Volvo, the world's second-largest heavy truckmaker, said it would focus on new product launches across markets this year after reporting a strong first quarter, especially in North America where customers are renewing their fleets.

Improved margins and higher volumes offset increased costs for raw materials and components, Volvo said on Monday. Its Volvo, Renault and Mack truck brands all increased sales and profits as the company launched several new products. In the three months to March 31 the Swedish group made a pre-tax profit of SKr4.60bn ($654m) on sales up 14 per cent on the same period a year earlier to SKr52.25bn. The results were above market expectations.

Volvo, which lifted prices on its trucks by 3.5 per cent and added a $1,500 per vehicle surcharge in February, said demand increased in North America, where order bookings were high for Mack trucks and Volvo trucks as well as its construction equipment and marine engine businesses.

Some North American hauliers, including US Xpress, have recently issued profit warnings and industry-wide orders for heavy-duty trucks in North America fell sharply in March.

But Volvo's report, said analysts, confirms the view that US demand is high - not only due to a strong economy but also because of the prospect of tighter US emission standards due to come into force in January 2007. "Some customers are suffering from higher fuel prices and are resisting price hikes but that's not my impression of the entire market," said Anders Trapp of Enskilda Securities.

"Rather, the market is tight and a customer could wait up to eight months for a truck; Volvo has been bringing out new products at a strong pace and customers are always willing to pay a premium for that," he said.

Production has been constrained by shortages of some key components. This, combined with higher sales, tied up working capital and Volvo reported a negative cash flow for the quarter.

But Leif Johansson, chief executive, stuck to forecasts that the heavy truck market in the North America would increase by 15-20 per cent this year.

"In Europe the truck market started out flat in January but now is somewhere in the middle of the 0-5 per cent growth range that we estimate for this year," he said.

The construction equipment market in North America is expected to rise 5-10 per cent and by 5 per cent in Europe, the company said, noting however that the Asian market was more fragmented with slower growth in China but strong demand in the Middle East.

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