That is good.
We have reductions in Iraq, and then of course, Iran now is very much in our focus. What is going to happen there? Will the sanctions be lifted or not? It is traditionally a very strong market for the Volvo Group. Of course, now we are following this with very big interest and see what we can do going into the future. Going up to Turkey. Turkey is slowing down significantly, down 13% compared to last year. It is not a very important market for us. It's a big market, but we are holding a quite weak market position, so the impact on the Volvo Group is not very big. Going up to Russia. Russia is a much more important market. It's the biggest market, actually, in my region, 100,000 market. It's divided in two pieces.
One is the western part of the market, where we are selling western-type trucks. The other one is the domestic, where we have the local players and also the Chinese. The total market in Russia so far is down 29%. For us, the western part is down 25%, so the good news in this is that the western part or the western type of trucks are gaining every year. We are taking bigger portion of the Russian market, and that is a good sign because that means that the customers are demanding more advanced products and so on. That is, of course, then a market where I think our forecast was actually in the beginning of the year that we saw an increase in that market. That is, I think, the market where we have misjudged the most when it comes to my region.
Going over to Europe. Europe is also walking sideways. We have some pockets that are increasing very strong, like U.K., 9% up. Poland, I think is also up 9%. We have some other countries that are down. Germany down 8%, France 6.5%. October over October, we are actually down 3.7%. We believe with the pre-buy that we have seen, and the high deliveries we have now in the end of the year, we believe that the market will be the same size as last year or perhaps slightly above last year. Going into the future next year, we also believe here that we are going sideways. We think that the market will be the same size also next year. The reason for this is that some of the pre-buy that we have this year will be registered in the first quarter next year.
We have, of course, a slower demand right now in trucks that you will only see in lower registrations in the second quarter.
There is an underlying improvement in freight demand in Europe, but it's very slow. That will help up to make the balance of the year to be equal to 2013. That, I think, was a short summary of Europe and EMEA.
Good afternoon. Greetings from America, and good news from the Americas. I'll start with South America and Brazil. I think the strength and profitability of Brazil is well known. Three recent awards, I think, tell the story for Brazil. First of all, number 1 in image from the market. Secondly, from the dealers, the most desired brand, and then from the employees in general or the market in general, for all of Brazil, the best place to work, Volvo in Curitiba. The business, when you have that kind of base, is you just tend to want to move from strength to strength. What we're focusing in on is the density of our distribution, because you have to remember, it was only 10 years ago that that market was only a 20,000, 25,000 size market. We're now up to around 100,000. The population is building.
You have to build that distribution to take care of that extra population. The focus very much has been on investing. We have 30 new outlets in the pipeline, and we're moving very rapidly to meet the customer satisfaction and demand. Overall, in Brazil, up two points of market share in some very stiff competition, and obviously, we look down the pipe, there's even more competition coming from all sort of sectors. Business in Brazil, good, stable. If you look at the market, as I mentioned, it'll end up around 105,000 this year. We look for it to be basically flat next year. That 105,000 represents about a 15% increase. The Volvo business, with a 2% market share, is up about 20%, 25%. Good business, profitable, moving from strength to strength in Brazil.
The rest of South America, you have a couple of markets there in Argentina and Venezuela where we have good businesses, we really have to carefully navigate the political waters there. Still contributing, still good. The other big markets, Chile, Peru, Colombia, very much sensitive to commodities. We have an excellent business, again, number one in image in Peru. That's staying there, and we've opened up some new facilities there. We have an excellent business going on there. Chile, if you look at, as Olof mentioned, we sell all of the brands in the rest of South America outside of Brazil. We begin looking at the cumulative share of the brands and how we best position those brands in the marketplace. To sum up South America, a good market.
We expect it to be, again, sideways in South America, we look for gaining share through the way we position our brands there. Moving up to North America, I don't have to tell you that the journey in North America for the Volvo Group has been challenging, particularly the last 10 years, where we've had to deal with very aggressive emissions standards. We've had our share of difficulties out of that. Recently, again, focusing in on the block and tackling of good distribution, improved quality, and getting the team focused on the segments, using all the resources of the group, we're beginning to see positive traction. We tripped out of the blocks in 2013 in terms of market share. If you look at the last six, nine months, you see a growing combined share for both Mack and Volvo.
I think the big news in North America is on the Volvo side, where the penetration of Volvo engines and Volvo powertrain has been incredible. We're up to 87% penetration of our engines. I-Shift, which we declared to be our standard offering in the spring, is now up to over 60% year to date, in an isolated month of October is over 80% of our orders. That leadership and that technology, others are beginning to notice, they're starting to increase their offering and their discussion about automated manuals. That automated manual transmission also plays well into one of the headwinds we have, which is driver shortages in North America. That's popping up again. I-Shift not only allows you to retain the driver, it also widens the base, the population of people who can drive and be potential drivers for you.
