Okay. Welcome back. I hope you had a great experience looking into the overall big things with the new Volvo FH, also the sum of the smaller things also is very important when it comes to create something bigger. I can happily announce that you all have passed the initial test to be a full-fledged salesperson for the new FH, with all the different attributes that is needed to have there. Welcome to this afternoon. There will be a number of presentations. I would like to start with talking about a strategic agenda. The 2013-2015 strategic agenda for the truck group. Before doing that, I would like to do a little bit of a recap, and we had some discussions over lunch as well.
I think it's important to realize the journey that we have had and the journey that we are still, to some extent, are on when it comes to actually the transformation of the Volvo Group, going from a business area and business units focus to one group focus. The pace increase that I've talked to many of you before, moving away from the board meeting pace, going into the weekly rhythm, which is now in place. Brand by brand, looking into the total brand portfolio, Peter Karlsten will come back and talk more about the status we are there. Of course, also the going from the local processes to regional processes into global processes.
This is important because this is one factor of two that I think is extremely important to get in place before you can start to implement and really drive a new strategy, new targets. The other side of the coin is the structure, the foundation, which is then the things that we have done, we said we were to be doing during this year, and the things that we actually have implemented. You can read them yourself. We have discussed them before. It started off last year with a revised corporate vision. It goes down into the new management team, the new organization coming in with a new way of working. For us in it seems like we have been doing this forever, but if you look at the calendar, we are talking about just about nine months since we actually launched the organization.
We have pushed through a lot of things during this period of time, and here is the point I want to make. That before this foundation is there, before the foundation really has dried, before the concrete has dried, it's very difficult to start to implement a new strategy. Because what you might risk into or have a risk of doing is actually to get an organization that is starting to run in wet concrete, and there you don't get the traction, you don't really get what you want out of that. The focus has been, and I know we have had this discussion with many of you during last year about the 300 bips and the strategy, how we're going to do it and so forth going forward. This is really the message.
I wanted to be really sure that before we started to take the next step, that we had a solid foundation where everyone knew its places, where the accountability was clear, where we could start actually to implement the changes that we really wanted to do. The third area, which is very important, is of course to engage in. I have clearly said also over the last year that I want to have engagement in the new management team for the targets, the changes, and the activities that we want to do going forward. We have worked on that quite diligently over the last year, where we, of course, already with the new management in place, my team, we started to think about this in January.
As soon as we came into place, when we had the new financial targets, we started to think about this, we started to formulate. We created a truck management team and the executive management team. We continued to actually start to involve and commit, we expanded it into the extended truck management team, a group of 50-odd people that we then have worked through in parallel with actually having the concrete in the foundation to dry up. At the same time, we were driving those kind of things. We have set a deadline, as you are well aware of, in terms of end of the third quarter to come to a conclusion of this and actually merging those activities then into what is the next logical step.
The next logical step now, when we have the transformation, when we have the foundation that is sort of in place, we have the commitment and engagement from the people. Now is, of course, the right time then to launch and also to make sure that we start to implement a new strategy. The focus of the new strategy, which I will be presenting to you today, is about the two areas I have communicated very many times. That is about this is not about a reorganization in its traditional form. This is not about budget cuts kind of approach. This is a new way of working, it is a new way of actually utilizing the full potentials that we have in the group by driving the organic growth.
At the same time, of course, doing that in the smartest possible way when it comes to profitability and when it comes to cost and processes and so on. These two areas is, of course, something that has been very fundamental to us developing this new strategy. When we started to think of how we are going to structure this strategy, we said we need to have some sort of framework around the strategy, because I wanted to have it connected to our vision, to our wanted position, and also then all the way into this strategy for the next three years. We started with the concept of focus areas because we wanted to translate all the ambitions that we have in the wanted position into something more concrete, and we wanted them to go in focus area.
After a lot of thinking and discussion, we ended up with these five focus areas. The first one is to secure number one or two in profitability. Quite obvious one. It is clearly related to a link to, which I think is very good, to the board's target that they have put on us to be number one or two in profitability among our peers. Number 2, strengthen customer business partnership. Here is a lot of different aspects to this. This is, of course, what you saw here today with the new FH. That is one way of strengthening the business partnership, but there are many others. In relation to this, it is about the hard products, the soft products.
It is to be able to capture the growth opportunity we have in our brand portfolio into real dollar, pounds, Swedish krona in terms of revenue, that is all when it comes to strengthen the customer business partnership. Of course, capture profitable growth, that is an essence in our strategy, making sure that we are taking care of all the different opportunities we do have with our amazing brand portfolio, but also our global reach that we do have. Number 4, we had a discussion over lunch about innovation, about fuel efficiency. We need to continue to drive fuel efficiency. We need to make sure that we are at the head and at the top of the development, that goes both for engine but also for the whole system when it comes to trucks going forward.
Last but not least, perhaps one of the most important of all, now really take benefit of the fact that we have a truly global organization, a truly global reach, making sure that we are building a high-performing team around that organization. We took this and started to think about, we need to have very concrete targets and varied targets that are easy to manage and also easy to follow up and easy to communicate. Turned out to be 20 targets. Here they are. This is the targets that we are going to follow. This map or these 20 targets is our map for the next coming years. It indicates where we want to put our focus in the future.
Each and every target is clearly identified, it is measurable, it has KPIs, KFIs, what have you, in order to have a starting point and be able to track the progress going forward. It has an owner. Each and every target has a owner, that owner is taking full responsibility for this target to be developed. I will come back a little bit more later on how we are going to follow it more in detail. Once again, 20 targets, one sheet of A4 of text. That is our roadmap for the next three years. If we take a little bit more of a deep dive into the strategic targets, you can see that we have a number of the targets that are really dedicated to drive the revenue growth.
We have the whole section 3, which is then called the capture profitable growth opportunities, where we have clear targets about our market position in 3.1, optimizing brand asset, become number 1 or 2 in combined Group Trucks heavy duty markets. We want to have a real focus on APAC and Africa. As you can see, we both have a commercial target with a commercial presence in order to support the growth in those regions, but also taking the consequences, making sure that we have the OTD, which means basically not production, but everything that goes around order to delivery, logistics services and so on and so forth, to make sure that we have a smooth and lean distribution and production in those areas in order to support that growth.
3.4, focusing a lot of the increasing of the aftermarket, and there again, really bring it back home to the people that is responsible by saying that we should increase aftermarket sales per unit in operation by 12%. It's a very tangible and straightforward target which we can follow up. Each brand rank number 1 on decided brand attributes and on competitive sets. This is a natural step to really make sure that we are taking the full consequences of our brand portfolio thinking. Peter will come back to that and describe a little bit later how we're thinking there.
To make sure that we not rush with all the brands into the same segment, but really making sure that we are distinguishing the brands from each other and making sure that they are addressing the right population with the right competitive sets and with the right features. And in there, when they are positioned in the right place, they should be ranked number 1. In 4.2, commercialize alternative drive fuel technology by launching concepts of products in each region to make sure that we are following the trend by alternative fuel in the different regions. We are well aware about the natural gas discussions in the U.S. We are well aware of the different technologies, electrification in China, and so on and so forth. We want to make sure that we stay on top of that and have a clear target going forward.
This is the revenue growth side of the 20 targets. As I said before, you will get examples from Peter and Joachim later on how we're actually addressing those in that terms. Of course, we have the right profitability, and the whole section 1.1 to 1.6, is, of course, addressing that point when it comes to increasing our profitability to become the number 1 or 2 in the industry. I have a slight feeling after my discussions during this year that there's quite a lot of interest around this. I intended to spend a few minutes on actually going through that and share with you, and open up also how we see this will be reflecting into the profit and loss. What we try to do here is to start with the Group Trucks. You need to keep that in mind.
This is a truck. This is now based on roughly SEK 200 billion of sales. What we then have is the different targets on the left side. It's the impact on the operating margin that that target will have, and we then have some roadmap examples. If we start with the top one, increase vehicle gross profit margin per region by 3%. This is exactly what it says. It is the gross margin per region, and it's 3%, and it's an increase. The way we're going to do that is working very much with coordinating the brand and product positioning. As I said before, Peter's going to come back to that with the positioning then. We are announcing that we're launching a new value truck. Joachim will come back and discuss and explain to you more in detail what we want to do there.
Of course, this also means that we need to optimize our pricing strategies and take the full advantage of our different brands in the different markets. That means working with very smart and intelligent pricing strategies around the globe. That doesn't mean only price increases, it can also mean price decreases. In general, we want to have an optimized pricing around our brands. Then, of course, exit unprofitable product, which is also part of bringing the profitability up. If we see that we do have products in markets that we don't see long-term will make profit enough, then of course, we have to take the consequence of actually doing that. As a first example, we're announcing today then that we are stopping production for UD Trucks in the U.S. That is one example where we're then moving that.
The next target, As I said, the logical question is of course, why does 3% gross margin only give 2% in impact? It is vehicle gross profit margin. It's not spare parts. This is the vehicle gross margin, and thereby we get the 2% impact on the operating margin. The second one is to reduce the standard cost. This is, of course, the standard cost comprise the whole cost structure for the product. This one is a target which is extremely important, and we want to reduce that cost of sale for the current offer with 10%, excluding FX volume and raw material impact. We will do that by really now focusing on the Volvo Production Systems.
You can imagine the force that we now start to see with the Volvo Production Systems, where we have it under one clear responsibility from a function point of view under Michael Brecht in the Group Truck Operations. The rollout that we're now going to do and the implementation, which is now on a day-to-day operational business into the different areas. Here we have a lot of very interesting activities ongoing to drive productivity and thereby reduce the cost. Of course, we need to further optimize the sourcing. We need to take the advantage of actually merging three purchasing organizations that we had before in engineering, in powertrain, and in non-automotive products, and we have merged this into one now. We need to further optimize that. Here we have, of course, also focus on the quality.
For those of you who know the cost structure and can anticipate it, you can say that why is 10% cost reduction of the current offer only generating 3% in operating margin? The reason for that is that this is a very complicated situation where you actually have a number of feature increases. You have different kind of models. We have hundreds of different models, we have put up a number of sort of framework around this target to make it easy to access and easy to measure, we will not go into the details about that. We can just conclude that the 10% cost reduction equals 3% in the trucks operating margin. We have two targets about selling.
The reason for having two targets about selling is quite obvious if you think about it, because having one target for selling expenses could give the wrong incentives, basically. Especially for us who have a mix between the own dealership and the independent ownership. It could mean that you could actually have and drive very good investment by adding people into the dealer network who are as highly productive and selling service hours, of course, they add on to the sales cost, therefore the ratio. What we have decided is to have these two, that is focused on the wholesale, the non-retail selling cost. Those are, of course, the back office system, that is the whole organization around supporting the dealers and making sure that we have a dealer set up that goes into line.
There we're saying that we want to decrease those with 5%, that will give us a half a point of improvement. This is, of course, very much streamlining. This is about looking at the processes, making sure that we have a streamline in terms of systems, in terms of all other things. A good example, which Joachim will come back to, is the overall cost reduction in Japan that we also have announced today. You come on the other side, that is on the dealer side. There, we're looking at it from a different point of view, that is how well is the dealer absorbing the total cost with its soft products, with the service.
If a dealer has 100% absorption rate, soft offer absorption rate, it actually cover the whole cost structure for the dealer, including building, sales people, and everything, and he makes a zero profit without selling one single new truck. Okay? If 110%, he actually makes a profit without selling one new truck. The reason why this is important is, of course, to make sure that we build up the stability and the strength of the dealership going forward, because this means that they can take ups and downs in a much better way than they could otherwise, if they don't have the appropriate soft offer absorption rate. We want to increase that with 10%, which is translated into half a point as well. Here we are looking at dealer efficiency, of course, new soft products, extremely important.
