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Volvo Forced To Make Some Serious Financial Decisions

Industry News / 6 Comments

It all can be pinpointed to one reason.

Automakers make financial decisions all the time, some more serious and consequential than others, obviously. But if an automaker, or any business for that matter, is losing money and there’s no immediate way to stop the leak, then there’s a problem – and Volvo intends to avoid such a situation at all costs.

According to Reuters, the Swedish-based luxury automaker has announced plans to cut costs by $214 million in order to protect itself against the ongoing and still unresolved US-China trade war. Ironically, Volvo is owned by China’s Geely but its global production plans are still in jeopardy. Like its competitors, Volvo has been heavily investing in electric and driverless vehicle technologies and the US-China trade dispute is making it more expensive to do business in general.

Tariffs make everything more expensive. For example, the importation of building materials and export of completed vehicles do not have stable prices at the moment. Volvo’s decision to cut costs is a direct result of that. Earlier this year, Volvo began reviewing its staffing and other costs and, so far, a total of 750 jobs have been cut. Even the hourly wage for consultants has been reduced.

Volvo CEO Hakan Samuelsson said these new cost-cutting measures, which will start in the second half of this year and continue into the first half of 2020, will include some additional job cuts and other cost-cutting to save another billion dollars or so.

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"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.

Volvo’s latest cost-cutting comes in the wake of fallen second-quarter operating profit, which turned out to be a worse quarter-on-quarter drop than in the first quarter of this year despite an improvement in revenues. Given the fragility of things until the US and China cut a deal, Volvo and other automakers including Daimler and BMW, will do what they must to weather the storm.