Volvo rips up pro­duc­tion plans in ef­fort to dodge trade war tar­iffs

Gulf Times Business - - BUSINESS -

Volvo Cars is shred­ding pro­duc­tion plans drawn up for much of its lineup in an ef­fort to dodge tar­iffs the US and China have slapped on auto im­ports.

Only a few months af­ter open­ing its first US plant, the Swedish brand has can­celled plans to ex­port the S60 sedans built there to China. Volvo also will stop US im­ports of XC60 sport util­ity ve­hi­cles from China and dra­mat­i­cally re­duce ship­ments of S90 sedans built there.

The car­maker, which is owned by China’s Zhe­jiang Geely Hold­ing Group Co, is en­snared in the tit-for-tat trade war be­tween the world’s two big­gest auto-buy­ing coun­tries, both of which have ratch­eted up car tar­iffs.

The dis­pute has dragged on prof­its of peers in­clud­ing BMW AG, which said this week that higher du­ties were par­tially to blame for its un­der­whelm­ing earn­ings.

Volvo will pivot from plans to ex­port roughly half of the S60s built at its fac­tory near Charleston, South Carolina, to fo­cus mostly on sup­ply­ing the Amer­i­can mar­ket next year, said An­ders Gustafs­son, the pres­i­dent of the car­maker’s US unit.

Volvo still in­tends to ex­port the S60 to Europe from Charleston and will con­tinue to im­port the XC60 SUV from Europe to the US.

“We’ll go at this change not with a smile, but we know what we need to do,” Gustafs­son said in a speech to the Au­to­mo­tive Press As­so­ci­a­tion in Detroit Thurs­day. “We have a global man­u­fac­tur­ing struc­ture that helps us ma­noeu­vre in th­ese tough wa­ters.” Pres­i­dent Donald Trump im­posed tar­iffs of 27.5% on Chi­nese auto im­ports in July. China’s Xi Jin­ping re­turned fire by lift­ing levies on Amer­i­can au­tos to 40%.

Volvo hasn’t passed along the cost of the tar­iffs to cus­tomers of the XC60s it im­ports from China and that is taking a big toll on the car­maker’s prof­its, Gustafs­son said.

“We are ab­sorb­ing the tar­iffs, and that re­ally is what you saw in our fi­nan­cial results,” he said in an in­ter­view be­fore the speech. “But we can, un­der no cir­cum­stances, ab­sorb tar­iffs in the long run. It’s huge.”

Among the Volvo ve­hi­cles that could get caught up in the trade war is the au­tomaker’s top-sell­ing XC90 SUV, which Gustafs­son called a “profit ma­chine.” Start­ing in 2022, the com­pany will pro­duce the model in Charleston and ex­port it to Europe and pos­si­bly China, po­ten­tially at a loss, he said.

It’s a painful se­ries of ad­just­ments for the car­maker, which just opened the new $1.1bn plant about 40 miles (64 kilo­me­tres) north­west of Charleston in June.

At the time, Volvo said it an­tic­i­pated em­ploy­ing 3,900 peo­ple within five years, once it adds XC90 pro­duc­tion.

Tear­ing up pro­duc­tion plans to avoid tar­iffs has con­sumed the at­ten­tion of Volvo man­age­ment, Gustafs­son said.

“This is not easy, it’s a big, big, big thing,” he said in the in­ter­view. “It’s extremely painful. I don’t want to sit here and smile and say ev­ery­thing is great. Ab­so­lutely not. But that’s life.”

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