We talked about the customer agreement for the new FH, and so on and so forth. We will also, and I think that is important, to have a special focus on our second owners, to make sure that we don't lose track when the truck goes into a second owner, but keeping that also as a revenue generator for us going forward. That will also be a targeted area. We are talking about R&D, and reduced R&D expenses gross to 11.5, and that we continue to work with the R&D 30, which we have started, of course, and we are in the midst of. The same with VPS. It's fully owned by the group truck technology organization, and the implementation is coming there, even though we are, of course, doing the implementation of R&D 30 in all our BAs and activities around in the group.
This will not give any immediate, for these three years, impact on the profitability. It will actually avoid us from having a negative impact because of the higher amortization that we see going forward now in our R&D. Basically, if you then adding up this together, you will see on the SEK 200 billion turnover, you will have a profit improvement of these targets with around six percentage points. If you then turn that into a group of SEK 300 billion, that translates into 4%, mathematically. That is the 4% contribution that the truck is doing into the group. On top of that, you have the business areas, the CE, Buses, Penta, and governmental sales, who will contribute their share of the profitability improvement. Here, of course, you have different starting points. We have taken a leap in CE. CE has moved already.
Other business area has not done that and still has some work to be done. This is a mix, but in around the half a percentage points going down. Finally, the IT cost, which is always something. Here we have decided to put the IT cost in relation to the group's total cost, not to revenue. The revenue is, somewhat, you have time differences, you have other differences on the revenue, so we want to make sure that whenever we do a cost adjustment for one reason or another, we need to follow very carefully with the IT cost. Therefore, we say that we want to have an IT cost of the total group cost of 2%, which will also give us a half a percent.
Transforming this mathematic calculations into a SEK 300 billion group point of view, you're now looking at a 5% going forward from here. We all believe that the likelihood that we will have only sunny days and tailwind over the next three years when it comes to all the factors in the world that we do have, it's very or highly unlikely. I have been very specific to my team when I come up with those issues, that I wanted to see a high bar in order to be able to mitigate if we, by any chance, would get a normal Gothenburg November Tuesday, which is a little bit rain and a little bit headwind coming at us. Therefore, we say this headwind factor, and then we have the targeted net improvement with 3%.
I just wanted to be very clear, and we said that, we assessed that in the press release. This strategy is a fundamental part in achieving our long-term objective of the 3% or the 300 basis points improvement that we see in front of us. This doesn't mean that by 31st of December 2015, we're going to have that, because nobody knows what kind of market we're going to have at that point in time and what other issues that we're going to have on the 31st of December 2015. It is a fundamental part in actually aligning the organization now in order to focus on these issues, which we believe is fundamental to drive the profitability and also addressing the leverage curve that I have discussed with you many times. Coming back to the whole implementation of this.
You remember the five key focus areas turned into 20 strategic objectives are now on the way, and we have already now huge amount of roadmaps being drafted and also put in place in order to achieve this, and that in turn will generate thousands of activities supporting this strategy going forward. This is a very funnel-like process where we will not have any sub-strategies. We will not divide a strategy into any other sort of documents. Everything that we need to do now is going to be focused on these 20 targets, and it's going to be focused on allocating resources, making sure we have the roadmaps, and making sure that we have the activity plans in place. It will be as operational for me and my management team as the follow-up of the monthly results.
We will have a once a month follow-up where we stand with the different targets. The owners will be presenting the status, the action plan, the resource need, what do we need to do? Do we need to change roadmaps? So on and so forth. That is something that we're going to work very actively with in order to push this forward. By doing that, you reach two things. One is, of course, a commitment and also ownership and the seriousness that we need to do it. You achieve an enormous engagement. Knowing that your target will be up to the management team once a month to be discussing, you don't want to sit and think about this as a long-term strategic target that you can look at the back end of 2014.
You need to be updated on a monthly basis in order to see that we do progress, and if there are issues, it has to be raised. We have to take it into management and then correct it. This structure of actually following it up will be extremely important. Openness, full disclosure to secure employee understanding and involvement. I've said many times, I don't believe in strategies that are sitting in a binder behind a shelf, secret documents. If a strategy really going to work, and if you're going to see change, you need to really engage people around it. You need to rally people around it, and everyone has to understand the full context of it, where we want to go, why we want to go there, and what are the measures to be doing it.
As we're speaking here today, we are rolling out this now completely as you see it to all the 80,000 people around the globe. There will be a huge program now put in place to go out and discuss with all employees to explain, to argue, and to make sure that everyone has a buy-in. We had the final touch-up of this in September 13, 14, here in Gothenburg, where we collected 120 top trucks managers and really went through this into the detail and got their full commitment, engagement, and also a huge amount of can-do attitude in order to go out and address those issues. To me, this openness and transparency is, of course, very important for me in order to rally everyone around it.
We have tough targets, and we are aware of it, and we are fully committed, and we also believe that we have the means to do it. Above all, we start to really have the self-confidence that we can do it. The next phase is stop talking, get into it, and start to deliver. That is the theme for the rest of the afternoon, where I will now want to have Peter and Joachim and also Pat later on now starting to talk about what examples can we talk about and give to you. You get a feeling for what are the activities, what are the decisions that we've already taken, and of course, having a feel for the heading we're going.
I assume there are, if not thousands of questions, quite a few questions, but there will be a Q&A session later on. I managed it in 1 minute and 46 seconds too fast. I give that time to you, Peter, as a very generous.
First of all, I'm very pleased to be here and having this opportunity to share the work that we are doing in this very exciting project, the brand positioning project. We have, of course, in this project, as everything we do, supporting, or this project is supporting several of the strategic objectives, as you can see on this picture here. The brand positioning job is extremely important because we are taking the Volvo Group into a complete new phase of what we have been doing. I think what is important here now, when I'm talking, I'm only talking about trucks. It has nothing to do with buses or construction equipment. We are focusing only on trucks. That can be good for you to remember.
The job we are doing here is to really go from a brand by brand strategy into a strategy where we are focusing on the brand portfolio and take another completely different approach to the market. Since we divested the passenger car division and decided to focus on commercial vehicles, we have made several acquisitions, and we have also formed a joint venture with Eicher Motors in India, and we have built up a very strong portfolio of brands in the group. We have also, during the last decade, focusing very much on commonality so that we really can leverage from the economy of scale that we have built up, because in our industry, it is extremely important to get economies of scales. To develop a new engine for Euro 6 is extremely costly, and you have to have a significant volume base to afford to do this.
That is what we have had our focus on over many years. We have focused very much on building the technical platforms to see to that we are utilizing the group components now in the volume base. We have in the group many different strategic assets. We have the brands, we have the technology platforms that we have been focusing on. We have also then, of course, our customer base that is very important strategic asset as well. Then, of course, as a very important asset also, that is of course, the industrial footprint. It's a big hurdle for many companies to take themselves into a new market because it is very heavy investments that is required. In many markets today, we have huge requirements on local content. You need to build up a supplier base.
There is tax duties if you don't produce locally, and if you're not fulfilling those local contents, there is huge tax duties. It's really a big hurdle. We have all of this in place. We are all over the world with a very strong footprint, and we can utilize this footprint in a very clever way going forward, in a much more clever way going forward. Another thing that is also very expensive to develop, that is the distribution network. You cannot sell any trucks if you can't service them. If you don't have a service network, it is very difficult to get, so to say, a sustainable market share in a country. To develop a service network, you need to have a running fleet, and if you don't have a running fleet, you cannot develop the service network.
It's also really a hurdle for a market entry for many of our competitors. We in the Volvo Group, we have all this in place. We have all those five pillars in place all over the globe. We have this everywhere, and this is, I think, one of the most important asset that we can really leverage from. This is what we are going to do now when we take this different approach, when we take the brand portfolio approach into the market instead of going brand by brand. We have this in place, and I would like to say that we are very unique in this respect in the trucking industry. You don't find anybody else that are sitting on this fantastic asset as we are sitting on. Then taking this holistic view on things, we have to start to talk the same language.
In the previous structure, where we had different business areas selling different brands, where we had business units, we had actually 17 different segmentation models. That was nothing wrong in itself. Now when we take this holistic view, when we are going to take a brand portfolio view, we need, first of all, to see so that we can start to talk the same language, we understand each other in a better way. That was the first job that we have done, that is to come to an agreement. This is the way we look upon the market. This is the segments we have in the market. We are looking at it from an industrial segment point of view, that meaning what kind goods are transported. From an application point of view, how are the goods transported?
We are looking at the different technological platforms, cab over engine, conventional cabs, horsepowers, how many axles and so on. A lot of different things going in here. What we have done then after that is that we have, in the group, concluded what is the size of each and every segment, what is our position in those segments. Is there a growth segment or is this segment shrinking? How difficult is it for us to come into a segment? What is the earning capability in each and every segment? We have looked at all those things, and then we have decided, and we have given priorities to certain segments. Of course, in segments where we are very strong today, we have decided, and if we see that there is good potential in those segments going forward, we have decided this is a segment to defend.
We are going to see to it that we keep our very strong position that we have today also into the future. Other segments where we are all present today, but we also see that there is a good opportunity, we have decided here we are going to build. We are going to grow significantly in those segments over the years to come. We are going to take market shares in those segments. We think that we have all conditions, we have everything that it takes to make ourselves growing in those segments. We have identified some segments where we can be a little bit more selective. We can find some very profitable applications or some niches where we could work. Then we have also said that there is actually segments that we probably should not be in at all. This work is done.
We have concluded this. We have this very clear for ourselves. As you understand, I think our competitors would love to have this kind of information. That is the reason why we have shaded it a little bit here. I think that was all about that. Then the next thing here, this is the way we look upon the market. This is how we see the customer's needs. We have divided the markets into four different market segments. One is the premium end, one is high end, one is value, and one is basic. On the y-axis, you can see the price span, the premium segment, that is 95%-100% of the price. That is the highest price level that you can get on a market. You have high end spanning from 85%-95%. Then you can see the value segment, very wide.
We have actually divided the value segment into two, value in itself and value basic. You have the basic segment down in the bottom. On the x-axis, you have down to the left, a very basic truck, the cheapest truck that you can even imagine. Just the customer, the only thing he wants to know, "Can I get a spare part somewhere so I can fix it wherever I want?" That is the need of that kind of customer. Then we have customers and we have operations that requires much more of a total transport solution. That is then moving over to the right. To the right extreme, perhaps we can see customers that really require trucks to be connected. They are requiring perhaps even cost by mile and so on. It's very much to that extreme.
We have also then in those segments, a slightly different customer behavior. What is it that those customers are looking for? For example, in the premium segment, you have image-driven customers. They really would like to have something that they are proud to drive. They really would like to have something that sticks out. They are looking for very good engine performance and those kind of things. We have also customers that are technology-driven. They really would like to have advanced technologies. They would really like to have features that suit their needs and so on. We have customers that have a more holistic view. They are concerned about the environment. They are concerned about the well-being of their drivers. They want the driver to sleep good at night. They want the driver comfort to be very high and so on.
We have customers that are more looking at the operational cost. They would like to see that they have low operational cost when it comes to fuel, a good purchasing price, but also very high resale value so they can make the whole calculation and look at that in that way. You have customers that are network-oriented. They have very good relationship with the network. They rely completely on the network to take care of them. They look at service availability everywhere. If I have a problem, the network will fix it for me. That is that kind of customers. For the basic truck, we have the customers that are just looking for the cheapest price.
We have this very much in place as I said, this is our way of looking at the market. This is the way we are using now to positioning our brands. If you go back into history a little bit, those acquisitions that we have made, we have actually mainly bought brands that are in the high-end or in the premium segment. As you can see on this picture here, we are a little bit stacked up into the right corner of this chart here. It is coming from the previous position of the brands and the strategies that each and every brand had. Everybody, when you're working alone, perhaps you have the tendency to always go up into the right corner and try to become more and more premium.
Now when we take the new approach and really look at the portfolio as a whole, this doesn't hold up any longer. We have to reposition our brands and focusing the brands a little bit different going forward. There is one thing also that is very interesting in this slide here, and that is this purple ring here. There is a big hole here or a great opportunity, perhaps you should call it, for the Volvo Group. That is the value segment. We are, of course, serving the value segment today, but then we are serving this segment with high-end products, and that is, of course, putting a lot of stress on the margin when we are doing that. I will come back to the value segment a little bit more, and then we have UD down there in the basic segment already.
