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China unlocks profit for Volvo Cars

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An employee at the Volvo plant in Chengdu, China. File: AP/TT
12:59 CET+01:00
Cost cuts and China sales have increased Volvo Cars' profit despite a slump in revenue. The company hopes to ramp up production in Chengdu fivefold and use its ownership structure to its advantage.

Things were looking grim for Volvo Cars last year, when the company reported a loss of 577 million kronor ($90 million ) in the first half of 2013, but on Friday Volvo Cars announced it had turned its results around.

Volvo Cars made a profit of nearly 2 billion kronor ($312 million dollars) last year despite decreased revenues. Success on the Chinese market and extensive expenditure cuts explained the windfall, the company stated. CEO Håkan Samuelsson welcomed the new figures.

"We are very satisfied, especially with the turnover in the second half of the year," he told TT.

He cited the Chinese market as one of three factors that explained the upswing.

"Very positive results in China, and the new car models have been selling well," Samuelsson said. "This has contributed to the turnover both in terms of volume and margin."

The third factor was reining in expenses.

"Controlling the costs has also had positive results. Our costs have been reduced by 1.5 billion kronor ($234 million)," he added. 

Samuelsson also said that the company's cash flow was strong, with no need to borrow money.

Volvo Cars began production in its first privately owned factory in Chengdu, China, in November last year, with hopes pinned on the production line churning out 30,000 cars by the end of 2014. The long-term goal, with a second car model on the cards, is to ramp up production further. 

"We're capable of producing 120,000 cars and we believe it will take us three years to reach that goal," Samuelsson said.

China almost overtook the US to become Volvo Cars' biggest foreign market last year. At home in Sweden, sales increased by 1 percent with 52,620 cars sold, which makes up 12 percent of the company's total sales.

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Volvo also plans on exporting its China-made cars to countries close by such as Thailand, Malaysia and Indonesia.

Volvo Cars was detached from the overarching automaking Volvo Group in 1999. Four years ago, the Chinese company Zheijang Geely Holding bought the crisis-struck company off Ford Motors.

The new ownership structure stands to benefit the company, its CEO noted. As Volvo Cars is owned by a Chinese firm, it does not have to share revenues in China with a domestic entity, while other Western carmaking rivals are forced into joint ventures by foreign direct investment rules. 

"We have a unique opportunity to use our factories in China globally," Samuelsson said. 

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