We see that playing very well, and we're very excited about, obviously, both market share and after-market opportunities of having increased penetration of our own proprietary items. Same with Mack. We went from zero a couple of years ago in terms of what we call mDRIVE for Mack, up to 40% now of the highway is also. Mack is also driving there. The other thing dynamically in the market, the market year-to-date is down a bit. But we do see, more recent, the last couple of months, good, strong order intake for the industry around over 20,000 last month and over 26,000 two months ago. You're starting to see we're projecting a flat market next year, around 250,000 for North America. And we're hoping to see maybe some upward pressure on that number. In general, again, we see positive traction.
We're proud to be a positive contributor to the group coming out of North America, and I think we'll be leaving this year in a very strong fashion and no tripping out of the block for next year. Thank you.
In Asia Pacific, there are so many markets. I'll focus on the four largest ones. In China, year-to-date October, the market for heavy duty has grown 17%, to some extent driven by a pre-buy effect, anticipating the enforcement of the new China IV, almost equal to Euro 4 emission standard, which will happen then in the beginning of next year. There's an anticipation that while the total market for next year, as we have communicated in the Q3 report, will be at the same level for 2014 as 2013, the first part of the year will be a bit slower because of the pre-buy and then going down and coming back up. Also this year, 2013, in China, the second half of the year is stronger than the first half of the year. That's China.
In India, the market has been meeting challenges for the last one to two years. We are foreseeing that it continues to be a challenging environment. We have in our Q3 report, reporting the specific estimates. We don't have any changes to that, obviously, today. There's an election coming up in India in 2014. Prior to that, we don't anticipate to have any big changes in the market sentiment then. As I mentioned before, in India, the Eicher brand is continuing to taking market share, and Volvo Trucks is taking market share and has been the clear market leader on the premium truck side then. In Japan, we have the same 35,000 heavy-duty outlook as we communicated in Q3. The first half of 2013 was actually a decline versus 2012.
The second half of 2013 has been strong, riding on the wave of the so-called Abenomics, and we are projecting roughly a flat market then going into 2014. The first quarter, we believe, will be very strong in Japan for two main reasons. One, seasonally, it is a strong quarter. It's the strongest quarter. Secondly, because of a VAT increase 1st of April, we believe there will be a pre-buy effect in Japan in the first quarter of 2014. Then I'll just pick the largest market for heavy duty in Southeast Asia, which is Thailand, which has reached an all-time high of around 30,000 heavy duty trucks this year, which almost then puts it at par with Japan in size. In Thailand, UD Trucks has taken market share this year.
Volvo Trucks, compared to, let's say, the European part of the Thailand market, because the majority is Japanese, as I showed before, is steady at around 75%-80% of all European trucks sold in Thailand are from the Volvo Trucks brand.
Thank you. Then I will take FT, if we can get some traction here. Yeah. Then we start off with questions and answers, if you have some, and we will have microphones here if you can. If we start from the bottom and walk ourselves up. If we start here.
Thank you. I'm Erik Golrang, ABG Sundal Collier. I think I have two questions. The first one is on looking at all these new trucks in front of us, and I guess concerns scale and complexity. I just wondered if you could remind us the advantage, really, of being one of the biggest truck manufacturers globally, and how you can make better use of those advantages with these new products that you're now launching compared to what it's looked like historically. The second question is on the sort of changes in the competitive environment. Profitability has dropped quite a bit across your peers over the last two years. Just if you can give an update on how you think about the absolute EBIT margin if you would reach the 3 percentage point improvement today compared to when you first talked about it. Thank you.
I can start with the last question, and say that we don't give that. The transparency we give now is the SEK 9 billion. We're looking at where it comes, and then what it will be 2014, 2015. As I said last year, it depends on how the business develop and how the market develops and what kind of currencies we have and all of that. Basically, the commitment we're doing is the SEK 9 billion. When it comes to the advantage of being a big group, I think the big change, and I hope we communicated that clear enough. It is a big change compared to just being one brand, one big going out and try to sell across the market.
As Joachim clearly pointed out, that is, of course, that if you come to Southeast Asia, you are taking a very small segment, and that was our problem before. We're now moving into much bigger segments with our brand portfolio. The trick of doing that is two. One is to make sure that you build your new products, and that's why the future plan and the brand position plan, according to a certain system. To making sure that you have a basic CAST architecture, as Joachim was talking about, Common Architecture Shared Technology to the right level without destroying. By doing that, you can then start to populate that truck with components.
You can, over time, making sure that those components, since they're fitting into a CAST build vehicle, you can then start to elaborate on the different volumes that you get, depending on what product you're doing. That is a different way of looking at it than basically coming out with one system and then just try to big scale. It is on the engine side, definitely so that if you look at the long block side, there is no doubt. I mean, that we have talked about all the time. Looking at the cab side, somewhere you have to put
The cab and say, "Listen, if we want to be really competitive in India or in Thailand, then we need to have a different approach to the cab. We need to have a different approach." At some point in time, you have to stop there, and then you have to start to look at how we can making sure that we get the profitability out, because That gives us the best of two worlds. That gives us the scale, it gives us the opportunity vis-a-vis the suppliers, and it gives us the product differentiation that is the way. The trick is where to cut, where to stop the standardization and go brand specific. I think by showing what we have done with Quester, we can prove that we have become much better on that, because Quester is on a CAST.
