Volvo hopes new products, including the C30 hatchback, will revive sales. The C30 arrives in the United States in July 2007 as a 2008 model.
Banking on new Product
Volvo hopes to revive sales, return to profitability with new vehicles
By MARK RECHTIN | AUTOMOTIVE NEWS
LOS ANGELES -- Volvo, the profit engine for Ford Motor Co.'s Premier Automotive Group, is sputtering.
A difficult first half of 2006 has hit Volvo Car Corp.'s pocketbook. Tough currency exchange rates and an aged product line have hammered Volvo revenues, forcing a second round of employee cutbacks. Volvo hopes a product revitalization this fall will turn the situation around.
Ford Motor Co. does not break out earnings for individual PAG luxury brands. However, in the past, several Ford and Volvo executives have crowed that Volvo is a strong earner for the company.
Those days appear to be over. Volvo posted a global operating loss in the second quarter, although a strong first quarter means year-to-date numbers are still in the black, according to a report in Swedish business publication Dagens Industri.
The second-quarter loss was Volvo's first quarterly red ink since Ford bought the automaker for $6.45 billion in 1999. PAG overall lost $162 million globally in the second quarter, compared with a breakeven second quarter in 2005.
Volvo's operating losses will continue in the third quarter, Dagens Industri quoted sources as saying. There is hope that the just-arrived C70, along with the redesigned S80 flagship and C30 hatchback coming to Europe this fall, will boost sales in the fourth quarter. The C30 is expected to arrive in the United States in July 2007 as a 2008 model.
Ford CEO Bill Ford, speaking during Ford's earnings conference call, said PAG will "start to get its act together as we go forward."
He said: "While I'm not happy with what's happened in the second quarter with the PAG results, I do think it's very much in this case a product issue. There's a lot of new product coming, particularly at Volvo."
A Volvo spokesman declined to give specific profit or loss numbers but said that the Dagens Industri analysis was accurate.
Olle Axelson, Volvo senior vice president of public affairs, said: "We are in a short period with some tough times. We are in the middle of a generation shift of our car lineup."
Volvo is having a hard time in most markets, with global sales off 7 percent year-to-date. However, Volvo is having a particularly difficult run in the United States. Sales here are down 10.4 percent for the first six months compared with the same period last year. Sales for all of 2005 were off 11.1 percent from 2004.
The weak dollar, especially, is playing havoc with Volvo's global revenue and costs. In mid-2001, one dollar of sales from the United States yielded 10.6 kronor and 1.1 euros. Today, it's fallen to 7.3 kronor and 0.8 euro.
Past reports have estimated that Volvo has produced a consistent annual global operating profit between $750 million and $1 billion.
Thanks to Volvo, PAG was a profit center even as Ford Motor skidded. Now, both Ford and PAG are wrestling with profitability issues.
Because of the losses, Volvo is engaging in a second round of work-force reductions. Last fall, Volvo reduced employee rolls by 1,500. This fall, it is looking to shed another 1,000 workers via voluntary departures. Volvo has 27,500 employees globally, 19,000 of whom are in Sweden.
Not that Volvo is cutting costs in all areas. In connection with the launch of the three new products, Volvo is increasing its global advertising, fixed marketing and incentives spending by about $137 million for the upcoming year. That would be a 12 percent increase over the previous year.
Amy Wilson contributed to this report