Volvo Cars plans to cut 2,500 jobs globally, 2,000 of them in Sweden, and reduce costs by 5 billion Swedish kronor after a rapid deterioration in its Chinese market pushed the company to a steep third-quarter loss.
The Swedish automaker, owned by China's Geely Holding, reported an operating loss of 5.6 billion Swedish kronor ($563.7 million) for the third quarter, compared with an operating profit of 6.4 billion Swedish kronor in the previous period. It cited a deteriorating environment led by "tougher" market conditions in China and the United States, which it said "negatively affected free cash flow."
Chief executive Håkan Samuelsson said the speed of the Chinese downturn had surprised the company. "It's really a lot about the Chinese market, of course, where the change has come faster than we thought, and really now we can see that selling global cars developed in Europe and China will not work, and then this is affecting all the Western players in China," he told CNBC.
Volvo's revenues in China fell almost 50 per cent year-on-year, as premium brands faced "hypercompetition" from new domestic rivals, which also put severe pressure on pricing. Samuelsson said Chinese consumers were now looking for "domestic alternatives" that had become stronger and more competitive.
"We need a new strategy in China... it has to be a more regional structure, a more empowered region, and we need regionally adapted cars," he said. That would include sharing some platforms with Geely and developing key software in China, such as infotainment and driver-assistance systems. "If you don't have that, I think you cannot sell cars in China."
In the United States, Volvo said tariffs and fewer customer incentives to buy electric cars were putting pressure on profit margins.
Samuelsson described the job cuts as a consequence of the new structure. "We will have more empowered, stronger regions, and then of course you cannot keep the same resources on the corporate central level. So we need a leaner central administration."