It is built, designed in Asia, it's supplied from Asia, and it's fitting into the price picture for that product in Asia. Okay?
Hampus Engellau , Handelsbanken. I have three questions if I may . Starting off with Europe and Volvo and Renault. What risk do you see in cannibalization between these two brands, given that you're improving Renault so much, and you're also moving into Central Europe with this product? Second question is on the same theme. What's the commonality now between these two brands following all of these steps? The last question is more on a speculative basis, but it seems like around the corner, there should be a renewable program of Volvo and Mack in North America, and will that be on the same complexity as we have seen in Europe? Thanks.
Yes. I can answer there. First of all, the two trucks are very much directed to very specific customer groups, customer categories. They are in surveys also saying that the second choice for a Volvo customer is definitely not Renault, and the second choice for a Renault customer is definitely not Volvo. That is assuring us that we don't get cannibalization. We have worked this through very thoroughly, market by market, letting the people with the competence see through which segments are we going to selling, what is the product offering that we have on each and every specific market? What is the price points that we are going to have on the different products so we don't get cannibalization. That is very much related to what kind of image and position the brand have in a certain market.
If we take a country like Finland, the market image for Volvo is very high and Renault is not so big. You can have quite a big price span, you still don't get any cannibalization. If you go to a country like France, where the image on the Volvo side and the Renault side is very equal, the price point needs to be adjusted, it needs to be very close to each other in order not to get risk for cannibalization. We feel very comfortable with the job that we've done. We feel very comfortable also with the customers' way of selecting, it's different customer categories, definitely. The products are also designed for different categories. We feel very comfortable with that. The commonality between the two, that is not the way we see it.
What we have done and what is important is that we have different market organization taking in different demands from the customers, that we are then handing out over to the R&D development people to really develop a truck suited for those customer demands. If the commonality is 0% or if it's 100%, it doesn't matter for us. The exact number of commonalities depends very much on what kind of specifications and so on we have. We are using this in a very clever way in order to optimize cost and customer features.
Just adding to that, what you're talking about is the feature level. When you look into CAST and the harmonization through the, what I talked about before, that is of course given, and in technology, transmission, and those kind of things.
Yep.
Yeah. Let me first say that today's product is very good. We have time. We're still rated number one and number two in comfort, and overall drivability of the truck. We're also leading and very competitive with the fuel economy. We have some time, but so the next evolution of the truck will evolve rather than be a revolution, and we don't see anything like the complexity that Europe has gone through with the two brands there.
Hi. Fredric Stahl at UBS. Amir, hi. You gave us the production capacity that you envision for the Quester, I think you said we will increase capacity gradually over time. I was wondering if you could give us a rough estimate for what that is. How many years do you think you need to reach those capacity levels? That's question number one. Then I want to go back to Olof's, your comment on the Quester and the commonality. I got the impression that the commonality with the rest of the group is not great. Is that correct? Maybe if you could quantify that. Then finally, I would want to move to something more immediate. There's a pre-buy going on in Europe. I was wondering, it's very hard, I think, at least, to estimate how big that is.
Could you give us how your orders have developed in Europe so far in the fourth quarter?
On the last question, I always look at Christer to making sure that the answer is correct. No, we cannot, obviously.
No.
No. Before I hand over to you on the other question there, I would like to pinpoint, the CAST is not commonality per se. It is about that you create opportunity for actually changing components because you have built it in a structure that is similar. That means the width, that means how is the whole structure in the frame, how do you actually marriage the engine into the frame? How do you put on the cab? Those kind of A interfaces, which means then basically that if that is commonality, then you can put on the right component for that feature level. Of course, if you see the commonality on that, on the Quester compared to a Renault or an FH, it's not.
If you would go down and compare the whole link, you could see that actually the compressor is sitting on whole number and so on. Do you see what I mean? The compressor itself is different. That's a good answer, coming back to the first question. That explains? Good. Okay. Then the second question was? That's the reason why you got it, because I always forget them as well.
No, that was on Asia as well. You gave us.
Asia.
The future capacity of.
Yeah, it was.
Sorry, it was you.
You see.
I'm looking at Christer first.
No, I guess the issue here is how quickly can we get the production ramped up?
Yeah.
The demand is there.
