U.S.-China trade war squeezes Volvo Car profit margins


Automotive News | 2019-2-8

STOCKHOLM -- Chinese-owned Volvo Cars reported a decline in 2018 profit margins as a prolonged trade war between Washington and Beijing pushed up costs and resulted in pricing pressure in its primary market, China.

The Swedish carmaker, owned by China's Geely, plans to increase production and sales while cutting operating costs to try to offset the negative impact on profit margins that is expected to persist this year, CEO Hakan Samuelsson said.

"We have a very, very strong product offering and a modest market share outside Sweden, so we are expecting and planning for further growth," Samuelsson said.

"I would say we enter now into a phase where we have to focus more on the cost side as well -- not with any special packages, but with normal work to improve our cost consciousness and cost control."

In 2018, luxury vehicle sales in China held up better than the broader market, which fell slightly amid fallout from the trade war. Carmakers, including Tesla, cut prices in response, moves that dented earnings.

Under Geely's ownership, Volvo has steadily pushed into premium cars where it competes against Daimler's Mercedes-Benz and BMW, helping it hit its fifth straight year of record sales in 2018.

The company's 2018 operating profit increased by 0.9 percent to 14.2 billion Swedish crowns ($1.5 billion), but its margin fell to 5.6 percent from a year-ago 6.7 percent, Volvo said Thursday.

Germany's Daimler this week reported rising costs and falling sales for Mercedes-Benz in the fourth quarter.

The U.S.-China trade spat prompted Volvo to postpone plans for an initial public offering last year and generated additional costs to retool its factories to limit the tariff impact.

Samuelsson said if the United States followed through on its threat to slap tariffs on European cars, that would result in a "very severe" impact for Volvo and the broader European auto industry that would be difficult to offset.

U.S. President Donald Trump has threatened to impose tariffs on cars from around the world, as he did with aluminum and steel last March, but European Commission President Jean-Claude Juncker negotiated a "ceasefire agreement" last July.

Talks seeking to find common ground to avoid tariffs have been underway ever since.

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