Volvo Sells More Cars, Makes Less Profit.
“margins will remain under continued pressure”
Volvo Cars of Sweden, owned by China’s Zhejiang Geely Holding, sold more cars and SUVs last year but saw its profit margin slide because of tariff wars and increasing competition.
President and CEO Hakan Samuelsson said this wasn’t good enough and promised to do better.
Volvo sold 642,253 cars and SUVs in 2018, an increase of 12.4% over the previous year but the profit margin fell to 5.6% from 6.7%.
Operating profit rose 0.9% to 14.2 billion Swedish crowns ($1.5 billion).
Volvo has said it will sell 800,000 cars and SUVs a year in 2020 with a profit margin goal of 8%.
“This result is in line with our expectations, but does not totally live up to our longer-term ambitions. Revenue growth and sales in 2018 were healthy, but profitability was affected by external factors such as tariffs and increasing price competition in several markets,” said Samuelsson.
“For 2019, we see another year of volume growth as we continue to benefit from our strong product program and increased capacity. But we have to be realistic and acknowledge that margins will remain under continued pressure,” he said.
In a report published a couple days before Volvo’s annual results, Moody’s Investors Service said Volvo has a well-known brand and an increasingly global sales footprint. Volvo has a growing presence in China and recently opened a new factory in the U.S.
Volvo has impressed with the successful launch of several new products, including the recently renewed S60 and V60 sedans and station-wagons as well as the all-new XC40 compact SUV.
That’s the good news.
But Volvo is at a disadvantage in the premium market, competing against companies like BMW, Audi and Mercedes because its scale is much smaller, Moody’s said.
“(Volvo) has some dependency on key models like its successful SUV range XC40, XC60 and XC90, which accounted for close to 50% of unit sales in 2017. (Volvo’s credit) rating is further limited by its history of very low profitability margins and the relatively short track record of operational improvement, which was predominantly fuelled by fast-growing sales volumes and an improved product mix.” Moody’s said in the report.
Meanwhile Volvo announced that 167,000 of its XC60 SUVs were being recalled to fix a possible problem with the electric tailgate. Two weeks ago Volvo recalled 219,000 vehicles to fix possible fuel leaks.
Volvo’s U.S. factory is South Carolina and currently makes the S60 sedan, and plans to add the next generation XC90 in 2021, when it will be able to make 150,000 cars a year.
Zhejiang Geely bought Volvo from Ford in 2010.