Volvo Cars Profit Tumbles as Trade Spat Starts to Take Toll
Volvo Cars Profit Tumbles as Trade Spat Starts to Take Toll
(Bloomberg) -- Volvo Cars is stepping up cost-cutting in a bid to reverse a drop in profit as the Chinese-owned company succumbs to pricing pressure from competitors and trade friction that has unsettled global auto manufacturers.
The Swedish carmaker owned by China’s Zhejiang Geely Holding Group Co. aims to reduce costs by 2 billion kronor ($210 million) after first-half operating profit dropped 30%, according to a statement Thursday.
“There are headwinds in most car markets, and combined with tariff costs, that is obvious in our margins,” Chief Executive Officer Hakan Samuelsson said in a phone interview. “We saw this coming a number of months ago and started additional cost actions.”
Volvo Cars has been one of the bright spots of the car industry since it was bought by Geely and revamped its lineup. While it’s selling more cars than ever, the latest results show the group isn’t immune to emerging challenges. Volvo has already unveiled a plan to withhold staff bonuses after profitability declined for the first time since 2012, and margins have continued to deteriorate. The results follow a profit warning last week from German rival Daimler AG as well as parent company Geely.
Samuelsson said he expects the latest round of savings, which includes 750 job cuts, to contribute to a higher operating profit in the second half of the year. Volvo also expects to set new sales records after starting production of the XC40 model in China. The compact SUV model helped Volvo grow European sales in the second quarter, even as overall European car registrations fell.
The trade spat between the U.S. and China has wreaked havoc with the company’s production plans. Only a few months after opening its first U.S. plant, the Swedish brand canceled plans to export the S60 sedans built there to China.
Volvo Cars’ results also provided the latest evidence of the difficulties facing car manufacturers in Europe. Car registrations fell sharply in the region in June, resuming a downward spiral for the year. European households are nervous about committing to a big-ticket purchase and may be holding off as the technology moves to electric cars.
Volvo Cars is making some inroads in Germany, where sales grew by almost a third. “This shows that we are now a real premium alternative in this demanding market,” Samuelsson said in the statement.
To contact the reporter on this story: Niclas Rolander in Stockholm at nrolander@bloomberg.net
To contact the editors responsible for this story: Anthony Palazzo at apalazzo@bloomberg.net, Tara Patel, John Bowker
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