Sweden is one of the smaller northern European countries, making up a significant part of Scandinavia with Norway and Finland. With a population of some 9.8 million, according to CIA estimates, the total population is roughly equivalent to one of the larger European cities.

Despite this, Sweden has a long-established motor industry and is actively involved in the production of cars, trucks, buses and off-highway equipment. Volvo was originally developed as a subsidiary of SKF, a manufacturer of ball bearings, which is the origin of the Volvo name, meaning ‘I roll’, in Latin. Production began in 1927. The company went on to develop cars, trucks and buses, as well as marine and aircraft engines. Although the manufacture of all these continues today, the Volvo Group disposed of its car division, originally to Ford in 1999 and it was subsequently sold again to Geely of China in 2010. Production and development of Volvo cars continues at its Gothenburg base in Sweden. Although small in motor industry terms, Volvo has developed a reputation as a premium manufacturer, based on its history of safety developments and production of high quality, well-specified cars.

Volvo central to Swedish automotive sector

Gothenburg is also the home of the Volvo bus and truck division. The company developed a strong reputation for its truck products with models like the F88 of the 1970s, which like Volvo cars, pioneered safety developments. The company acquired US truck maker White in the 1980s and subsequently General Motors’ truck division, when GM decided to end truck production.

Volvo and Renault worked together through the 1990s and it was expected to result in a merger of the two companies, with Renault expected to take responsibility for car production and Volvo assuming responsibility for truck production. The merger did not happen but Volvo subsequently bought Renault’s truck division and with it Mack Trucks of the US, a Renault Trucks subsidiary. The Group now also includes the former Nissan truck division, Nissan Diesel, now known as UD trucks, giving Volvo a broad global market for commercial vehicles. As a truck manufacturer, Volvo and its associated brands is the second largest truck manufacturer in the world after Daimler.

A merger between Volvo Trucks and Scania trucks could have resulted in a powerful Swedish truck manufacturer with a large global presence. Although frequently rumoured as a possibility in the late 20th century, this did not happen. Like Volvo, Scania disposed of its Saab car making division in the 1990s, but to General Motors, after GM’s advanced plans to acquire Jaguar and Land Rover collapsed at the last minute in the late 1980s. Saab went into receivership and was bought by National Electric Vehicle Sweden in 2012, a company with a majority Chinese shareholding. Since then no cars have been produced. Scania is now part of the truck and bus holding of the VW Group along with MAN. Like Volvo, Scania has also established a strong global presence for its trucks, with a reputation for quality products.

Growing private and fleet markets

The launch of the new Volvo XC90 SUV last year probably helped Volvo to increase car sales in Europe by 11.7% to 285,861. The launch of the larger S90 and V90 models this year will probably help to raise sales further. Separate European manufacturer data for truck sales have not been published in recent years, but in 2015, CV registrations in Sweden reached 51,585, up 6.3% on 2014. At the same time, total car registrations in Sweden reached 345,108, up 13.5% compared with 2014.

That trend continued in the first two months of 2016, with February year-to-date CV registrations up 19.6% to 7,995. For cars, Swedish registrations rose by 9.9% YtD to the end of February to 48,517, while Volvo’s EU sales were up 10.6% to 37,524 in the same period.

Given the strength of the business vehicle sector in the developed European economies, it would be reasonable to expect that it is a sector that is established in Sweden. According to Asset Finance International’s 2012 report on Sweden, cars were the most commonly leased asset in the country.

In describing the fleet and business car sector in Sweden, Alphabet International told us, “The competitors in the fleet market sector in Sweden are made up of a mixture of large international companies and local/regional companies.

“Historically, the fleet market has always been a financial lease market, but for a couple of years FSOL (Full Service Operating Lease) has been growing very fast. Today nine out of 10 new Alphabet customers choose FSOL.

“In the fleet business, there are more and more tenders coming from international organisations, which then raises the importance of the geographical coverage of a fleet company. This leads to a higher degree of consolidation in the market.”