In order to align the brands in a better way, you can see here that we can cover the whole chain from basic the whole way up to premium in a very good way. We have Volvo, if we start then up in the corner, the center of gravity for Volvo is between high-end and premium. We can stretch the Volvo brand up into premium with the FH16 and so on. We are also very strong into the high-end segment with the Volvo brand. We have the Mack brand that when it comes to the vocational segments, they are very much premium, but on the on-the-road applications, the Mack brand is in the high-end segment today, and we think that is a very good positioning.
The UD brand in Japan is definitely in the high-end. The UD brand outside Japan is much more a value brand today in Southeast Asia. Renault today is positioned in the high-end, have had some ambitions to go up into the premium. We think it's more important actually to try to concentrate the Renault brand in the high-end segment and perhaps even go down into the value segment with that brand. UD brand I have commented, and UD aspiration then going forward for UD is to go a little bit slightly up into the value segment. We think that definitely limits how much you can stretch a brand. To go from two market segments is definitely possible. Go for much more, it's very difficult because then you are stretching the brand a little bit too much.
This is, of course, a completely different way of thinking. This is extremely important, of course, now for everything that we do. We have made up our mind that this is the way we are going to position our brands. This will have enormous impact on everything that we do. It comes down from product development, for service development and so on. This kind of information and decision will, of course, impact nearly everybody that is working inside the Volvo Group. We have, of course, to see so that we are staying competitive also. To do that, we are going to use three different technical platforms. We have the premium platform today that is serving then both the premium end and the high end.
We have a basic platform in Eicher that is serving the basic one, but we don't have the platform yet in the value segment. That is what we are working on. This is the key to be competitive, because if we take the premium platform and try to take that down into the value segment, then we are not being cost competitive. This is really, really the key for the success here, that we have a value platform where the cost level is suitable for this kind of price levels that we are seeing in the value segment. This is very, very important. What does this mean then in real life? This is an example from Brazil. I have worked in Brazil myself, so I know this very much. In Brazil, you can see the market here is very much a value market.
This is heavy duty trucks only. The premium and high-end segment represents around 25%. Back some 10, 12 years ago, we started to be very, very challenged from the Volkswagen Group. They came in with a value product that was really good enough for many customers to a price that was at least 50% of our price. For us then to compete, it was very difficult then in order to maintain the price positioning of the Volvo FH and the Volvo FM, we were suffering a lot. What we did in Brazil was that we introduced a new product that is called VM, that was just to secure that we could keep the position on the FH and the FM. That product is very unique because we don't have it in any other part of the world.
That was what we did at that time. Now, what we have seen in this job here is that we can really benefit because now we believe we have stretched the Volvo brand as much as we can stretch it. The Volvo VM is actually going down into the C segment. We can see that there is still a big portion of this market where we are not competing today. We definitely see an opportunity to have a complementary brand to the Volvo brand in Brazil, because that can give us significantly more market share in the heavy duty market. Then we have, of course, the great opportunity now to leverage on the industrial footprint we have in Brazil and also leverage on the supplier base. We have a very well-developed supplier base in Brazil that we can leverage on.
We have also a network in Brazil that we can leverage on. Many of those big hurdles that many have to go into a new market, we can overcome rather easily, and we can, at a pretty low investment, add another brand into a market like Brazil. We think this is a great opportunity here we are in the works to defining then which brand we are going to take into this market. We are working on the business case just to finalize the last numbers before we can really make the final decision here. It looks very, very promising. Another real world that is Africa, an emerging continent with great opportunities for growth. It is a very, very special market because there is no domestic manufacturer.
The new truck sales market is pretty small actually, because the majority of the trucks sold in Africa are actually used truck imports coming from all over the place. That is the reason why this market looks very strange when you look at it as this. This looks like the premium and the high-end market is huge, but that means that we are just looking at the top of the iceberg, so to say. We believe strongly that the value segment and the basic segment for new trucks in Africa will grow significantly going forward. Here we see, of course, then huge opportunities for the Volvo Group to leverage on what we have in the group. We can have an opportunity with a value truck in Africa, and we can definitely have opportunity with a basic truck also as Eicher in Africa.
We have good opportunities to do here what we have done in many other countries. I will come back and talk a little bit more about Africa when I talk about EMEA later on. In the beginning, I talked about those strategic assets that we have, the five assets, the brands, the technology platform, the distribution network, the industrial footprint, and so on. This is what we are really going to do to make it happen. By aligning the brands, we are going to increase the market coverage, as I showed, that we are going to have a chance then to sell trucks to a broader customer base and in all different segments. Of course, by doing this, increasing the market coverage, we will gain market share and we will sell much, much more trucks. That is one very important thing.
The other thing is that we should by positioning the brands in a more clever way, we will see so that what we are going just to fulfill the needs and the features that each and every customer wants and needs. We are not overdeveloping anything because customers are not prepared to pay for anything that he doesn't want to have. That will also then make our margins improve because we are offering the right thing, the right feature level, and the right specifications to each and every customer. By this new platform thinking with the three different platforms, we are then also going to be much more competitive. We can further then leverage on our distribution network. In many countries, it will be rather easy to add another brand on an existing network base.
We can also utilize our industrial footprint that we have very well developed all over the globe, and we have a very well-developed supply chain all over the globe that we can really benefit from. We have fantastic opportunities here going forward when we have taken this new approach, how we go to market. Where are we? We are now taking the decisions on the portfolio and how we are going to position the brands. Going forward now, we go more into a phase when it comes to product strategies. What kind of features do we have that will be unique for each and every brand? What can be similar to others, and what can be common and shared? Then we are going to also define the service offers here going forward.
Later on, we will see how this will also play into the R&D and the industrial setup, where we also see great benefits. That was what I had when it comes to the brand positioning. As I said, great opportunities, and it is extremely exciting to see what we really can do with what we have. This is nothing new. It is just that we are changing the strategy. We have built up these very important assets over many years, and now it is a fantastic time to take a new direction and a new step forward. Good opportunities here for us. I will go over and talk a little bit about Volvo Group Trucks sales and marketing EMEA. I will start off to tell you a little bit about who we are.
First of all, the responsibility is, of course, sales and marketing of all truck brands in Europe, Africa, and Middle East. We have some 13,500 employees in EMEA, whereof 8,000 are working in the retail network. We are very much a retail organization. We are very much focusing on our customers. We are selling around 120,000 trucks a year. We have 320 workshops that we own ourselves, and that has been a very successful strategy that we started some 10 years ago. We have 2,200 private workshops, in total, we have some 2,500 workshops in EMEA. We have an active populations of 900 trucks, medium-duty and heavy-duty trucks, circulating that is now serving as a source for revenue generation in the aftermarket, a very important asset that we have. We have significant growth opportunities.
I think you have already seen some of them in the previous presentation here regarding the brand. We have products that we definitely can utilize in a better way going forward. We can take in other brands in certain markets. I will come back and touch a little bit about that. We have segments and combination of brands. We are also working very much on operational excellence and really to develop sales in the aftermarket. Since we are a pure commercial organization, we have nothing else to do than to focus on our customers. We are really going to work very hard to make our distribution network into a state-of-the-art network. That is our 100% focus in our organization and see to that we keep our customer very satisfied with the products and the services that they are offering. This is an interesting picture.
This is showing the combined market share in Europe. On the Y-axis, you can see the total size of the market. The German market is the biggest one in Europe. The size of the circle is our sales, how much we are selling. The blue is Volvo, and the red is Renault. On the X-axis, you have the market share. You can see that we have a very strong market position in France, where we are having 45% market share combined. We have also very strong market position in Nordic, Iberia, and Eastern Europe. There are two countries or two markets where we are underperforming when it comes to market position, that is Germany and Turkey. I will come back and talk a little bit more about Germany, but if I start with Turkey.
Turkey is a market where we have a huge part of the market is actually value trucks. Today, we have no chance to compete with a local produced Ford Cargo, the same as we are meeting in Brazil, actually. We also have an older Mercedes version that is also highly localized in Turkey, and we have major problem to compete there. Here we see great opportunity to take in a value product into this market so we can then get better market coverage. By that, we can sell more. As I said, Germany, I will come back to later on. Of course, this is then also supporting the strategic objective here. In Germany, we think there is three very important success factors. One is the renewal of the products. We have the new launch of the new FH.
This product will be very suitable for the German market. We have also announced that we will have a new renewal on the Renault side coming. The launch will be in June next year. That will also be very important for us. We feel that the product side we will have under control here in one year's time on both sides, and we will have a very good complementary product offering for Germany. That is very good. We have another thing that we really need to improve, and that is the network. One thing is the network density. We have a lot of white spots in Germany. In Germany, we are actually going to combine our forces between Renault and Volvo. That is the only way we can build a network that is strong enough.
We have not been able to generate the resources to increase our distribution network in Germany. Now we have decided that this is the way we should go. We will really focus on improving the footprint in Germany because that is what our customers are asking us to do. We are also going to focus very much in order to strengthen our retail competence and see to that we really get the right people on board so we can make an improvement on the market position in Germany. Very important. I think we have everything that it takes now to make this happen. The important thing is the new products, but also see to that we strengthen the service network. Next thing is Eastern Europe. In Eastern Europe, this is very much Volvo Trucks. We entered very early in the 1970s.
We have built an assembly plant in Kaluga. When we built that plant, we also saw to that we have capability and capacity to build Renault Trucks. We have built up an extensive network in Eastern Europe. We have 155 workshops, and 65 of those workshops are owned by ourselves. In Eastern Europe, we are actually controlling all sales of new vehicles by ourselves. The network is only for service, and that has also been a very important success factor for our growth in this area. We have been able to build up a very large vehicle population, and we are leading in image when it comes to this region. Over the last couple of years, we have not stopped investments. We are continuously building more and more network or service points in Eastern Europe. Since 2010, we have added another 29 dealers.
This has taken us to a very strong position. As you can see, we are number one and number two in all those countries here. What we would like to do here is to really leverage here also what we have done on the Volvo side and really utilize the network in a more clever way going forward here to support also the other brands. When it comes to Russia, as you know, we have the factory in Kaluga, and the Russian market is doing pretty well, but this market also has domestic players that are very much in the value segment. We can also see here that we have an opportunity to enter with a value product into this market so we can get a better market coverage, and by that, also selling more trucks.
We have although a very good competitive edge versus the Westerners in this market because of the local assembly. We have a very high local content already, and we have taken decisions to increase that further on with the new investment in the cab production that we have in works, so to say. You know that the Russian authorities have come up with a scrapping fee that is very significant for imported trucks, but we are exempted from that fee because we are considered a local manufacturer in Russia, and that is very important. That gives us a very important competitive edge in Russia. In Russia, we will also have a group approach on the network. In the bigger cities in Russia, it is extremely expensive to acquire land and build a dealership.
We are going here also to join forces here in order to get a better service network and a better coverage in Russia. Next one is Africa, increase the revenue by 25%. In Africa, we have already, among the imported trucks, a very significant market share. We have actually 25% market share in Africa. We have very strong presence by Renault in the northern part of Africa. We have also very stronghold in Morocco for Volvo. UD Trucks is very strong in the eastern part of Africa, but also in Southern Africa, and Volvo Trucks very much in the southern part of Africa as well. We have a very good starting point. As you understand from my brand positioning presentation, we see clearly great opportunities here to take in a value brand and also to add Eicher into the brand portfolio.
We have actually today in Africa 114 different importers. When each and every brand went by themselves, we ended up with very many importers. Of course, going alone, each and everybody becomes very, very slim. Now, when we take a brand portfolio approach to it instead, it will be much more exciting for a private importer to invest because it can really start to get the business proposition that is much more attractive, so he is prepared to invest more. It's the same thing here as everywhere. If you don't build service network, you don't sell any trucks. If you don't have any trucks around, you cannot build a service network. It is the hen and the egg situation here. Very important to be able to develop the service network.
