Plans For Fixed Cost Cuts At Volvo As Trade Tariffs Pinch On Profits

The latest auto maker to issue profit warnings for the current year was Volvo as the Swedish auto company announced its plans of cost cutting of its fixed expenses by as much as 2 billion Swedish crowns or $214 million. The company said that its profitability was being dented by pricing pressure and the tariffs imposed because of the trade war between China and the United states.

Most of the major auto companies across the world are facing pressure on profits because of multiple factors that include pressure because of trade spats, high levels of investment required to be made for development of develop electric vehicles and technologies for driverless cars as well as an overall slowdown of demand for vehicles given the downturn in the global economy an overall slowdown of the global economy.

However, Volvo, now owned by China’s Geely group, also announced its plans for manufacturing of some premium priced cars that would rivals the ones from BMW and Mercedes-Benz of Germany’s Daimler.

The company has also restructured its plans of global production so that it can reduce the impact from the enhanced tariffs by the United States. Earlier in the year, the company had announced that it would be conducting a review of its staffing and other expenses.

The company so far has given the pink slip to about 750 employees – mostly engaged in consultant jobs in engineering and IT. The hourly wages for such consultants has also been reduced by the company. According to the company CEO Hakan Samuelsson, these measures would result in savings of up to 1 billion crowns starting this July.The company plans to initiate the announced cost reduction measures during the second half of the current year and would be continued till the first half of next year, the carmaker said.

There would also be some further job cuts, Sameulsson said. But the company would focus more on reducing other costs to achieve cost reduction of another billion.

“Market conditions are expected 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,” Volvo said in a statement.

In the in the three months to June 30, the company reported a 38.1 per cent drop in second-quarter operating profit at 2.6 billion crowns which is worse compared to the quarter-on-quarter drop the company reported in the first quarter. This drop in operating profits was against a revenue increase of 1.8 per cent at 67.2 billion crowns in the second quarter.

Its profit forecast was cut earlier this month by Daimler which was the fourth such cut by the company in 13 months. A warning on profits was issued by BMW in May this year while Volkswagen said that it expected its return on sales for its passenger cars business to be at the lower end of its announced target.

(Adapted from IndiaTimes.com)

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