Ford's Volvo Sees Profit Growth Slowed by Weak Auto Demand
By Brian Lysaght
London, June 26 (Bloomberg) -- Ford Motor Co.'s Volvo luxury car unit said increasing profit will be difficult this year because of weak demand in the U.S. and Germany.
``We managed'' to increase earnings ``in the first quarter ``but it was a big challenge,'' Chief Executive Hans-Olov Olsson said in an interview. ``We have not lived up to expectations in the U.S.'' and the German market ``is terrible.'' Ford doesn't break out Volvo results.
Ford, which had a loss of $5.45 billion last year, hasn't reduced investment at Volvo, said Olsson. It will spend about $3.7 billion in the next three years to expand its factories and add new models. Volvo wants to increase sales to 600,000 annually from 420,000 cars last year by adding a sport utility vehicle and smaller cars.
Its U.S. sales fell 15 percent to 43,013 cars in the first five months, while Western European sales fell 2.3 percent to 101,935 cars. In the U.S., it's decided not to match rival automakers' discounts to keep up profit and resale value of cars, Olsson said.
The company is hoping for sales growth in the second half because of increased availability of diesel engines in Europe and the introduction of the $40,000 sport-utility, the XC90, in the U.S. in the fourth quarter, he said.
``We aim for marginal improvement in profit, turnover and volume this year,'' said Olsson, who spoke at an Automotive News Europe Conference this week.
Despite parent company Ford's losses, it hasn't cut funding to expand Volvo's product line, Olsson said. Volvo spends 6 percent, or about $780 million, of its $13 billion in annual revenue on product development, the company said.
In addition, Ford is spending $1.3 billion over three years to expand Volvo's assembly plants at Ghent, Belgium and Gothenburg, Sweden. Capacity will rise to 500,000 cars annually in 2005 from 310,000 cars currently. It will hire 500 more workers over three years.
Ford isn't considering the sale of Volvo, Olsson said, responding to a Swedish newspaper report that workers are concerned about a possible sale.