Optimizing of the distribution channel is very important going forward, and there is definitely opportunities for more brands in this continent. I think we can also play a very important role here in order to change this buying behavior a little bit. I think we can replace a lot of this import of used trucks with new trucks in the value segment and in the basic segment. This is an objective that we are going to support and deliver upon, of course. To summarize, Group Trucks EMEA, we have really great opportunities in our region to increase our market coverage and leverage on the total brand portfolio. We have a lot of things to optimize our distribution channel.
We have very clear views what we are going to do there and how we can do things in a much more efficient way and a more clever way. Of course, the product renewal that we have both on the Volvo side, on the Renault side, what is coming when it comes to value product. It is really, really exciting, and we think that we will have big opportunities and a lot of sales with those new products here. My colleague here, Ricard Fritz, that was talking before, he said that we can probably reduce our sales forces because the product will sell itself. I am not 100% sure that he is right there. That was it. Thank you very much.
Good afternoon, everyone. Again, very warm welcome to be here. There are two things I would like to talk about today. One is to give you an understanding of what is truck sales and marketing in JVs APAC. My understanding is that you have a comprehensive knowledge, most of you, of the European markets and maybe some of the U.S. markets, but maybe not so much about Asia. The second one is to give an even more perhaps detailed flavor of what are we doing and what will we be doing in Asia Pacific that then slots very nicely into the 20 strategic objectives that Olof was referring to before. Let me start with the first one. What is APAC? APAC today, including our joint ventures then, is about 16,000 people in the Asia Pacific region.
We have chosen to organize this in four different areas. We have the India JV organization, the China JV organization, an organization for Japan sales, and an organization we call Asia-Oceania sales, which basically covers the rest of the geographical scope except then China, India, and Japan. As you can see, maybe from the map, the geographical boundary in the west starts with Pakistan, and of course, it extends over down to Australia, New Zealand, and so on. In this region, we sell about 80,000 new trucks and buses annually. As Peter emphasized many times, selling is one thing. It is very important also to serve the units that we have. We have more than 1,000 workshops to that purpose. We own roughly 200 of those 1,000 workshops in the Asia Pacific region, the majority of which is in Japan, 137.
In those workshops that we own, we sell about 3 million service hours annually. Of course, we also have a much higher number than that for the workshops that we don't own. The running population then for medium and heavy duty trucks is around 600,000 units. In APAC, in addition to being responsible for the group's combined business across all brands for this geographical region, we also have the responsibility for the Eicher brand and for the UD brand. Similarly, as Peter mentioned before, EMEA has the responsibility for the Volvo brand and the Renault brand, while the Americas organization has the responsibility for the Mack brand. That is our starting point, and we have a good foothold, as I think you can see from these numbers. Going forward, we of course see a lot of growth opportunities in the Asia Pacific region.
It starts with, of course, the underlying growth of Asia Pacific itself, the GDP growth. As we know, truck sales is to some extent correlated with GDP and macroeconomic growth. We also have untapped markets. There are markets in Asia where we are not present, and there are markets where we are not present at all to the extent we should be. In addition to that, thinking about the brand positioning presentation that Peter talked about, we, of course, have a number of brand market segment combinations in this new portfolio thinking that we will be addressing going forward. Furthermore, since we're also talking about JVs, which is a complete value chain all the way from R&D to aftersales, we are, of course, looking at operational excellence.
One very important piece of that being also centered on the commercial end is, of course, to be retail-focused and retail excellence. In Japan, as one example, we have over 4,000 people in our wholly owned dealership. That is the largest in the Volvo Group, and probably one of the largest, if not the largest, in the commercial vehicle industry. Now, how will we take that starting point and those growth ambitions, and how will that fit with the 20 strategic objectives that Olof was referring to? What I'd like to do now is to give you a few examples of how specifically this fits in, and I'll start with the first one. It's from Japan.
This example that I'm going to give you touches on both the cost side of the equation, which you can see on the left side of the screen, to decrease the wholesale selling expenses to 5% of sales, as well as the right-hand side, which is about growth and growing 50% over the coming three years in the APAC region. In Japan, we announced last month, on the left-hand side, that we are introducing a voluntary leave program. We do that because we want to right-size the structure that we have to the business that we have. This will cut across both the industrial activities as well as the commercial activities. We will complete this exercise before the end of this year, and the ambition and the target, and from what I understand, the tracking also, is that we will reduce our cost base in Japan by 10%.
It's quite ambitious number. We will take a restructuring charge, which has been communicated in the press release 2 hours ago, and the payback of that is to be expected within one year or roughly one year. That's on the structural side and on the cost side. At the same time, on the right-hand side, we will also be targeting to significantly increase performance. We will be doing that by regionalizing our domestic Japan sales organization into 7 regions. That will enable us to come much closer to the customer. In addition, we will be bringing the best of our Japanese operations to the Group, of course, but also the best of the Group to Japan. We will be revamping the commercial operations in Japan.
We will basically be replicating how we do truck business in other parts of the world, be it on the vehicle side, be it on the aftermarket side, how we manage people, HR performance systems, et cetera. One very tangible example here is the introduction of the Volvo Group's dealer inventory management system. Before this year is over, we will have rolled that out to 120 of our 137 dealers in Japan. You can say, "Why is that important?" Well, it will raise the parts availability in the workshops with around 15-20 percentage points. That increased availability will drive more sales. Because today, or I would say yesterday, there were too many times where the customer was coming to the workshop, and we didn't have the part to do the job. That is, of course, a problem, and we are fixing that.
In addition, you see at the middle of page, it says retail purchasing process. In Japan, when we sell a truck, we normally, unlike many other markets, sell it complete with a superstructure, with a body. It can be a wing van, it can be a refrigeration unit, it can be a mixer, a dump truck, or anything else. We will be working with the Group's approach to purchasing, and that is a significant addressable spend that we will now target to decrease then. We have already started to realize the first savings on that journey. Of course, the ambition and the absolute target here is to drive customer satisfaction, customer loyalty, and in the end, that is what drives market share. So that is an example both on the cost side as well as the revenue side for Japan.
The next example I would like to talk a bit about is from South Korea. Here, we talked earlier, Olof talked earlier about becoming number one or number two in heavy-duty trucks market share, as well as, of course, growing the top line in APAC with 50%. In Korea, the Volvo Truck brand has a very strong position, and we have had a local presence, an owned local presence in Korea for many years, since 1996. Already today, the Volvo Truck brand is number one when it comes to brand image. It is number one when it comes to customer satisfaction, and thereby you can also conclude that we have a price premium over competition in South Korea. In South Korea today, in the heavy-duty truck market, there are two local Korean players, and there are five brands coming from Europe.
If you take the 5 brands coming from Europe, the Volvo Trucks brand has 40% market share year to date in South Korea. As you can see, been progressing fairly well over the time. We have been reaching that. We will also be reaching our future objectives by further broadening the product range. The truck, for instance, that you've all tested today will, of course, also be introduced in Korea, the new Volvo FH. We will also continue to expand our dealer network. We have 25 dealer points today in South Korea, 3 of which we own. 4 years ago, we didn't own any dealer points in Korea. We only had 18 points. Most importantly, actually, it's about the people in the network and raising their competence. That is the Volvo Trucks journey over time.
Being a premium brand in South Korea, there are limits to how much market share you can actually reach. Therefore, we have last week introduced the UD Trucks brand into South Korea. It was launched on September 19 as the first heavy-duty truck maker from Japan into South Korea for the last 20 years. We will be targeting segments which represents roughly 40% of the market, the 6x4 rigid segment that targets cargo transport, swing bodies, et cetera, as you can read on the slide. Since we now take this group approach and the brand portfolio approach, we will also be leveraging, of course, the current Volvo Trucks network to add then the UD Trucks into that network. That will provide synergies and efficiency on the cost side while providing extra revenue on the top line.
As you have seen in Peter's brand presentation, there is today no overlap, and there will be very marginal cannibalization, in our opinion, between a premium Volvo truck and the UD truck that is coming from Japan in South Korea. That's why we're introducing this. In our estimation, we will need around 18%-20% market share to reach the number 2 position. We are today number 3 then as the Volvo Group after the 2 local Korean makers. We will reach that number 2 position by the end of 2015 then by continuing the Volvo Trucks journey that will be re-emphasized and strengthened by the new Volvo FH, amongst others, as well as then adding the UD Trucks brand to South Korea. The next example is about the aftermarkets. The aftermarket is a very important part of our business.
It provides stability over the business cycle. Very importantly, it also provides the interaction with the customer. We, of course, fundamentally believe that having a strong aftermarket means that you also have a strong relationship with the customer. That can only provide good things over time if you have that relationship. In this example, which is from Australia, we already have 3 of the group's brands. We have the Mack brand, the UD brand, and the Volvo Trucks brand. We have 1 dealer network today taking care of these 3 brands. What we will be doing in Australia is to continue to build the density of our network. We have a major dealer opening, a wholly owned dealer then opening early next year in Sydney.
We will, of course, be working, as always, with competence and making sure that we have the right people at the right place when the customer comes in to visit us. We will be working with further improving parts availability. Again, a very key measurement of making sure that you drive parts and service sales, which are the fundamentals of the aftermarket business. If that is not in place, all the other services that we normally have with the customer probably will not happen. We have, of course, a very good penetration today with Volvo Trucks, as you can see. We have 65% penetration, which essentially means that we have 65% market share of the potential of the spare parts that the trucks will consume over the economic life cycle and the technical life cycle.
In addition, we will broaden our aftermarket offering, we will introduce new service agreements to make sure that we continue to drive the aftermarket top line as well as, again emphasizing that, building the relationship with the customer. Of course, and perhaps obvious, we will leverage these learnings across the Asia-Pacific region. Another growth focus topic is India. As you may know, in India, we have our joint venture then with Eicher Motors Limited, the VECV joint venture. This graph illustrates the growth of the Indian market on the left side until the year 2011, but it also demonstrates the decline of the Indian market during this year. In fact, for the last six months, the Indian market has been declining month by month.
On the right-hand side, you can see the Eicher market share for both the light and medium duty, for the heavy duty, as well as for buses. You can see that despite the fact that the market is actually going down this year, we are continuing to take market share. In fact, we are, as a sum of those two things, increasing volumes in India even though the market is decreasing. We had, in particular, I'd like to emphasize, a strong evolution on the bus side. We sell around 10,000 buses in India annually in this joint venture. In August, we had 14.2% market share for the buses in India. We also, of course, sell Volvo trucks in India for specific segments.
If that is a bit of a history until today outlook, this talks more about the future, more about what we will be doing. We will be starting up the engine production plants this quarter. We also have a new bus plant coming online in the joint venture in the middle of next year. We have, as been announced already, a strong pipeline of new products coming for the Eicher brand in India and beyond. Of course, this combination between the frugal engineering and the local expertise and the, let's say, low-cost truck experience from the Eicher side, coupled with the experience, the technology, and the processes from the Volvo side makes a very good marriage manifested in the market share growth that I showed you on the past page.
Of course, by using these components and our excellent starting points, we will be driving the top line in India, but we will also, as Peter, for instance, talked about in Africa, be looking aggressively into export opportunities for the Eicher brand. The next example is perhaps what some of you have been waiting for. It is about how we will be using these three truck platforms, the premium, the value, and the basic platform then. The benefit, of course, of doing that is going to be, as you can see, both on the profit side, increasing the margins, as well as, of course, the top line and the growth. Let me start with the icon, the reborn icon that you have witnessed today. It is, of course, so that we will be using this product also in the Asia Pacific region.
The launches of this product will start next year, and main markets include, amongst others, Australia and Korea. Of course, this builds image for us. It builds image for Volvo Trucks, and of course, it also supports the image as a whole for the Volvo Group. Of course, volumes and margins, et cetera, are targeted to improve here, needless to say, and I hope that you are happy and pleased and a bit impressed with what you have seen today. This is the value truck. Peter mentioned before that we do not have it launched. It is not ready. That is perhaps true. It is not launched. It is also a bit modest because what you are looking at is not computer graphics. It is real trucks.
