November 5, 2012 4:30 pm

Costs focus at Geely’s Volvo Cars unit

  • Share
  • Print
  • Clip
  • Gift Article
  • Comments

Volvo Cars sales fell by more than 10 per cent in both China and the US in October, underlining the scale of the task facing the Swedish premium carmaker’s new chief executive.

Håkan Samuelsson, former head of truckmaker MAN, took over at Volvo last month. He has told colleagues his initial priority is to ensure the carmaker breaks even at the very least by focusing aggressively on costs.

Mr Samuelsson is still finalising his plan but it seems likely job losses will be involved as he scrutinises spending across the company in both administrative and manufacturing jobs.

The situation is complicated by the fact the Swedish company lacks the scale of bigger rivals such as BMW, Audi and Mercedes. In the first 10 months of this year it sold 347,532 cars, down 6 per cent on the previous year. BMW by contrast sold 1.34m cars in the first nine months of the year.

“It is incredibly challenging to develop new platforms, go into new niches. Funding all this with such a small volume, it is a huge challenge,” said Arndt Ellinghorst, analyst at Credit Suisse. He noted that Volkswagen sells 1.1m cars of one model alone, the Passat.

Mr Samuelsson unexpectedly took over from Stefan Jacoby, a former VW executive who headed Volvo for two years but who suffered a mild stroke last month. But Volvo directors justified the move, not because of Mr Jacoby’s health but because of its poor financial performance and weakness in China, home market to its owner, carmaker Geely.

Geely’s other significant overseas investment, Manganese Bronze, the London taxi company, is in even worse trouble, having gone into administration last month.

Volvo’s sales in China this October were down 12 per cent on the same month last year while those in the US were 14 per cent lower. Europe provided a rare bright spot, with sales up 4 per cent.

Volvo is struggling to maintain profitability, hence Mr Samuelsson’s focus on costs as well as recent production stoppages in factories in Sweden and Belgium.

The company, which was spun out of truckmaker Volvo more than a decade ago and sold to Ford before Geely bought it in 2010, recorded a net loss of SKr254m in the first half of this year. It managed an operating profit of SKr239m in the same period, but this was down 84 per cent on a year earlier.

Mr Ellinghorst said it was likely to get tougher for carmakers from here as markets such as the US and China, the two biggest, soften.

“Volvo has great brand equity. I personally just think it needs to be embedded in a bigger company,” he said.

Mr Samuelsson has tried to stress to colleagues some of the advantages of being small, saying Volvo needs be nimbler and adapt its production faster than bigger rivals. 

This article is subject to a correction and has been amended.

Copyright The Financial Times Limited 2015. You may share using our article tools.
Please don't cut articles from FT.com and redistribute by email or post to the web.

  • Share
  • Print
  • Clip
  • Gift Article
  • Comments

NEWS BY EMAIL

Sign up for email briefings to stay up to date on topics you are interested in

SHARE THIS QUOTE