Well, let's start by saying that the product has been extremely well-received. We have launched it in four launches so far. We have nine to go. As I mentioned before during my presentation, we're launching it in China next week, on December 10th. It will take a few years to ramp up to full capacity. Also, it's important to note that, as I mentioned, the capacity ramp-up into 2014 is gradual. That is because we have a new product in a new plant with new processes, new systems, et cetera, to make sure that the whole system delivers the quality required by the customer. If you send out a few thousand trucks and you don't have that, then obviously, you have an issue later on that is more costly than we would like it to be, so to speak.
Next to you, I guess you nodding, Mikael.
Yes.
Yeah.
We're ready.
Yeah. One team.
Maybe if I can just elaborate then a bit on the demand side now. I would say that we are looking into a first quarter next year. On the Volvo side, we would, of course, see a, you can say, a reduction in our production output after the pre-buy. We'll come off elevated levels of production and come down to what we call maybe not normal, but still very okay levels. We're not foreseeing, at this point, a cliff effect in front of us here, post the pre-buy on the Volvo side. On the Renault side, it's a very challenging situation, as we discussed earlier, that customers haven't yet had enough time to test drive the trucks to feel the confidence to put in the orders. There we will face, you can say, a tougher situation with, right now, fairly weak order intake.
As we build the confidence for the new generation, that order intake will then gradually start to take off. It's a bit mixed picture between the two brands.
Now it's.
Hi, it's Colin Gibson from HSBC. Two questions if I can, please. First of all, help me to understand your thinking a little bit. I'm going to replay some of your own arithmetic to you. I'm going to ignore, sorry to the guys over there, I'm going to ignore the rest of the group. I'm just going to focus on trucks. You say everything you're doing at trucks is going to increase, all else equal, Volvo margins, group margins by 4 percentage points by the end of 2015. You also say then that you anticipate the competitive market environment to wipe away 2 percentage points of that by the end of 2015, and hence your 300 basis points, because there's another 100 basis points coming from over there, right?
My question is, sorry for the long introduction, my question is, hang on, your program stops at the end of 2015, but the competitive market environment doesn't. That presumably carries on. If the competitive market environment is taking away 200 basis points of margin every three years, what's your next trick?
Let's first of all be very clear on the program per se. What I've been very clear on, what we have been very clear on is that we have a program that gives a certain amount of improvement into a result in 2015. We are saying that we have very ambitious and we follow the plans and we're doing it, giving the stretch of the targets in order to make sure that we're giving a number, and I think that's prudent to actually go out and talk to you and say, we are going to have headwinds factor from now and until 2015. That headwind factor we have decided. That means if you look at for the group now, if you look from the group, we haven't specified that, we haven't divided that headwind factor into either/or, okay? Fair enough.
That is the headwind, that gives the 9 billion improvement according to that. That is what we're doing. That is the only thing, let's put it that, the only thing, which I think is quite substantial, or committing to, based on what we said. Again, it's no change from what we said last year. I want to repeat that. It's exactly the same message. The only addition is that you now see how those 9 billion is coming out. When it comes to continuing, I hope I said that on my first slide. That is, of course, we are in a transformation, when you do the transformation like Mikael is doing his transformation when Peter is doing his, all over the group, then of course you see you find things, we're moving very quickly onwards.
Rest assured, that is the whole point with my first picture, moving into the future with a much more competitive structure and a base, we're going to continue. This game never ends, you know that. We have, I think I said that as well, a catch-up thing to do right now. That catch-up effect we do. The real game changer, as I said, is what's behind me. Was that clear?
That was clear, thank you. My second question was regarding the joint ventures. I think Volvo shareholders has always been very generous by paying CNY 5.6 billion to Dongfeng, putting in a lot of intellectual property in the production process, putting in a lot of intellectual property, no doubt, in technology as well.
What are you going to get out of it? Really? A 45% shareholding, is that enough?
Well, first of all, I'm not going to comment on whether that's generous or not generous. The value being created is on several fronts. Obviously, we have the 45% shareholding in one of the world's largest truck manufacturers in the world's largest market. That's one. Obviously, as I mentioned, we're going to take Dongfeng outside China. That's going to be a lever. We have the whole broadening of the value chain. That's a lever. We have the potential to tag on to a lower cost supply chain than we're used to in terms of purchasing. That's a lever. On the technology front, as is public, we are line sizing, as one example, the VT transmission to Dongfeng. All of these will be, by the way, guided by separate agreements. This is the only one so far.
When that is localized, of course, in theory, we could potentially from the group buy that from the joint venture as a supplier back to the Volvo Group and put it in maybe one of these products behind me. The value will be created on many levers, as we see it.
One thing that I want to add is also looking into, we believe that if you look on the Chinese truck market going forward 5, 10, 15 years, there will be a development. Being part of the largest group and also looking at not only the Dongfeng brand, but looking at if you look at the distribution and the coverage that Dongfeng has, that is of course also something that you can, over a longer period of time, be a part of and having as a leverage as well. Okay.
Hello? Hi, it's Laura Lembke from Morgan Stanley. I have three questions, please. Maybe we can take them one by one.
Thank you.
