Volvo initiates further cost savings as trade-war hits profits

18 July 2019

Volvo is to seek cost savings of SKr2 billion (€190 million) as the global trade war hits the company’s profits.

The carmaker is the latest to warn that pricing pressure and tariffs arising from the China-US tensions over trade were denting profitability. Additionally, pressures surrounding the development of electric vehicles (EVs) and autonomous systems, together with an overall downturn in the industry, are affecting finances.

In its first-half results, the brand said that pressure on prices was the other big factor as it posted net income of SKr3.4 billion (€324 million) for the first six months of 2019, a 38.8% drop compared to the same period a year before.

The company has now initiated additional cost measures on top of already planned measures, which combined, aim to lower fixed costs. These actions will come into effect in the second half of the year and running into the first half of 2020.

Volvo began reviewing its staffing and other costs earlier this year. So far it has cut 750 jobs, mainly engineering and IT consultants, and reduced the hourly wage for such consultants, which CEO Hakan Samuelsson said would lead to savings of SKr1 billion (€95 million) from July.

Improved sales

However, Volvo is one company that is outperforming the market in terms of sales. For the first six months of 2019, Volvo’s registrations amounted to a record 340,286 cars, a year-on-year increase of 7.3%. During the period, Volvo Cars grew consistently faster than the overall market.

The company has gained market share across the US, China and Europe, with the UK and Germany recording growth of 30% and 32% respectively. The overall passenger car market in the US declined by 2.0% in the first half, while China and Europe fell by 9.3% and 3.1% respectively during the same period.

′At a time when most markets in the world see stagnating car sales, we have had strong growth in the first half,’ said Håkan Samuelsson, president and chief executive at Volvo. ′We continue to take market share in all regions where we operate, but increased pricing pressure and tariffs have decreased our operating profit. The cost measures we took earlier this year will come into effect in the second half of the year.’

The carmaker expects market conditions to put continued pressure on margins, but the combination of volume growth and cost measures is expected to result in a strengthened profit in the second half of the year compared with the same period last year.