You will have to excuse that I am taking away some of the excitement by dimming parts of the picture. I can assure you that these trucks exist, and they are very nice to drive. The whole point with this value truck heavy duty platform is to balance the features and the product cost. This range will also be used in a variety and a very broad variety of applications, going all the way from four by two. To those of you who are more technically interested, you can see that the lower picture is actually an eight by four. The whole spectrum of truck applications will be covered by this heavy duty truck platform. In order to secure the awareness, the understanding, the knowledge, as well as the cost, this truck platform is developed and sourced in Asia Pacific.
We will, of course, market it across Asia Pacific, be it in South Asia, be it in Southeast Asia, as well as the higher emission countries over time. Also, of course, this is a game changer. It is not only a game changer for us in Asia, it is a game changer for the group. Therefore, of course, we will be selling this product in other markets globally, in Americas, in EMEA, and of course in APAC. Again, an eight by four dump truck on the lower side and a long-haul version on top. Very importantly, when you have such an ambitious target and to get the cost right, to make sure that we get those margins, is of course to have an industrial system that is aligned to that ambition.
Therefore, we will be producing this truck in Thailand, in Bangkok, in the group's plant there. We will be using that production within the ASEAN trade zone for those products coming out from that plant, as well as the global exports will be coming from that plant. In addition, it will be produced in India for the group's plant in Bangalore, and that is for the local Indian needs. Finally, the discussions are to be finalized with our partner in the Hangzhou joint venture that we have with Dongfeng. The plan from our side is also to introduce it then in China, using the joint venture and then locally for the Chinese market.
To summarize this part of the discussion, a new value truck, heavy-duty platform, it is rolling, developed in Asia, sourced in Asia, manufactured in Asia, adapted to the Asian needs as well as the global needs. A real game changer. We talked about premium, we talked about value. Let's also talk about basic. This, even though it's a bit masked, is the next generation Eicher truck. We have a strong pipeline now of Eicher trucks and buses underway. You will be seeing those products hitting the market in a not too distant future. Again, combining the technology and the processes and the strengths of the Volvo Group with the frugal engineering and the low-cost expertise from the Eicher side.
The features then, compared to the current version, will be, of course, on the fuel and the fuel efficiency, on the reliability, on the durability, on the comfort, on the design, and of course, we're adding in some options that are accessible to us from a group perspective. The idea here is, of course then, to broaden the addressable market in Asia. Volvo Truck for premium, value trucks for the value segment, and the basic Eicher brand for the basic customers. That will give us a much broader opportunity to drive the top line as well as adapt the cost structure to secure that we get those margins out, which is strategic objective number 1.1 in the material that you have. I think that was what I wanted to share with you for now. Thank you.
Good afternoon, everyone. I have the exciting challenge of being the last among my colleagues to share information with you on a day when you've received so much exciting information about the new strategy of the Volvo Group. Of course, not the least, been able to see and experience the brand new range of FH trucks that you see behind me here. It's been a very interesting day, I hope, for you thus far, and I certainly hope to continue that trend of sharing some interesting news with you. What I'd like to do is talk briefly about a few key elements of the strategy for Volvo Construction Equipment and explain how they fit in to the overall group strategy.
You heard a lot today about the red thread or the theme of the group getting the most out of, or realizing the full potential of its many excellent brands. That is a theme that I will touch on relative to Volvo Construction Equipment. Before I get into that, I want to just calibrate the starting point we have in Volvo CE. We are starting in this new strategic period with a broad, the broadest we have ever had, and competitive product portfolio, which is positioned under our two brands, Volvo and SDLG, part of our joint venture company, Lingong, in China. We have committed and aligned distribution around the globe, the strongest it has ever been.
As I said, we're using a dual brand strategy now, and we have been successfully for several years, in particular in China, but now, as I'll come to later, extending further and further through the globe. We are achieving scale in both the premium end of our products as well as the value end of the products in both development as well as production. We continue to maintain and build upon our number one position in China, which is achieved in the important excavator and wheel loader markets together between our two brands, SDLG and Volvo. What's ahead? I can't just keep talking about number one position in China all the time. I think I have to tell you a little more about where we have the opportunities to grow and develop in the future.
The good news for us is we still have great opportunity to grow profitably in emerging markets, both with the Volvo brand, but as well with the SDLG brand. We have the opportunity to further leverage our position in China with both of our brands. Of course, growing SDLG share globally profitably is a great opportunity for us as well. I'm going to put a little more meat on those bones for you today than perhaps you've seen in the past. As was explained to you earlier today, the group has a new strategy for the next three years, and of course, Volvo Construction Equipment is an integrated part of that strategy and connected to it, which means that we are connected to the overall goals, targets, and importantly, revenue targets and operating margin improvement targets as well.
What I'm going to do today, recognizing I'm the last speaker and I should be very focused, is I'm going to focus in on three elements of our new strategy in Volvo Construction Equipment. We have nine objectives. Five of them are oriented around driving profitable growth, three are oriented around driving improved efficiency, and one is around leadership and talent. I'm going to zoom in on three, which are interconnected and very much related to the theme of getting the most out of our two brands. The first is to profitably grow SDLG globally. With that, we are looking to significantly increase our share of the important excavator market in China. We're also looking to leveraging the infrastructure of Volvo, grow the export business of SDLG outside of China.
In addition, we see great opportunity in the aftermarket, the soft offer, if you will, we call customer solutions, growing that business both in China and outside for SDLG. Doing all of this, of course, in an accretive way, to the bottom line of the business. Second, it's to develop Volvo brand products for emerging markets. You heard a lot about brand positioning today. It's very important that we are relevant in these growth markets with the Volvo brand as well, and this is very much connected to how we position SDLG in these markets also. I'm going to talk a little bit about that later on. Third, it's deploy CAST globally. You could say, "How does this connect?" It stands for Common Architecture and Shared Technology, and it has to do with how we design and build the products.
This is an area where we see that we can help ourselves to leverage between the two brands using a Lego-style modular approach, which I'll talk a bit more about as well. Those are the three strategic objectives that I'm going to elaborate a little bit further on for you. Let's put some detail to it. Let's start with the China market. It is the largest construction equipment market in the world, representing anywhere from 40%-50% of the global unit market. Even though China has been slow for the last year, it still remains the largest construction equipment market and one of great revenue growth potential for us. We start with the SDLG brand, a brand that we acquired back in 2007, which at that time was fourth largest wheel loader manufacturer in China, and that is the largest product market in the Chinese market.
You see last year's market, 220,000 units. Last year's market share for SDLG was just over 15%. Based on leveraging the strength of the group, in that respect, it has been technology support to improve quality. The SDLG business has continued to grow share in a highly competitive market. You can see from the CCMA data, first half this year, they've grown share a full point over this 2011 figure and have moved into the top 2 players in the Chinese market in the competitive wheel loader business. Where the opportunity for growth is looking forward is in the excavator business. SDLG did not have an excavator range when the Volvo Group bought them. Through a technology transfer in 2011, we launched four models of differentiated SDLG excavators, and we've already begun to gain some traction. Last year, you see here market share, 2%.
Year to date, mid-year, already around the 3.5% level, again, in a very competitive market situation that we face. We have further room to grow here. We launched a 36-ton excavator under the SDLG brand just a couple of months ago. We continue to support the SDLG distribution in developing its sales skills and competence around excavators, and we anticipate further growth in this important area of the market. Room for organic growth inside of China with SDLG. How about the Volvo brand in China? Volvo brand in China has built itself on the strength of the excavator business and has continued to develop share organically through a very strong distribution network with localized product in the market. We have an excellent brand image. We have very good customer satisfaction in the Chinese market.
Last year, we achieved 5.6% market share in a segment of the market with over 60 competitors. That share has continued to grow under difficult competitive conditions this year with the market softening, in fact, has grown almost a full point year to date 2012. We believe we still have organic room to develop the excavator share on the Volvo brand without sacrificing price positioning or credit terms in this market. That's really due to the strength of both our distribution and our product. The big upside opportunity on the Volvo brand in China is in the wheel loader market, which up until now has been unaccessible to the premium brand Volvo due to the fact that it's a highly cost-competitive market dominated by local players. You see 0% share there. Technically, it's slightly more.
I think we sell under 100 units so it just doesn't make the single digit rounding here. On our to-do list has been to take the technology transfer the opposite direction from SDLG and find a way to bring a more cost-competitive Volvo-branded loader to the market. To talk a little bit about how this works, this is where the common architecture objective and aspect comes in. Using a Lego style approach and differentiating on key components, we, as I said before, took technology from Volvo, differentiated and modified it for the SDLG brand positioning, launched four excavators last year and another one this year.
Next step Taking technology and know-how in the other direction from a cost competitive point of view, a localized point of view in China, we have now developed a loader which is targeted to the upper end of the value segment in the China market, where there are some volumes to be made. We are launching at the end of this year, going into 2013, a brand new five ton loader under the Volvo brand. I think it's important for me to mention, although I'll come back to this product later, that we don't differentiate this product on quality. This is Volvo quality, Volvo reliability and durability. The differentiation is being made on technology level, which is appropriately adapted to the needs of the customers in this segment. Just to put this conceptually on the chart here, it's not just about China.
I spoke about the launch of this wheel loader in China under the Volvo brand. We can then extend our imagination about the potential to other markets where we have customer base, which is sensitive to the cost of the product. You can see the profile of the market for wheel loaders in the same format that you saw for trucks earlier on. Looking at it from a basic value and premium point of view. You can see it's a very different skew depending on the markets that we talk about. There clearly is a lot of opportunity to be made in both the value and basic segments. With the SDLG and Volvo brand, we have more opportunity to tap into that. How do we position those brands then?
Taking a look at this on the same axis again that you saw for trucks, the positioning of price level on the y-axis and then the solution requirement level on the x-axis. We have already the SDLG brand positioned in the basic, and I would say lower end of the value segment today. We have already the Volvo brand positioned in the premium segment in all the markets that we're operating in around the world. As we bring this emerging market loader to market in 2013, it is the beginning of tapping into the opportunity at the upper end of the value segment with the Volvo brand. This really represents an opportunity for incremental share growth for us in these fast-growing markets. This, we call affectionately inside the company BRIC loader.
I know that really it should represent more markets than it does, than the initials BRIC indicate. This is the first example of us leveraging knowhow and technology from SDLG into the group. It really shows us that we can learn from each other in both directions, and that's been a really exciting project for all of us in Volvo CE. It's going to help us improve the competitiveness of the Volvo dealer network in China, and as we extend the concept outside of China in other markets as well, because it allows our dealers to broaden the range and be more full line competitive players in the largest market in the world. Now this product comes out in 2013, and we firmly believe with this product and others like it to come, we're going to be able to attract new customers and drive share.
A really important point for me is this allows us also to protect the positioning of our premium products and make sure that we're not in the position of selling down to attract these customers, but rather we're appropriately positioning the products for what customers are prepared to pay. Lots of potential with this product and others like it. That's to talk a little bit about the development of share in China and the Volvo share in the emerging markets. We also have a very exciting organic growth opportunity with the SDLG brand outside of China. That opportunity is to roll the SDLG brand out in a number of markets. You could say at this point, non-regulated markets, so excluding EU and North America. This is nothing different than we see the Chinese players doing today. Many of them have aspirations globally.
They are announcing new factories. They are announcing launches in various countries around the world. We have the ambition to triple our export sales from SDLG during the next strategic cycle. What's the exciting part for me? The interesting part for me is the strategic advantage that Volvo have over the Chinese competitors in being able to capture this growth opportunity because we have an established infrastructure to leverage, and therefore are able to achieve this growth at a lower incremental cost than a number of our competitors who have to start from the ground up, so to speak. I talked already about the ability we have to leverage technology, both directions between the two brands. We also have the opportunity of a fully global industrial footprint that is available to be used where it makes sense for the SDLG brand in certain markets.