The first one is on your strategic plan. You said that you want to be measured not by a margin target on absolute EBIT number by 2015, but rather by the SEK 9 billion improvement that you're looking for. You said that, for example, for 2013, we're going to see a SEK 2 billion improvement from the plan. What I'm struggling with is really from a market perspective, we as analysts or let's say investors, how will it be possible for us to really identify what will be related to the savings in 2015 and what is the cycle?
I just want to be very clear that the SEK 9 billion comes out of the numbers from last year. That is the 3% of SEK 300 billion is SEK 9 billion. The only thing we have done this year is to put the SEK 9 billion. Otherwise it's the same. There's no change to that. We then giving you the coming up things. We will, of course, since we have gone out with this now, on a regular basis come back and say, are we on or off? Now we have a guidance and now we know, are we on or off on that one. Of course, again, I invite you to next year and you will get a full update again. Where do we stand? How do we progress? As transparent as we have been this year, and we will do that again.
Of course, now since we have done this as a guidance for next year, we will, of course, in quarterly reports coming back and state, are we on plan or on a totality, not by target but on a totality.
Second question is on R&D. Obviously the big burden from Euro 6 is now over, I think especially in Europe, there are a couple of other headwinds coming now such as mandatory safety requirements and I think the CO2 regulation for the truck industry. I'm just wondering whether the SEK 11.5 billion R&D run rate that you're setting out in the plan does actually feature these spending needs in the future.
We will for sure cover all the legal requirements with very good technology going forward. We have done that in the past and we will do it in the future as well. My point when I talk about the R&D was that since we're now guiding this from a central point of view, deciding from a central point of view, we will make sure that whatever sort of the ambitions that we do have, that we meet the zero impact at the end of 2015, that is basically what I've said. That is what we're pushing through. You can see then already now that we're pushing down the cash R&D in a good way. Torbjörn and his team has done a tremendous job with actually getting this under control now. That's how we're going to manage that.
I think in the future coming back to what we've tried to and will try to do in the future is to have a much more equal machine when it comes to R&D. That means that the input into capitalization and amortization should be much more in line so we can have, because Torbjörn and his team and the rest of our organization is basically getting very inefficient with those ups and downs with consultants. We want to get as smooth as possible, and that we can decide now with the product plans and all that.
I thought it would be good to have our technology
Yeah, that's good. You can confirm or deny, but confirm would be good actually.
I can absolutely confirm.
Confirm would be much better.
You're completely spot on there.
Thank you.
The beauty then to be big is of course then to have the possibility to have people then to really meet the challenges then at the same time keeping the R&D at that level because we have competence all over the world. We have done a lot of things, CO2 regulations and so on. I don't feel that that is a big threat. We are working very heavily then on fuel consumption reduction. For me it's a tough challenge, but it will be managed.
Okay, maybe one last question. Could you tell us what the impact was of the launch costs in 2013? Like some absolute number maybe? Thank you.
I'm looking at Christer. Launch cost absolute number.
2013
full year?
Yeah.
It's not over yet, so we don't know that.
We had about, let's say SEK 300 million in the third quarter, SEK 500 million in the
Second quarter. We had an additional about SEK 300 million in the first quarter of this year. We believe it will be another some SEK 300 or so coming into the fourth quarter. It's still a high activity level, you can say, as you've heard, when it comes to training and launch events. It should start to taper off then beginning of next year.
Did you do the calculation in your head? I tried, but Okay.
Hi, my name is Martin Vikham from Redburn. Just wanted three questions, if I may. First one would be on plant closures, potential plant closures. You showed us on one of the slides that there might be some consolidation of manufacturing. I just wanted to know how that would look like in the future and how much of it is achievable by 2015. The second question is, you just launched a new Volvo Trucks and a new Renault Trucks. Is it possible to run them on the same assembly line? In other words, if there is a particularly strong demand for Volvo Trucks, can you shift the production also to French factories and run it there? The last question is, would it make me make sense to split that SEK 1.4 billion gain you have year to date into the headwind factor and the underlying gain you've had?
It seems like the headwind factor has been way more than 40%, which is something you've guided to last time around. I just wanted to know if we could get a split by any chance. Thank you.
That's, Mikael, if you take the first two?
The first question around plant closure and how that will be panned out. What I gave you here was some example that we have announced and what we are actually implementing right now. On top of that, if you take Sweden, for example, we have closed two of our Reman sites, et cetera. We announce it as it is ready to be decided on and to be implemented on. As you saw on the big map there with a lot of sites, it's of course so that out of all these sites, you could say roughly 25 of them stands for around 95% of the conversion cost. There are concentration to some of the few bigger ones.
What we are working on is on the outer circle, you could say, with the smaller sites and so forth, and that's really what we are focusing on right now. On the major sites, it's more of getting aligned, like what we are doing in Europe right now. There we are more optimizing the sites rather than to have plant closures. The ones we are ready to communicate, we will communicate when it's time.
