Bloomberg News

Volvo Cars Forecasts Loss on Investment Costs, Sales Drop

December 03, 2012

Volvo Cars, the Swedish automaker owned by Chinese manufacturer Zhejiang Geely Holding Group Co. (175), said it’ll be “very tough” to make an operating profit this year because of investment spending and declining sales.

“Unfortunately, there are no positive signals on the European car market,” Chief Executive Officer Hakan Samuelsson told reporters today in Gothenburg, where Volvo Cars is based. “In the first half, we had significantly higher volume than we have now in the second half.” Breaking even before interest and taxes will be “very tough.”

Volvo’s deliveries are about 6 percent lower now than a year ago, and the CEO is “especially” dissatisfied with “flat” sales in China as that market has failed to compensate for declines in the company’s home region, Samuelsson said.

Volvo hired Samuelsson, 61, as CEO on Oct. 19 to replace Stefan Jacoby as the company works on boosting earnings and increasing sales in China. The carmaker is slowing production and cutting about 1,000 temporary workers in Sweden and Belgium as Europe’s automotive market heads for a 17-year low in 2012 amid a recession in countries using the euro.

First-half earnings before interest and taxes at Volvo dropped 84 percent from a year earlier to 239 million kronor ($36 million) as the carmaker ramped up spending on new models and factories. The company reported a net loss of 254 million kronor compared with net income of 1.21 billion kronor in the 2011 period.

Keeping Targets

Volvo, which Zhejiang Geely bought from Ford Motor Co. (F:US) in 2010 for $1.8 billion, reiterated a plan to invest $11 billion in factories and technology through 2015. Almost half of that figure will be spent in Sweden, mostly for a new platform for vehicle manufacturing that will produce its first car, a revamped version of the XC90 sport-utility vehicle, in 2014.

“We must continue to prioritize long-term investments,” Samuelsson said. “It’s completely key to Volvo’s future.”

The carmaker is sticking to a goal of almost doubling volume to 800,000 cars by 2020 from 449,255 vehicles in 2011, and construction of two car plants and an engine factory in China are proceeding according to plan, Samuelsson said.

A loan from the China Development Bank that has been pending since April should materialize “soon,” Samuelsson said, declining to disclose the amount. An initial public offering is “not on the agenda,” he said.

Chinese Strategy

Volvo’s first-half deliveries in China rose just 1.7 percent, compared with increases of more than 30 percent at Bayerische Motoren Werke AG and Audi AG, the world’s biggest luxury-vehicle makers. To boost sales in China, Volvo will take measures such as training its sales force and considering which vehicles best fit the market, he said.

The company’s first factory in China, located in Chengdu and with an annual capacity of 125,000 vehicles, will start making cars within a year, he said.

Volvo, which has considered starting U.S. production, isn’t placing a high priority on manufacturing in that country because China is a bigger focus, he said.

The company is no longer seeking to cooperate with another carmaker to build a compact vehicle, as the V40 hatchback that went on the market this year shows that Volvo is best off developing the models on its own, Samuelsson said. The V40 has sold better than Volvo expected, he said.

To contact the reporter on this story: Ola Kinnander in Gothenburg, Sweden, via okinnander@bloomberg.net

To contact the editor responsible for this story: Chad Thomas at cthomas16@bloomberg.net


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