We have a supplier network which is proven around the world that's able to be used by SDLG, should we leverage the industrial system in place. Of course, last but not least, we have a distribution network which is well developed, well capitalized, and able to, as we've done, for example, in Brazil, invest in facilities to start up promoting the SDLG brand in other markets around the world. In Brazil, where we are the furthest along with that example, we've been able to using our dealer ownership groups in Volvo, but differentiated on the front end with separate SDLG facilities, develop the SDLG loader to number 1 amongst the Chinese players in Brazil. We have a number of competitive advantages that we can tap into as we expand the SDLG brand around the world.
A lot of organic growth opportunities, and for me, this continues the theme that we've been talking about all day, which is really realizing the potential of all of our brands, and in Volvo CE, that is both of our brands around the globe. What does Volvo CE look like in 2015? Improved share for the Volvo brand in the important emerging markets, the high growth markets. Stronger position in China, even than we have today. There is room, as I showed you, to grow with both brands in that market. SDLG product showing up in more and more markets as we roll that out around the world, tap into that organic growth opportunity. Of course, the ability using smart modules to share architecture between our brands, but smartly differentiate them for the different customer bases as well.
A lot of exciting organic revenue and profit opportunities ahead for Volvo Construction Equipment. As promised, I was quite focused, and that I think brings us to some updates from Olof here. Thank you very much.
We're going to have a quick market update. That is not the fundamental topic of today, but we thought it would be good, since you're all here, to give that kind of quick update as well, Then we will take Q&A on top of that. Right, Christer? Looking at my boss today, He's nodding. I start and talk about the American market and Americas, with North America to start with, where we then conclude that the retail deliveries remain strong, but the order intake into the industry is then weak. We see definitely that lack of confidence and also a dealer reducing stock activities going on in the market. However, the spare parts volumes are good. The profitability of our customers are good, which means then that the goods are moving and the fleets are moving.
Of course, the used truck prices we see are flat, and then giving, of course, the production overcapacity has the new vehicle pricing under pressure. Moving over to South America and Brazil, we all know about the slowdown in the economy growth year-to-date. We do see the incentive and the financing rates coming through, but it's still very tough pricing on Euro V. Again, as in the North American side, the fleets are moving, and we see good spare parts volume, and we also see sign of improving demands in Brazil. When you then talk about Chile and Peru, stable in Chile, but some weakening then due to mining in Peru. That was the short update on the Americas, and Peter, do you want to talk about the-
In Europe, we have seen a very depressed market in the southern part of Europe for a long time, and it continues to weaken even more. In the second quarter of this year, we also saw a little bit of a slowdown in France. This weakening demand, we also now see that it starts to spread all over Europe, and customers tends to be more hesitant to take the decision today. When it comes to inventory, since the Renault brand is very much dependent on the southern part of Europe and with a very strong home base in France, we have unfortunately seen that the inventory level for the Renault brand has gone up too high.
We have taken corrections now in the programs to reduce this and come back in balance on new trucks, but also on the used truck, we have too high levels on the Renault side. On the Volvo side, though, more dependent on the northern part of Europe, where demand has held up much better. We have everything under balance, both when it comes to new trucks and used trucks. The aftermarket is also slowing down, of course, very much due to the depressed market in the south, but we are also seeing a very strong impact from 2008 and 2009 low volume sales that is now coming into the age where we are start to sell off-the-market products, so to say, to them. We see a slowdown also on the off-the-market side.
Prices continues to be competitive all the time, both on the new trucks and on the used trucks, but it's still holding in quite okay. Demand in Russia is good, continue to be good, and demand in Middle East is stable and continues to be stable. In Africa, we have seen some slowdown and weakening in Southern Africa, but the rest is quite stable.
On the Asia Pacific side, let me give you a few examples from the major markets. In Japan, we are seeing a softening in the market, that is following the removal of an incentive program that the government had in place, which ended early July. We see that the market is coming down following that. Of course, also the economic slowdown in Japan. In India, also a softening demand following the general economic slowdown. In Indonesia, it is and has been a growing market year to date, but for the recent months, we're also witnessing a slowdown following some new developments in the resource industry, in the mining, for instance.
South Korea also softening. South Korea is an export-dependent country, of course, to Europe and U.S. and other markets as a country. Of course, the general economic situation takes its toll there as well. China, also softening demand, and Australia, strong demand. The heavy-duty truck market in Australia is up over 20% year to date.
Okay. CE, generally speaking, I think is aligned with the comments you heard on the truck markets, but see in Western Europe, the market continuing to soften, moving from weakness in the south northward. That's also creating some pricing pressure as there is in the industry, I would say, a higher level of stock, than we've seen in the past couple of years. Eastern Europe, which has been strong, is moving sideways now, and include in that Russia. North America has been going through a fleet renewal, as it had been 6 years of downturn and rental companies and dealers had needed to replenish fleets, and we see that that seems to be reaching a saturation point now. Still very slow growth, but reaching a saturation point. South America, demand is moving sideways now. China, the market's been soft for a while now.
It's still weakening due to weaker GDP development, and I think the most dramatic industry news is the fact that, in some cases, mines are even shut down under the guise of safety reviews and also demand and stocks of iron ore are piled up in front of some of the mines. Definitely a slowdown in the mining activity in the industry and a large amount of industry inventory through the competitive landscape there in China. Rest of Asia is also impacted by the mining slowdown, and this is compounded by some non-GDP related factors. We have some cases, for example, in Goa, 90-plus mines shut down for license reviews at this point in time. Of course, markets like India, with strong views on export taxes in the mining sector, which has affected the mining portion of the market as well. That's the update from me.
Okay. Thank you very much, guys. You will be online for questions. As you know, when it comes to markets and updates, we have the upcoming Q3 presentation where we will of course give you, as normal, the full update on the market and the market situation. By that, I think we open up for Q&As. I just leave the floor open. We will have microphones, and there is the first hand already risen.
Hi there, it's Michael Tyndall from Barclays. Just a couple of questions, if I may. The first one, I guess, thank you very much for the details on your plan. I guess I'm curious to know when we start, given the plan is from 2013 to 2015. I think previously the 300 basis points was from the beginning of 2012. I'm wondering if that's still the case. Then if I think about 2013, I've got launch costs for the FH, I've got a new truck for Renault, I've got the value truck launch. As you've just said on markets, the outlook is pretty weak. I'm just wondering what the progression of that 600 basis points at trucks looks like to 2015, whether or not we see some pretty lackluster 12 months coming up.
Then the second question is just around the industry itself, and it's a slightly unfair question, but you're working very hard to improve your margins. Daimler's working hard to catch up. MAN and Scania are basically working, I guess, to find more synergies. I'm just wondering, with profitability across the industry improving, whether or not you think you and the others can hold on to that profitability, or whether, in fact, that's factored into your 200 basis points of headwind. Thanks.
Okay. Let's start with the, and thanks for very good questions. The first one about the starting point on the 300 bips over time improvement. That is the starting point end of 2011. Okay? That is the starting point. We have said that all the time, have not changed that. What I've been clear on this, that this strategy for Group Trucks and also then in connection with CE, is a major cornerstone, a very big pillar in order to achieve that going forward. I want to repeat the fact that I'm not standing here and promise that we will be 300 basis points over the 2011 by 31st of December 2015, because we don't know how that's going to look. That has not changed in that respect. I hope that I clarify that.
When it comes to the progression of these and the investments that you need to do in order to make sure that you are doing the right things, there are two sides of this. One is quite interesting because that is, we are a huge group. It is not like we do not invest in product renewal and in product launches today. It is just that what with this strategy we will do is that we are going to focus the activity very much on the supporting activities to those 20 targets. That means that we are going to get into the business of saying no. That is going to be one of the key issues in this strategy, is actually to say no to things and really walk the talk all the way through and really make sure that we focus on these things that we need to actually address.
There we have
Many of these, if not all of these are, of course, long-term things. I often get the question, is it difficult to launch the Volvo FH in this environment and so on and so forth. That is not the issue. The issue is that we are ready. The issue is that we believe it is good positioning. We will always live in the ups and the downs in our market. Therefore, we need to do it when we are ready. To answer that question is that we will refocus the investments that we have. We do a lot of it. We have to make very stringent in actually prioritization. That is something that we need to do. Finally, in terms of profitability and the competitors, I of course look at the competitors because that is how we are going to measure in the new financial targets.
I can assure you that when we do the things and the setting of the targets, we are looking on our ability. We are looking at our opportunities. Those opportunities are to a large extent our own destiny. It is our own task to do it. It is our own responsibility. We can do that regardless of what is happening around the world. Of course, we will have impacts which is beyond our control, both internal and external, over these three years. That is why I think it is not more than prudent to really make sure that we are open with you and also say that there will be some headwinds coming through these years. Did that address your questions? Good. Thank you. We have already one mic. No, we do not. Sorry. That was a paper that looked very much like a microphone. Yes, please.
Okay. Hi, Fredrik Stahl from UBS. Could I ask you, in terms of the production costs, how important is the launch of the FH here? Does it increase the commonality between the different brands and regions? Is it a step up in that sense? That's the first question. Then a technicality, I guess, on the dealer absorption, how do you increase that? What's the levers you pull to get your dealers to focus more on services?
On the first one, when it comes to the commonality and the platform thinking, there is, and I will not go into detail of it, but we should remember that here we benefit from a work that has been done in this group for many, many years. We have talked about engine platforms programs, we have talked about chassis platform, we have talked about CAST implementation in order to make sure that we leverage. All that work has been done, and that's something we can utilize now when we start to think about the value truck and the other products that we're going to do. Of course, we're going to utilize that to the absolute maximum. We're going to do it in a way where the end product fits in to the segment, and that's a big difference.
We're going to decide the segmentation, take the target costing, the target pricing, the service offer, and then we're going to design it utilizing the platform. We're going to merge the best of the two worlds there. When it comes to dealer absorption, one very important thing is, first of all, it's not difficult to get the dealers involved here, but I think what we have to do in relation to our soft offer and dealer absorption target is actually to come up with new products. Looking at, and I've said it many times, if you look at the truck as a revenue-generating asset for our customers, but also for ourselves, and there are circles around that which we need to look into with new eyes, and what that means in practice, that remains to be seen.
There are definitely opportunities looking at that revenue-generating asset in the middle and then see what can we actually get engaged in. It's a lot about that, but also, of course, the efficiency. There is definitely an efficiency in the dealer network as well that we need to address to make sure that the cost level is right, and thereby the threshold to actually become 100% absorption rate is lower. It's basically the leverage thing again on a micro scale compared to the group.
Hampus Engellau, Handelsbanken. You talked about revenue synergies taking out cost. We also had restructuring charges in UD Trucks in North America. What kind of a cost should we expect going forward to generate these synergies both on the cost and revenue side? Should we expect more of this kind of restructuring charges from Volvo going forward?
What we will see coming in the future. When we have those kind of programs, we will communicate it, if and when we have it. We have said all the time, and I think also Christer's been clear on that we will take that as they come, and we don't give any forecast for that because we do have a number of roadmaps, talking about 100 roadmaps. Now we need to sort of then attach the activity plans to it as well to hit the ground running in those aspects.
Hi, it's Colin Gibson from HSBC. Two questions, please. You said earlier on you've got tough targets. I mentioned to you earlier, I think Volvo is a company which has made itself famous over the years for aggressively following up on those sorts of targets. You had the top 120 managers here earlier in the month. Can you talk about the incentivization for people at that level within the organization to achieve these tough new targets? That's the first question. Second question, at IAA in Hanover last week, a lot of the OEMs, particularly the German OEMs, sounding more cautious about the idea of a pre-buy in the European truck market for 2013. What's your view? Thank you.