Since there will be a lot of questions around this on the improvements there, Christer, why don't you set the stage?
Let me just see if I remember. The SEK 1.4, just to clarify, it's year-to-date, basically the P&L impact you have had from the savings program year-to-date. If you think about the headwinds we had in the third quarter isolated, we had roughly SEK 900 million in R&D because moving from capitalization to amortization. Then we had in the truck business, I think it was another SEK 800 million-SEK 900 million in currency movements coming back at us. That's what partly, of course, shaving off the effects that you have coming through from these savings programs.
Was there one more?
Yeah, there was one more question on the running the Renault Trucks and the Volvo Trucks on the same assembly line.
Yeah, in the same production line.
Yeah, that's exactly what we're doing now as a first step with the medium-duty trucks, where we're moving the Volvo medium-duty from Ghent to Blainville. We will run both Volvo and Renault in one plant. That is a significant step. Then, of course, if you look at other sites outside Europe, we are already running in Moscow, for example, where we have dual brand already. It's also the same comment there. When we do the steps, we will announce them when they are ready.
The trick there is to get the whole system up on this fishbone structure, you have the same structure in terms of feeding the line, which Mikael and the team is working on. We're not there yet. Almost at the top.
Hi, good afternoon. It's Fraser Hill from Bank of America Merrill Lynch. I've got three questions. The first one is a bit of a clarification on the overall target of SEK 9 billion, and the SEK 300 billion revenues. Is the SEK 9 billion therefore, is my understanding of that, the SEK 9 billion is predicated upon the business being a SEK 300 billion revenue business, therefore, if the business is not a SEK 300 billion revenue business in 2015, the SEK 9 billion will not be achievable.
You can look at it from two points of view. It depends on what is not. If it's lower or if it's higher. In order to set a base for everything together, that is the issue that we need to do. We need to fix certain parameters in something we don't know is going to happen. What we have decided is to fix the volumes, we fix the percentage, and thereby we're calculating the absolute numbers. By setting that frame, that is what we have done. Then, of course, when we come there and getting closer to it, will it be higher and lower, then we will see how we're moving.
The important thing to me is to translate to you now that on that journey to reaching the SEK 9 billion, we have now started with the first SEK 1.4, and we have laid out how we're going to make those coming into the profit and loss. That is the
Okay, thanks. I still got two more. One is on Brazil. You mentioned the competitive pressures that are growing with new entrants into the market. I just wondered what you expected from those new entrants in terms of market share gains, especially with Paccar. Do they have a sufficient network in place to really take market share quickly? What are you expecting overall for pricing in that market? My second question outstanding was, again, a clarification. You gave the guidance on the truck launch costs this year. Is the removal of those, let's say, in future years, part of the saving assumption, or is the removal of those launch costs on top of the savings that you've laid out today?
Okay. For the American one.
First of all, coming or operating mainly in North America, we have a great respect for Paccar. We take them seriously. They've just opened the factory, we understand. They're just trying to establish a network. Rather than paying attention to that, we're sticking to our knitting, so to speak, making our fortress as strong as we can with investments from dealers. I didn't mention, we haven't launched the new product yet in Brazil. We plan to do that sometime next year. We think that fortress will be even stronger. Although we have great respect for all of our competition and Paccar, I would rather be us than Paccar.
To the second question, you can say that the part that is related to the EMEA transformation back office, because, of course, the back office has also been, in terms of costs, higher because of taking care of the launches in terms of employees and staff and support functions. That part is included in the activity and in the target. Everything else, like stop training, or not stop training, but get through the training, commercial costs in terms of marcom activities, the glass and ice cream activities, that is not part of the target. That is costs going out. That would have been too easy. The part that is actually then going back into and say, "Now we're finished with the launch, now we can reduce the number of consultants or number of employees," that is part of the wholesale target.
Hi, it's Fredric Stahl here again from UBS. If you look at the profitability across regions, we had Asia obviously today at 6%. I think it's still fair to assume that China is, on BCE, is a better market than average. Brazil on the truck side is better. I think Russia, maybe prior to this year's drop in demand, was a somewhat better market. You look at, it's these traditionally the BRIC markets that are higher margin than average. Is there something, and a lot of the focus on your product launch for the Quester obviously is to address this market and do even better, but is there something you can learn that you can transfer to Europe and the U.S. from the emerging markets, rather than pushing knowledge and best practice from Europe and the U.S. into emerging world? What can you take the other way?
I think it's quite interesting that you asked the question because if we go back four or five years ago, I think the general consensus was that Asia was for volume, not for profitability. Now we basically are coming into a situation by, exactly as you said, bringing in European thinking about how you can create profitability, and you look at the total product, including service and spare parts, and that's a major sort of movement that I think everyone has done there. Now, looking back and coming back, I think one thing is speed. Speed and efficiency. Frugal engineering is something that both Joachim talks a lot about in Asia. I know Torbjörn is looking a lot about how can we have that kind of approach coming back into our development cycle, which will lead into profitability and efficiency.