Price and value for money

LeasePlan observes that, “On the Swedish leasing market, which is relatively small compared to the total European market, many competitors are active. This results in strong competition on price and who can give most value for the money. Competition is coming from both local players, including the car manufactures’ own leasing providers and major banks as well as international players.

“Looking at the needs and focus of the clients, we can see a trend towards more focus on cost savings, increasing demand for help with fleet administration, the possibility of giving more support to drivers, and also help with harmonisation of the fleet and vehicle related suppliers within Sweden and the Nordic countries. Demand for consultancy services is also growing.

“The Swedish market is quite unique in the sense that most companies prefer one supplier (sole supplier status) instead of two or more. This is due to the fact that one supplier is able to give more value in the form of consultancy services and less administrative burden. It is also a question of trust between the client and the fleet management company.

“Most larger Swedish companies also strive for a long term relationship with its supplier to enable cost savings and to get better control of the total fleet.

“The two dominant makes for cars in Sweden are VW and Volvo followed by BMW and Audi.”

LeasePlan estimates the size of the total leasing market for cars in Sweden at 550,000. According to Alphabet, 156,000 cars were registered in the fleet sector in 2015. Interestingly, Alphabet reckons that some 1,120,000 cars are in use in the fleet sector in Sweden, but as we have said before, it depends on how the size of the market is estimated, so the variance with LeasePlan’s estimate is not necessarily surprising.

Salary sacrifice growing

Alphabet suggests that the combination of a strong economy and low interest rates have helped the fleet sector in Sweden. The growth in the fleet car sector has had other benefits too, reckons LeasePlan, “It has lead to a growth in the form of new clients while existing clients are leasing more cars. It has also lead to an increase of salary sacrifice car leasing programs,” the company comments.

Harsh winters are common in Sweden, particularly in the northern parts of the country. Inevitably, this has an impact on the kind of cars that fleet customers choose, “The fleet market is dominated by four brands: Volvo, Volkswagen, BMW and Audi,” comments Alphabet, “The typical car is a station wagon with towing hitch, diesel engine, automatic transmission and four-wheel drive.”

Considering that Volvo started making station wagons in the 1950s and the company is renowned for building them, the preference for them in Sweden doesn’t come as much of a surprise.

Station wagon country

It’s a trend that LeasePlan identifies too, “Station wagons are number one among business cars by far, while the demand for crossovers is growing. Station wagons have been popular for a long time, Sweden is, what Swedes call, a “station wagon country”. Swedes priorities are that there is plenty of room for the whole family in the car and that there is also enough space for the kids’ activity equipment, such as ice hockey. Station wagons have a high demand on the market for used cars which give the best residual value.”

Growing economies tend to bring demand for light CVs with them and Sweden is no different. LeasePlan says the LCV sector is very important to the leasing sector. “In the Swedish market the LCV sector has a share of 13% but when it comes to leasing, the share is much higher than for cars,” the company comments. Alphabet adds that LCVs are of growing importance to the leasing sector.

While fleet cars are treated the same as private cars for taxation purposes, the use of a company car attracts a benefit in kind tax, as in many other European countries.

“A taxable benefit arises if you drive a car that you are able to use, due to your employment or conditions of work, for private use,” comments LeasePlan. “If, on the other hand, you only use the car for private use to an ‘insignificant extent,’ no taxable benefit is incurred. According to the Swedish Tax Agency, ‘insignificant extent’ means that the car is used a maximum of 10 times a year with a total distance driven of a maximum of 1,000 km. Both these conditions must be satisfied to qualify as tax exempt. Note that journeys to and from work are normally counted as private driving,” comments the company, “Regarding salary sacrifice cars, the company must pay social security fees on the benefit value that arises for the driver.”

Alphabet points out that while the driver has to pay the Benefit-in-Kind tax, the employer pays a social security charge associated with the provision of a fleet car.

Leaseplan reckons that operational leasing is responsible for around 15% of fleet car financing, but Alphabet suggests that when you just look at fleets with more than 10 vehicles in their fleet, the balance between operational leasing and finance leasing is closer to 50/50. Both companies see further growth in operational leasing.