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Swedish Chinese owned Carmaker, Volvo sees deep looses in China for 2012

Thursday, 18 April 2013
Volvo Cars will make a resounding loss in its Chinese operation in 2012 to the extents of between Skr2 to 4 billion, according to a report from the Swedish daily, Svenska Dagbladet.

The paper writes that too few cars were sold there, a new factory and a costly network of Chinese Volvo dealer has given the company the thickest of all reds in its books.
Now the company is fighting back to maintain its independence from Chinese state banks.

The company has seen a loss of its bottom line to Skr 254 million. The paper point that according to respectable sources there will be a huge loss at the operating level for the VolvoCar corporation in China for the year 2012 to the tone of Skr2 and 4 billion.

Three factors are identified as being responsible - the bill for the new car plant in Chengdu, a giant city in southwest China, is said to cost at least a couple of billions. The construction of a large network of Chinese distributors also cost huge sums. But above all it is Volvo's sales in China that are not in the vicinity of the target the company had set up. This happens while competitors Audi and BMW's have shown sales of astronomical proportions.

After looking at the internal data of the company, the paper determined that Volvo's Board headed by the Chinese Li Shufu as president already in October 2011 clubbed a business where negative outcomes were being anticipated not just for operations in China but for the whole company, for the period of 2012 as in 2013.

During autumn 2012 all the key indicators of the company were pointing steep downward spiral. Volvo has been forced to develop creative approaches to reinvest itself in the giant Chinese market. Apart from trying to take itself away from the grips of the Chinese state owned bank, it remains to see what other methods the company will deploy in trying to being itself back to the black.

Besides the looses in China, the struggling Swedish brand has also been busy cutting jobs and costs as European sales have taken a hit due to the crisis.
Volvo earnings before interest and tax slumped to Skr239 million in the first half of 2012 from a year-earlier Skr1.53 billion, but at net level the group made a loss of Skr254 million.

Some analysis had argued that one mistake Volvo made was to make Volvo cars Chinese. Chinese car buyers love foreign brands - Japanese, European, and American. They believe that cars produced by companies from the above meet the rigorous high standards commanded by modern cars over what the Chinese brands have. Thus with Volvo slipping into Chinese hands, it come along with the view that Volvo would loose some of the high perception that was associated with the cars.

One evidence usually pointed by critics is that German and Americans cars are selling better in China than Volvo and the difference is that Volvo is the brand that has gone to Chinese hands.
By Scancomark.com team and additional input from Reuters

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