That's something that we have a lot of experience from Quester. You look at the other activities, I also think the suppliers. That is what I see coming over time when the supplier base is actually improving in quality in Asia, but at the same time, still keeps a lower cost level. That's something that in the future we will see going forward. Before the next question, I just want to, and I could end it up with it as well, but it's also about a clarification that I would like to do to make sure that you leave this room fully enlightened and also understand about the targets we have set there. In 2011, around this time, I said that over time, the Volvo Group should improve its profitability with 3%. That is a structural change that we're working on.
We said over time, we didn't put any number to it. What I then explained was that in any given point in time, compared to before transformation, we should be 3% better. That means that in the ups and in the downs, we should move in that. This program, the transformation program that we're doing and the SEK 9 billion is a part of that program. Coming back to the question about should we continue, what's the next trick? That is, of course, something we need to continue to do. Over time, the target is then to get over the cycle, always be 3% units better than we were before the transformation. I just want to make that clear so we don't mix those up.
That was disclosed already in 2011, and it's still very much there, as much as the SEK 9 billion and the 3% on the SEK 300 is still there. Okay? That was answering a question not asked, which is normally not what you should do. Yes.
Yeah, thank you. Timur Khayrullin from Deutsche Bank. I would also have three questions, please. The first one refers again to the 2015 target. You obviously just committed to the SEK 9 billion, and I previously understood that 2015 would be pretty much the year of delivery. Now, despite you confirming this SEK 9 billion, I had a bit of a feeling today that you are basically trying to push the full delivery out until the year 2016. Is that a fair takeaway, or do you really think 2015 is actually the year of a full delivery?
Oh, yeah. Definitely. I really want to emphasize that. My point, and I communicated badly, and it's good that you asked the question. My point is that with this done by end of 2015, we're moving into 2016 with that with us, and then we have to move on in that market situation. We have that, and that's what I'm talking about. We're moving on this part, so definitely not.
Okay. A bit more short term maybe. I think you caught the market relatively well this year. On the margin side, did you really expect to end up having something like 3%-4% at the end of last year for this year? If so, why didn't you prepare the market for that a bit better? If not, what has really went differently from what you expected? Maybe also this deviation to the consensus estimates that we have pretty much seen for the last five, six quarters now, does that change your view on your guidance policy over time? I.e., are you willing to give some sort of guidance in the future?
No, I think to answer the latter part of your question, we will not give more guidance than what we do today, and we don't give forecasts, and we keep that system. What happened this year, looking in the mirror, we all saw different things that happens in Q1. There are different things that happen in Q3. I think, to be quite honest, in Q3, if you look at it and look at particularly the exchange rate differences that happened quarter-over-quarter and looked at the currencies that came in as being then the major contributor to that, the currencies actually being the mining currencies that went down. Give us on a total group, Christer, correct me if I'm wrong, but we're 1 billion SEK or something like that in that range. Then you add on the things that we have done on the capitalization and amortization.
I tried on Q3 to really see what do we do operational, how do we do operationally? I think quite easily to be done quarter-over-quarter, you can actually take down the one, of course, we had in Q3 last year, and you look at the one, of course, you get an operational difference there, and then you add back the currency and the R&D switchover, and you can see that we operationally have had an improvement. That improvement is coming from different parts. You actually see that quarter-over-quarter, taking away those things, is actually an improvement in the operation. To me, of course, when we as a team look at things, it's the totality, including currency, that's the world we're living in.
Our task here at the company is also to make sure that the people who are engaged in managing those things, they have to work on the things they can look at, and then it's operational. We're not thinking about changing any principles, and we're living in an environment which is very complex, and we are a big company where swings back and forth happens. We try, and we try to be as transparent as we can, and we try to be guiding in a way without giving forecasts. Christer, I don't know if you want to as an expert, was that well put? That was well put?
Yeah, I think so. I have nothing to add.
Okay, then. Reasonable, Christer's reasonably happy with that one.
As a very last question, maybe just on the pricing side in Europe next year. This year, customers still had a choice to buy a Euro 5 or a Euro 6 truck. Next year, obviously, they will have to buy a Euro 6 truck, and you might face a situation where, at least in Q1, a lot of OEMs will have idle capacity. Do you expect pricing to be worse next year compared to this year, net pricing? On the gross pricing side, does the price increase that you target fully capture the additional costs that you have for Euro 6?
When it comes to the pricing on the new Volvo, we have announced that it was €5,000 for the new model, and we have been very successful, as Claes mentioned here before, to realize that increase, and we are very happy with that. When it comes to Euro 6, we are asking for another €5,000, and that is covering the cost, and we are very firmly holding to that and see to that we really can get this out. Of course, time will help us here because right now the demand is very weak and there is no meaning, actually, to really push any trucks just to get this out. We have adjusted our production capacity to be prepared for the lower demand in the first quarter.
