TheBull.Asia

Monday 18

February, 2019 3:42 PM


The Quotes are Powered By Investing.com, the Forex, Futures, and Stock Markets Portal.

Volvo warns higher tariffs would squeeze slim profit margins

Volvo warns higher tariffs would squeeze slim profit margins

Chinese-owned Volvo Cars reported an increase in operating profit in 2018 but warned that higher tariffs on vehicles imported to the United States would place even greater pressure on its margins, which have fallen to a slim 5.6%.

Share |

08.02.2019 10:32 PM

Chinese-owned Volvo Cars reported an increase in operating profit in 2018 but warned that higher tariffs on vehicles imported to the United States would place even greater pressure on its margins, which have fallen to a slim 5.6%.

The Swedish carmaker is already counting the cost of the trade battle between Washington and Beijing but it is under illusions that the worst of the damage has been done. Volvo's Chinese owner, Geely recently put plans to float the company on the back burner and is now concerned that the US could force more tariffs on cars coming in from Europe.

Volvo CEO Hakan Samuelsson said on Thursday that further levies would be a crushing blow to the business as it continues to struggle with the uncertainty of trade frictions. Volvo saw its sales soar 21% to $27.5 billion last year but the uptick did not translate into an increase in the bottom line as net income slumped 4.3%, while profit margins dipped from 6.7% to 5.6%.

Volvo has seen success in its step up to the premium car sales segment in Europe and especially China, where sales are holding up better compared to other regional markets. Under Geely’s guidance, the company has made further efforts to strengthen the premium push and is now competing with Daimler’s BMW and Mercedes Benz.

The move helped Volvo to post record sales for a fifth consecutive year, but it is still some way short of hitting the 8% operating profit margins delivered by its rivals. Samuelsson believes it could be even more difficult in 2019 if European tariffs are imposed.

The company did manage to offset the impact of the Sino-US conflict by using its Swedish-based facilities rather than those in China to ship the popular XC60 model stateside. However, Samuelsson says new tariffs would make for a "totally different situation" and that attempts to offset levies would be futile.

"We have no plans to mitigate that — that would be a significant blow," Samuelsson told the Financial Times this week. "It would mean we would have to put prices up, that would mean more expensive premium cars for consumers" based in the US.

Volvo will attempt to alleviate the pressure on margins in the coming months by increasing volumes and looking at new ways to cut down on operational costs. While the current trade and economic environment is challenging, Samuelsson said expansion is still very much on the agenda for Volvo.

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

Volvo sold 640,000 vehicles in 2018 and is now targeting an increase to 800,000 units by the end of this year. It also has an eye on catching up rivals by raising its profit margins by 2020. Mr. Samuelsson said the company has to be realistic and is aware that trading could be "tough" in 2019 and that margins will be under "continued pressure" for the time being.

Volvo's CEO also believes there are now "clear signs" that the industry may be contracting as a whole. The company is not the only manufacturer grappling with greater challenges and risks as Toyota recently revised its profit expectations down by 21 percent for the fiscal year, while Daimler said it would be "adversely affected" during the next twelve months.

Archive
Live Forex Prices

AUSTRALIAN STOCK QUOTE

Don't know the company code? Click here




PLEASE SUPPORT OUR SPONSORS, ASIA'S LEADING BROKERS:



© Copyright The Bull. All rights reserved.