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When is volvo going to step up to the plate against the Germans??? Volvo has the engines in its sedan line to make the move now. The compact V8 is a great addition to the sedan line for '07.
The S60 is without a doubt the best P2 designed sedan. Volvo must have recognized this as it is the last of the sedans to receive an exterior design makeover (the first generation S60 ingeniously combined the sophistication of the S80 with the sportiness of the S40).
The next generation line of S60's should feature the new 3.2 liter in-line V6; with identical exterior properties as the current 5 cylinder in-line enginge featured in the S60, this would be no problem. The naturally-aspirated version would offer 238 horsepower, a low-pressure turbo version could offer roughly 270 horsepower and a second generation R version could offer an approximately 320 horse version.
What made the first generation S60R so great was that 300 horsepower was perhaps the least impressive of its performance characteristics. Beefy Brembos, a suspension system that monitors driving conditions at 500 times per second and unique and tasteful volvo exterior are what caught the eye of long time volvo enthusiasts. In other words the first generation R was prudently designed to easily manage its 300 horsepower powerplant.
Currently, the first generation S60R runs a 0-60 over a half a second behind the BMW M3. For the performance enthusiast this factory disadvantage maybe all the statistics needed to sway them away from the more conservative and folksy Volvo R model.
With the introduction of a naturally-aspirated V8 to the new much more sporty looking Volvo S80 one could find a potential for a more sophisticated S80R. The second generation exterior design on the S80 undoubtedly incorporates a more youthful and agile stance. With the 0-60 time of a new V8 S80 at 6 seconds or less an R version could provide a more pragmatic alternative to the BMW M5.
The development of both the performance, in an all new second generation S60 and an R version of the second generation of the Volvo S80 would tap into markets across the world pining for a performance alternative.

DISCLAIMER: I realize that Volvo is very much its own company, and what attracts us so greatly to the brand is its unique and uninfluenced heritage. The brand should be trusted to lead its sedan line into the future with success, foresight and wisdom. With this in mind I can't help but beg the question, WHY NOT?!?
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