Gradually this will come back, and we really will do everything that we can in order to get that price realization in place. Another thing that is important is that the fleets, they have normally a fleet of four to five years old trucks. So the additional cost they have to pay for Euro 6 is actually peanuts when you start to calculate on financing and everything in the total fleet, so they can normally absorb this. Then we also hope that the Maut in Germany will come through, and that will also be another incentive for not only the German customers, but also the customers in countries around traveling through Germany to really be prepared to get an incentive to buy Euro 6 at full price.
Okay.
Okay, yeah.
Andreas Zsiga from Nordea Credit Research. Shifting focus a bit. You have a negative outlook from three rating agencies right now. The next level is a level where a lot of investors are becoming a bit uncomfortable. My question is this a concern to you? What can you do to address those concerns? In the long run, where do you want to be rating-wise?
I think when it comes to the first part of the question, it's definitely something we are focusing on heavily, and that is the balance sheet. What we can do is actually making sure that the impacts that we have had during this year in terms of increased, both in terms of costs, but also in terms of the double production, in terms of build-up of working capital. That is something that happens when you do these things when you run. You don't get the efficiency out. We have been extremely capital efficient when it comes to the CCC days, and that is something that we are now really addressing because we need to very quickly now, Mikael Bratt and the team is working heavily on actually working on getting the CCC days.
That will help a lot because that is then getting back, getting the cost down, getting the capital efficiency back where it was to be, and then you are back on the CCC days again. This is not only trucks, we are working on Volvo Buses and Volvo CE is definitely putting a lot of emphasis on that. That is a key focus area and has always been, but sometimes you sort of have things that you need to take care of. Christer Johansson, I am looking at you when it comes to what we talk about when it comes to the rating levels.
Yeah. Thank you. Of course, we cannot decide on our own rating. That's done by the three or four rating agencies. You can say rating is extremely important to us. The reason is that we have a customer financing operation with a credit portfolio of 100 billion SEK. Of course, we need to be able to fund ourselves at competitive rates out in the debt market to make sure that we can finance Volvo Trucks and Renault Trucks at a competitive level to sustain and then hopefully grow some market shares. You can say rating is important, yes, without commenting on which level we should be at.
I also want to add there that if I look at actions and the things we are doing now and putting in place, still a lot of focus, but I think we are doing the right things, definitely.
Hello. Björn Enarson, Danske Bank. A question back on production again. Last year at this point of time, you realized that you needed to take down production quite a lot, and you ended up in Q1 with close to a break-even result. What is the difference this time around when you're now also planning to take down production apart except from the accumulated savings that we have seen so far?
I think, Mikael, if you want to comment on that, it's a lot of process issues that we have improved and a lot of lessons learned as well. Mikael, could you please comment on that?
It's of course a combination of the work we do together with our sales marketing colleagues here, and our challenge here is to make sure that we have the right volume according to the product plan, related to the production requirements from the sales marketing side. I would say, coming back to what I said earlier, what we need to improve in our end is the flexibility to be much quicker when it comes to ramping up and ramping down. I think last year we had really the situation where we actually ramped up during autumn, and we need to go down so quickly again, and of course, we had a lag there in order to do that in an orderly fashion. On top of what we just described before here.
We see a lot of improvements here that we have learned from that exercise, and we are implementing here. It should not be repeated like that for sure.
We have centralized the decision points on a completely different level now to ensure that we don't have these kinds of swings back and forth. It was quite interesting actually to see how a decision in the beginning of or the end of 2012 actually sort of haunted us through the full 2013. Now we're in balance, and now we're going to do. We have implemented the new processes, and we feel much more comfortable that what we're doing now. Mikael has actually over the last year or so increased the flexibility already.
Thanks.
Let's see. I don't think there are any more questions.
Are we getting hungry?
There's one more, yeah. Laura?
Sorry, I have one more follow-up question regarding the topic of debt and credit, because I think you have a target, debt to equity ratio of 40%. I think you're probably going to end up 2013 with a debt level of, let's say, close to SEK 30 billion. You have to finance the acquisition of the Dongfeng stake in probably Q2. I'm just wondering how that impacts your ability to sustain your current dividend at the level where it was in 2012.
If I answer the first question, the debt level is actually 35% net debt to equity for the industrial division. It's not 40. I don't know if you want to answer the-
You can answer because it's a standard answer.
Of course, it's something for the board to decide about what exactly the dividend level should be. Operationally, you could hear we are actually taking some actions on trying to improve the working capital because we're too heavy due to the parallel production that we have running right now. We're also looking at to see if we can free up some other assets, like real estate. We are actually looking at, for the time being here, we own some non-strategic assets, actually not far from here, Volvo car plants, for instance, is that something that you can say can free up some capital. There are a number of activities ongoing, you can say, also to drive out cash, so to say.