Okay. We start with the incentivize the organization and motivating the organization to actually achieve that. My experience is that since we have done the homework, both in terms of addressing the organizational issue, the foundation issue, we have a heck of an energy level in the organization right now to actually get on with it and start to build these future opportunities that we have presented here. That, to me, is the best incentive you can have, and also making sure that we have a stringent and very down-to-earth and practical follow-up. That's why I'm so open and also so clear with you that this is going to be an operational business for us. This is not something you come back every half year and give a status report on.
This is on the monthly management team meetings that we're going to go in and take a look and do corrective actions. By that, we will also build the incentive. In general, if you look at all these things, and if you look at how much is actually future-looking, revenue-driven, it's not a hard strategy to rally people around. That, to me, is the most important thing. Of course, we need to be very stringent and disciplined. I think we have shown by the way we have done the first transformation, but also the whole foundation building in basically less than 9 months to be able to combat that. We have shown as an organization that we can take on difficult tasks and actually do things. Pre-buy, sorry. Very difficult to say. You have the different angles on the pre-buy.
One is, of course, the absence of pre-buy previously in Europe, thereby also taking that experience into the next one. On the other hand, you also have the somewhat new situation now when you look at incentive schemes and when they come and how they come, and how that will then impact the different customers, both from a Central European point, but also Eastern transfer and all of that. It is very difficult to say, and I'd rather not here and today speculate about it, and we will see what comes out of it. There are things on both sides on that place in both directions, and we see how it will pan out going forward.
Hi, it's Laura Lamke from Morgan Stanley. I have 3 questions, please. The first one is regarding your margin improvement potential in the trucks division. I was wondering if you could share with us a little bit of detail on where, in which region you see the biggest improvement potential here, if there is a big regional variance. The second one is on North American production. If I'm correct, I think you're taking some down weeks, or some 2 down weeks coming up now. Just wondering how you're really managing the production adjustment in Q4 and potentially also in Q1 going forward, like the cost structure really from moving production down and up. Are you actually in a position where maybe if orders don't pick up, you actually need to go from 2 shifts to 1 shift? The last question is on the Renault brand.
You had a slide where you were showing that the Renault brand is now positioned very much at the top end or let's say the premium end of the market. If I remember correctly, in the past, you had outlined, not you, but let's say 2 years ago, that the Renault brand was suffering from relatively low residuals because it wasn't positioned in the right way and that it was positioned too much as a value brand. It now sounds as if you're moving that brand back to where it came from. Is that the correct way to interpret this? If so, why are you doing this?
Let's start with the last question, because I think it is very important. The answer to your question is that if you look at the 2 slides that Peter showed, you actually can see that we very much are keeping the Renault brand in the high-end segment, which I truly believe. We also now have a clearly defined stretch on the Renault brand as we have on the Volvo brand, which means that we are able to address the top end on the high-end value segment as well. That is, of course, something Peter mentioned that we have announced that in June next year, we will have a new product coming out from Renault, and that is something that is, of course, coming in line with that, and we will then have to work on the position of that. I don't agree to that description.
I think that with this clarification, we have Renault placed in a very interesting high-end market where you have big volumes in Europe. You also have the possibility to utilize the brand in the value base, which is also something that if you look at it in North Africa, sorry, North Africa today, we are already addressing those targets very successfully with the Renault brand. That is something that we have clarified, but it is not, I would say, something that is absolutely revolutionary on that one.
Working myself backwards in your questions here, looking at the North American production, we will not comment on that today other than saying that we're going to continue to react on the signals from the market, we're going to react early, we're going to make sure that we do the capacity adjustments needed in order to make sure that we don't overproduce and thereby building stock. That is something we have ongoing discussions all the time around the different countries, regions, and so on and so forth. The third question, if there are any particular region where you would see improvements. The answer is that there might be, but there is nothing that we are especially highlighting. To me, it is a matter of really making sure that we find, regardless where they are, finding the opportunities.
The interesting thing is when you start to turn each and every stone the way we're doing now, you find bits and pieces of improvement potentials all over the place. We have been very successful, we have done a lot of different improvements programs in the past. Believing that you should, under a stone, finding something completely revolutionary, that is, of course, not the case. The case is now that really, A, take the decisions that you need to take, like stop production in UD and America, like taking a real grip on the cost structure in Japan, continue doing those kind of things. Therefore, I'm confident also that we have enough in the pipeline of activities and ideas to be able to really support the targets.
Björn Enarson, Danske Bank. Two questions, please. How do you stretch the brands from one segment to another segment without sacrificing margins or jeopardizing what the brand stands for? Secondly, also, how do you enter new markets or increasing your share in markets that where you are underperforming, like the German, or entering new markets with a new brand or new product without using strategic pricing or, which I guess is just very low pricing?
I think the intellectual activity to actually do the brand stretch is something that is easy to show on a slide, but it's not so easy to do in reality. Just because it's not easy doesn't mean that you can't do it. We have seen plenty of examples where you actually can do it. I think what Pat just showed now on the Volvo brand, on the BRIC loader side, you absolutely can do it. We have seen it also in the Renault side, where you have the differentiation in the brand and the brand image. Also on the Volvo side. The Volvo is a global brand, but really, if you look at it in different parts of the world, it doesn't stand for exactly the same position everywhere.
We sometimes always think the Volvo and the Volvo brand have been the premium high-end, but a big chunk of it is actually in the high end, which is a segment which is then already there a little bit stretched, but we're also attacking one. How are we going to do that? That's for us to know and you to find out, because that's part of something that we don't really communicate, because that's a very critical way of positioning ourselves in that one. We have enough knowledge, and we have enough of very good discussions in the teams now in order to make sure that we are not destroying any brand. On the contrary, we're going to strengthen the brand, but that is also going into this competitive set.
You remember that target where we want to be ranked as number one in the attribute for that competitive set. That's going to be an enormous generator of good ideas, because all of a sudden you contain and say, "Okay, now we know what this brand is going to do on this market with this cost structure." That's going to be the trigger of the whole discussion. Did you have a second question?
Yes, on how to enter a new market without.
Yeah. I think that we have good examples now all over. If you take South Korea UD, filling into a space where we believe we have a very good product on this specific thing. We utilize in the existing network in order to actually strengthen the network. By doing that, you actually have a limited amount of investments, but at the same time, you actually go in and can start to pick and start to grow the business as you deem necessary and the speed that you want to do in order to capture the right market share. Having done the analysis properly, then it should be something.
Another one is, see in Brazil, that we did a completely different, where we actually said that, okay, in Brazil on the wheel loader side, we went to the existing Volvo dealer network and said, "Listen, we want to get SDLG into Brazil, but the brands are too far away, so we cannot mix those two brands. So you need to invest by yourself into a completely different set of networks, then we will start to support you in with products." They say, "Yes, we happily do that." Then you start to then, on a small scale, building up, and in this case, it took one and a half year, two years, Pat, going from zero in the Chinese segment, and we are now market leader in the Chinese segment in Brazil.
In Germany, as you mentioned that as well, as Peter pointed out, in Germany, there are two things. One is definitely the products and this new FH, what we are going to see coming also with a Renault product next June, will give us a totality of products that is going to be very well fitted for the German market. That is one. Secondly, as Peter said, we are also going to combine and therefore get more efficiency out of the distribution effort, because that is another part that we need to do. There you are looking at what kind of investments do we need to do in order to reach that.
We have plenty of examples how you do it, you need to really have a little bit of imagination in order to do it, a big portion of strategy, then utilize all the different opportunities that we have, because we can do it in many different ways.
Hi, Anders from SEB. You have given us so much information today that I'm getting confused, I think. I wonder if you could clarify something when it comes to the 2015 timeline. You say that, I understand that fully, that you can't stand here and promise that you're going to have 300 higher bips on the margin in 2015, because no one knows what the world will look like, et cetera. What I'm trying to understand is, of the 20 different strategic objectives that you have shared with us today, is it the intention that those objectives are to be reached by end of 2015, or is it the intention that the strategies are implemented by end of 2015? That's not the same thing.
No, it's not the same thing. There is no doubt that by the 31st of December, 2015, the targets should have been achieved. That is not the same thing, as you pointed out, to promise that we will have a 3% higher margin. The targets that we have set out is due for delivery 31st of December. The rollout, the implications, when they will hit the profit and loss, when they will hit the revenue side, that's going to be different. It's going to be spread out. We're going to need to take some initial decisions in order to get it going. Other ones are low-hanging fruit that we're going to address much more immediately, and so on and so forth. There will be a differentiation in actual implementation, at the end of the day, that should be.
Also, thank you. I didn't fully understand either the new value platform or value track. Does it exist or not? I think it was said that it existed, someone else said that.
Why don't you add? I thought Joakim was quite clear, but please go ahead, Joakim.
I have driven it.
My real question is, of course, when can customers drive it?
Yeah. On purpose there, of course, I was not very specific. It will be launched over the coming years.
I have one final question, if I may, if there's still time. All these changes that you are going to go through, including launch of a lot of new products, I wonder, does it have any effect on your CapEx and product development costs and launch costs in the next couple of years?
It goes back a little bit to what I said before as well. It's not like we don't have any cost of that today, and we will redirect them. What that will pan out, what we are giving you today is that if you look at the R&D targets, that is a reduction, which means that we have to do a lot of more things with eventually less money than we have today. That's going to put an enormous strength on our ability to say no to things and really focus on the ones we should say yes to, but also doing the things we're doing much more efficiently. That's a challenge in itself, but we are committed to fix it.
Hi, it's Tim Schultz from JP Morgan. One cash flow related question here. You've painted a very self-contained, self-help roadmap. Thinking about emerging markets, Asia Pacific in particular, where might M&A still fit in within your next three-year roadmap? Might it still provide an important contribution?
As we have shown here, I think it's absolutely clear that the absolute main focus that we do have, and what we believe that we can achieve is this organic thing, and the whole FH presentation we are giving, the value track we are giving, the teaser of the Eicher new lineup in terms of product, and our global reach that we have today, and all of that is what we are going to work with. Having said that, I'm paid for, and I say that all the time, I'm paid for looking at the industry and see what's happening industry. My focus is, as you can understand, really to make sure that those 20 targets are achieved.
Yeah. Hi, Fredrik here from UBS again. We talked quite a lot about getting margins up today. When you look at your board's targets and look at Volvo Group's history, well, at least my conclusion was that the biggest upside for you for your cross-cycle profitability was to protect the margins in downturns. Could you maybe highlight from all the information we got today, what you're doing to actually offset the margin compression we've seen historically when the cycle goes against you?
If I were to translate those targets into one of my favorite charts, that is the leverage charts, okay? Where you have the break-even on one side, then you have the leverage on the other side. If you translate this information we've given today, it means two things. One is A, we're going with the cost side of the story, reduce or move the break-even point to the left. With the revenue growth part and the efficiency part of the equation, you're going to have a different eclipse on the leverage curve. That is actually transforming into what I described last year at the Capital Market Day. If you translate the information we got today, you will see that that is very consistent. Actually, now both moving it and changing eclipse, which replies your question.
By doing that, you have a higher fall height, and you have a better margin and cushion to move than when the cycle is going in the wrong direction. It fits very well, actually, what I've said all the time about addressing one of the major issues, I think, in the Volvo history in terms of the profitability, which is that We're flattening out on the leverage when the volume goes up too quick. We don't follow that all the way up, and thereby creating us a cushion. That is due to two things. One is the break-even curve is too much to the right, and we don't have the efficiency at the end when you get up to there. All these targets you can see is actually addressing that.
Daniel Johansson from UBS O'Connor. It's pretty clear if you talk about the 300 basis points of improvement, it's essentially SEK 9 billion of better operating profit. Coming back to what you just talked about, the leverage going forward on the growth, can you give a sense for what type of profit improvement, the growth you are talking about in the 20-point program? What kind of EBIT improvement is that going to lead to? Or how to assess that?
I think that there we're going to stay with what we have said, is then the 3% improvements over time, and what this will then come into in terms of extra revenues, and thereby sort of changing the equation in the numbers you have got, because we have fixed one variable, and that is the turnover to the 200 and the 300. That remains to be seen, and we will have to come back. I think I've been open now really to give you information on the fact that we do have this program running on the 300 basis points. The equation about revenues will, of course, be market driven. It will be very difficult to see because it goes up and down with the market as well.
