Volvo Takes a Norwegian Mate

In exchange for cars, oil for the pumps of Sweden " We are leaving the defensive role Wand going on the offensive," declared Pehr Gyllenhammar, president of Volvo, Sweden's troubled giant (1977 sales: $3.6 billion). On that confident note, he announced last week a bold and imaginative reorganization that in one stroke will supply the automaker with urgently needed cash, give Sweden access to North Sea oilfields and bring in Norway as an energetic junior partner in a new binational corporation. The Norwegians, eager to use their oil riches to develop high-technology industries, called Gyllenhammar's proposal "the deal of the century." Swedish Prime Minister Thorbjorn Falldin, whose non-Socialist coalition had refused to help Volvo, endorsed the company's plan for saving itself.

Volvo's troubles are symptomatic of the ills and abuses that are rendering Swedish companies uncompetitive on the world market, yet, despite the advent of a more conservative government, Sweden remains fully committed to the welfare state. Unable to lay off surplus workers or curb ruinous absenteeism (sometimes as high as 20%), Volvo saw its operating costs soar. Once noted for well-built, moderately priced autos, Volvo was forced to increase its prices until its top-of-the-line 264GL, at $10,500, is nearly as expensive as a Cadillac Coupe De Ville. Volvo sales have slumped globally, and last year profits fell 40%, to $79 million.

At first Gyllenhammar hoped to beat Swedish inflation by opening an assembly plant in Chesapeake, Va. Volvo's declining U.S. sales, off 23% since 1975, forced an indefinite postponement of full-scale production. Next, the young (43)

Volvo chief sought a merger with his smaller but more profitable Swedish rival, Saab-Scania. The engagement was announced, but Saab-Scania became worried about Volvo's decline and broke it off. After Falldin's government refused to help, Gyllenhammar secretly turned to Norwegian Premier Odvar Nordli.

According to the plan, which still has to be approved by Volvo's unions and the Norwegian parliament, the present firm will be dissolved and replaced by a holding company, called Volvo (Svenskt-Norskt) and composed of two divisions. The Swedish branch will have 60% of the shares and appoint six directors to the ten-seat board; the Norwegian wing will own 40% and name four board members. Owners of Volvo stock will be given shares in the Swedish operation; half of the shares of the new Norwegian branch will be sold to the public, with the rest going to the Norwegian government, which is expected to become the single biggest shareholder in the binational corporation, ahead of even the Swedish pension fund, now Volvo's largest owner.

Under the deal, which is to go into effect on Jan. 1, Swedish Volvo will receive $160 million from the Norwegian government and the right to explore for oil off the Norwegian coast, where huge finds have been made. The Norwegian company, in turn, will take over Volvo's Penta marine-engine business and build a plant in Norway. Further, the Norwegians will build important components for a new small Volvo for the 1980s.

Gyllenhammar faces opposition from Sweden's contentious union leaders, who are alarmed because some 500 of the company's 41,626 domestic jobs will be lost to the Norwegians. But he has a powerful argument: unless Volvo gets help, it is bound to decline.

This file is automatically generated by a robot program, so viewer discretion is required.