Volvo Turns To Cost Cutting After Pressure From Tariffs Builds Up

Volvo is planning to cut fixed costs by $214 million (2 billion Swedish crowns) as it is increasingly pressured by the US-China trade war and the development of EVs and autonomous-driving technologies.

CEO Hakan Samuelsson told Reuters that the car maker has already reorganized its global production plans in a bid to reduce the impact of tariffs, as well as cutting costs. The latter includes hourly wage cuts and the elimination of 750 positions, most of which are consultants.

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Thanks to these measures, Volvo expects to save around $107 million (1 billion Swedish crowns) from July onwards, and the remaining savings are expected to come from additional measures that will take effect during the first half of 2020.

“We continue to take market share in all regions where we operate, but increased pricing pressure and tariffs have decreased our operating profit,” said Hakan Samuelsson.“The cost measures we took earlier this year will come into effect in the second half of the year.”

The Swedish car maker achieved an operating profit of around $587 million (5.5 billion Swedish crowns) in the first six months of 2019, compared to a $833 million profit (7.8 billion Swedish crowns) for the same period last year.

The reduction in profit is frustratingly combined with record sales for Volvo, as it managed to shift 340,286 vehicles during the first six months of 2019, a year-on-year increase of 7.3 percent.

Volvo expects that current market conditions will continue putting pressure on profit margins but it expects the cost-cutting measures combined with its strong sales momentum to result in a better second half, compared to last year.