It has also to do with where the launches are coming and how they're coming, and so on and so forth. Okay, Talk. Are you getting hungry?
Björn, Danske Bank again. Can you tell us a little bit about what you have done already to improve capacity or productivity? You have invested quite a lot in it, late last year, you started to take down production in your two major markets in Europe and LatAm, and you continued that work in the first half of this year. The margin impact was not that severe as it would have been some years ago, I would say. You've done quite a lot already. Can you say what you have done? Is this just the industrial system that has improved? Is it the way of running it, or can you give some color on that?
I think there are three major pillars that makes us faster in actually doing. One, I think is perhaps the most important, that we read the signals, we take them seriously, and we don't second-guess on the signals. When we see the signals coming, we take the decision, we do that now in this weekly pace, and we have, as I talked about before, it's a much quicker in order to do that. Secondly, we have, since the crisis, increased our flexibility substantially, particularly in the Swedish system, which means that we can then, compared to before, adapt ourselves to the ups and downs in a much better way. Thirdly, I would say, which is also very important, is that we have, together with our suppliers, also learned how to be quicker in adapting the whole supply chain. That's something you often forgot.
It's one thing to go down with your own production, but if you have material flowing in in an uncontrolled way, a lot of that sort of benefit that you have of lowering production is just going away in other things. There we also have improved together with our suppliers in a very good way to manage ourselves better in the whole chain to make sure that everything is lined up for this more volatile up-and-down environment that we saw during that one. I think those are the three major areas that we have learned from the crisis and continue to learn as well.
Thanks.
Hello there, Paul Hartley. Just down here.
There you are. Sorry.
Yes.
Sorry.
Paul Hartley from Merrill Lynch here. I've just got three quick questions, if I may. Firstly, on the reduction in R&D expense that you mentioned, I was just wondering whether that's a change to the capitalization ratio that you're looking at, why it's basically not impacting margins, whether you're capitalizing less going forward. Then on the same slide, you mentioned optimized pricing strategies, and there was a mention about short-term pricing strategies and that possibly meaning raising and lowering prices. I just wondered if you could give a bit of clarity on maybe what markets you are focusing on there. Finally, just on the Renault-Volvo talk of combining distribution networks and things, specifically in Germany. I was just wondering whether that was basically the sales front of the group or more aftermarket focus.
Why don't, Christer, perhaps you can elaborate a little bit on the R&D and the capitalization there?
If we start with the current R&D spend for trucks, it's running around SEK 12.6 billion during the second quarter if you analyze it. That's the P&L, so to say. Keeping in mind that we are actually capitalizing roughly SEK 500 million more than we are amortizing right now. As we go through Euro 6 now and start to launch those products, capitalization will come down quite a lot, then we will start amortizing the previous capitalized R&D. That's why, unfortunately, you will see that the P&L impact will not be so big. Coming after Euro 6, we will start amortizing at a higher rapid pace.
Good. Thank you. When it comes to prices, I will not give any examples, it's absolutely right that you say that it's not per definition, only raising prices. You can actually, by lowering prices and be more intelligent on that, see that you get volume and thereby coverage and thereby margin improvements as well. We have to work with all. What I can say is that the work of actually getting those pricing strategy is going to be really detailed and local and driven from a sort of holistic view, then down into regions, down to models, position them against the competitors, making the plus minus lists, coming with action plans how to increase that. You have to really go down there because it's easy to say the 3%, but the pricing strategy needs to be built up.
We need also to do it in a way, this is interesting because that's going to be in a way that also support the brand portfolio. You can see that we tie that together now in terms of actually positioning the brands as well, pricing is of course, one lever that you can do with that. I think the BRIC loader from Pat is a brilliant example where you then position yourself on the high end in China of that segment by utilizing the low-end technology together with the Volvo technology. Thereby you can work with a small pricing structure as well. There again, there's a lot of opportunity. When it comes to the Renault Volvo question, Peter, why don't you elaborate on that a little bit?
I can do that. When it comes to the distribution, we said that now in the new setup, we can definitely optimize our distribution in a much, much better way. What we are going to do is to join forces. If you take Germany as an example, we have a lot of white spots in Germany. The reason for that is that we don't get the running fleet enough to really build out our distribution network. By joining forces, we can then build a better running fleet around the new dealership in an area where we have a white spot today. If we combined the forces from Renault and Volvo together, and we can have one service dealer serving both brand, for example. In that way, we can expand much, much faster in a country like Germany, where we are underrepresented when it comes to service network.
The same thing is in Russia. We are still developing the network in Russia, there, as I said, it's extremely expensive in Moscow, for example, and Saint Petersburg and so on. In Moscow, you need four dealerships, south, north, east, and west. Should we build eight of them around Asia or should we build four? It makes sense to combine forces there as well. I hope that answered your question there.
Yeah, we have one down here. I don't know if the mic is out. The mic is out, yeah.
Hi. Austin L. from Marshall Wace. I wonder whether it would be possible to ask one of your senior managers to actually explain on a day-to-day, week-to-week basis the difference from moving from a matrix to a structural organization, functional organization, how that's changed their sort of day-to-day, week-to-week functioning.
Joakim?
Yeah. I think in a matrix structure, by definition, you don't have one reporting line. I think that's very clear. Sometimes in organizations you have incompatible, or at least difficult to agree upon objectives that are coming from different places. That is not the case today. Another big thing is, of course, that while we work in functions, or we belong to functions, we work in processes. I think the emphasis that this new way of working has brought has been significant. We take decisions in cross-functional committees. We have this weekly pace that Olof frequently refers to. Every Monday, I'm with Olof and the rest on the phone, even though I'm living in Japan. We take weekly decisions as opposed to previously when I, if I take myself as an example, then I was sitting in internal quarterly boards.
The whole machine, the whole clock frequency, if you like, has radically accelerated. I think that are a few of the examples. Of course, I think the most important thing is not that that is my, let's say, normal week. The most important thing is it's cascaded down. The whole organization is working, let's say, in the same way. Then you get the full power of 80,000 people working in one direction. Now, of course, with the sort of future and the compass set very clearly on these five key focus areas with the 23 objectives, and which I think is very important, that we will say no to things that don't fit into that frame. I think the energy that you release is going to be significant, and I think that is what's going to propel us to the next level of performance.
Thank you.
Hampus Engellau, Handelsbanken again. I hear Germany a lot, cross-selling Renault, Volvo. It's MAN and Daimler territory, 60,000 unit market. Is there a market share target here also? It's very competitive. I would assume pricing is a key issue here.
To be quite honest, Germany is one of many examples that we have brought up here. I think it's a fundamental example also showing that we actually are building with this new product, with the Renault Trucks products coming, with the actions we're doing on the distribution side, that we're building self-confidence and actually asking ourselves, why the heck should we have 16% on the Volvo side around in Europe and only nine in Germany? Why should it be that we have the market share we have in Renault Trucks, and basically have a very limited addressable market in Germany? That is the kind of feeling behind it, and it shows a little bit more the example of actually doing it. To answer your question, no, there is no market share target set.
Can the asset management side of Handelsbanken ask a question? Of course. You've done a bit of these exercises before at VCE, I presume. If you would look back, what sort of expectations you had implementing this at VCE, were there any things or what surprised you the most? What was the biggest surprise when you implemented it at VCE that you're doing today? Can you sort of guide us and say, "Okay, this is something that I didn't believe before, which is truly exciting, and I'm so excited right now because I've seen it work once"?
If I understand your question correctly, Pat can perhaps, who was a part of that journey, also chip into that. I think what we learned during the VCE time and what I learned about the VCE time was actually that it's doable. I think that is the absolute. The energy and the potential in an organization, if you actually do the kind of setup, the kind of process that you do now, is that your previously almost unachievable targets all of a sudden started to become reachable, and over time also did reach them. That's one thing that we have, for instance, a huge debate about availability target that we put into VCE at that time three years ago. Is it at all possible to reach that? Now the trend is definitely moving in very much in that direction. That's one thing.
What I learned also is that we have done better this time. That was the first time we did it. It was Pat, myself, and the rest of the management team in the VCE who did a lot of the work, and we really did it very quick because that was in the middle of a crisis. We need to get this compass in place and so on and so forth. The preparation work we have done now, foundation, transformation, the concrete example, the engagement, involvement, the building up of a structure, it's completely different now. The roadmaps, we're already now three months ahead of the actual launch of it. We are already now getting into quite detailed roadmaps. We already take decisions based on the 20 targets. We did that, and we launched and communicated a few of them there.
That's sort of the long and the short answer, and that's almost a dinner discussion, your question, but it's a very important one. I don't know if you want to add to that, Pat, or
One thing that's maybe important to mention, Olof, for me at least, when you talk about margin improvement, you often quickly think of cost. Actually, the experience I had as part of Olof's team in CE is the huge amount of potential you can drive with growth and business development in these kind of strategies as well from the proper brand positioning, and that makes it a lot more fun, that's for sure, when you're doing it. The second thing is something Joachim mentioned. I think I underestimated in the beginning the benefit and value of the pace. The pace is something I'd never want to go back to the old way from. This weekly pace, it really drives a lot more activity and action in the company, and it does cascade, as you said, Joachim. A couple observations.
You will not be allowed to go back to the monthly. You better keep the weekly. Please. Yeah. Oh, that was not a microphone again. It looks like microphone, but you have twisted the paper. Sorry. Okay.
I think maybe we can take one more question there and then.
Yeah, one more. Yeah. We have one minute and two seconds left.
Yeah, I was just wondering on the value trucks, if you could talk a little about how you're going to win, who are your key competitors, and what will you do to beat them essentially, I guess is my question. Perhaps also what's keeping you from launching, I guess.
Okay. Joachim, why don't you expand on that a little bit?
Well, the competitive set for the value truck platform is joint venture products coming out from other OEMs, which is normally a mix between Western technology and low-cost technology, for instance, in China and India. It's also the top-end range of those mass market producers in those countries. It is also the kind of products that we see today, for instance, from some of our Japanese competitors existing already today in Africa or Middle East, or for that matter, in Southeast Asia. To your question, why we would be successful, I guess we have been thoroughly planning and developing this range. We have listened to our customers. We have thoroughly tested it. We simply believe that we got the formula right. I think that is the rationale.
Thirdly, what is preventing us from launching it, I guess, to develop a new platform in the truck industry, in the automotive industry in general, takes some time. Generally a bit longer than in fast-moving consumer goods, for instance. I guess that is what we're waiting for, and we will not launch this range until it is ready, until we can secure that we have verified it, that the features are where they should be, the cost is where it should be, et cetera. That is more important, to be honest, than if it is launched tomorrow or a year from now or two years from now. Thank you.
Okay. I have a target with this day, that was to give you a good flavor on two things. One, a good explanation on my hesitancy to get into, a deeper discussion about the 300 basis points target that was communicated last year during the year. I hope you have got an understanding for the fact that transformation, building the ground, making sure that the concrete is dry before you start running is very important.
Secondly, I've hoped that I have, we have given you the confidence, not only that we have opened up the strategy also explained to you the areas that we see being the most crucial ones, the ones that we're now going to have in the truck case, 80,000 people working on, that that is sort of makes sense and also open up the kind of questions and answer the kind of questions you did have. Finally, perhaps most important, is that you have the feeling with examples that we have shown today, which some of them are really big news in terms of what we're doing. Others are more fine-tuned things, but still activities that fits into the strategy that you by that also got a good feeling that we have not sort of We're not sitting waiting.
We are on the move, we have already started the journey because this is a journey, it's going to be extremely challenging, it's going to be a lot of fun during these three years, it's going to be some rainy days as well, those we have to survive. With that, I would like to thank for your attention good questions all of that, also thank my management team for supporting, I'll leave over to my today's boss, Christer, to get.