No Deal

Setback for a struggling Swede

Volvo Boss Pehr Gyllenhammar is justifiably proud of his company's solidly engineered cars, but his business deals seem not to be put together so well. The energetic and outspoken Gyllenhammar has been searching for ways to boost sales, but his efforts have resulted so far in little more than wheel spinning. Plans to build an assembly plant in the U.S. and to merge with archcompetitor Saab-Scania have both had to be given up for one reason or another. Last week Gyllenhammar got his biggest setback yet; opposition by Volvo shareholders forced him to scrap a plan to sell 40% of the company to the Norwegian government and a group of private investors in return for $225 million in cash and some potentially lucrative exploration and drilling rights in the North Sea.

Volvo badly needed the leverage that the Norwegian deal would have provided. Though it is Sweden's largest company (1978 sales: $4.3 billion), its share of the vitally important U.S. and European auto markets is precariously thin, and profits at home have been squeezed by Sweden's high wages and stagnant productivity. With the price of a top-of-the-line Volvo now $16,000 in most markets Gyllenhammar had been counting on his Norwegian connection for the money needed to develop a radically designed lightweight vehicle that would give the company broader market appeal for the mid-1980s.

The deal had been thrashed out in a series of secret meetings last spring between Gyllenhammar and Norwegian Premier Odvar Nordli. But when Volvo shareholders found out about it, they protested that the terms were not nearly sweet enough, and a growing number threatened to vote no at this week's annual meeting. Late last week, faced with enough proxy votes to block the sale, Volvo's board of directors abandoned the effort to win approval of Gyllenhammar's plan. Ironically, that was good news for Norway's Nordli. His minority Labor government faced increasing protests in the Storting (parliament) over the Swedish linkup and there were opposition threats of a no-confidence vote that could have forced him to resign. Reason for the resentment: the widespread feeling that Norway's prospective percentage of Volvo was not worth as much as Nordli was willing to pay for it.

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