* Truck maker Volvo outlines profitability push
* Aims to cut costs, boost emerging markets presence
* Says seeing weakening demand for trucks across Europe
By Niklas Pollard and Johan Ahlander
GOTHENBURG, Sweden, Sept 25 World No.2 truck
maker Volvo plans to cut costs in mature markets such
as Japan and push further into emerging markets as part of its
long-awaited plans to boost profitability.
The Swedish company is reorganising its business to lift its
operating margin, which has tended to trail domestic rival
Scania's, by 3 percentage points from last year's 8.7
percent, a target most analysts see taking several years to hit.
The company fleshed out on Tuesday how it would reach that
goal in a plan for 2013-2015, saying it would raise its vehicle
gross profit margin per region by 3 percentage points while
curbing its cost of sales, and IT and research and development
"This strategy is a fundamental part in achieving our
target," Chief Executive Olof Persson told a presentation for
media and analysts, adding the strategy could yield a margin
boost for the trucks business alone of 6 percentage points.
Volvo even held out the hope that it could improve its
overall operating margin by 5 percentage points, though that
would exclude the potential impact from economic headwinds.
The company's shares gained on the news, standing 4.1
percent higher at 94.85 crowns by 1412 GMT.
Volvo also said it would reduce its costs by 10 percent in
Japan and end production of its Japanese UD brand for the U.S.
market due to weak demand and rising regulatory costs.
Those measures would cost the company about 600 million
crowns ($91.26 million) in the third quarter, it added.
Volvo, which is launching a new flagship FH series truck,
said it would also launch new heavy-duty trucks for emerging
markets, which it aimed to produce in India, Thailand and China.
The Gothenburg-based maker of trucks, buses, construction
equipment and engines, said it would establish the commercial
presence needed to support revenue growth of 50 percent across
Asia-Pacific and 25 percent in Africa.
EUROPEAN MARKET GRIM
Volvo is the world's No.2 truck maker after Germany's
Daimler. It also competes with German MAN SE
and Scania in Europe and takes on U.S. Paccar
and Navistar in North America.
Truck makers rode a strong recovery in demand in Europe and
emerging markets during 2010 and most of 2011, but have since
seen the euro zone's sovereign debt crisis and the related
global economic slowdown temper optimism.
Truck markets are highly cyclical and sensitive to swings in
the economic climate, leaving much uncertainty about what kind
of market manufacturers will encounter as they come out of the
customary lull of the European summer vacation period.
Volvo, which makes heavy-duty trucks under the Renault,
Mack, UD Trucks and Eicher brands as well as its own name, said
demand for trucks was weakening across Europe while pricing for
both new and used trucks was competitive.
Volvo said in Tuesday's presentation that new and used truck
inventories for the Renault brand were too high, adding that
inventories for the Volvo brand were at normal levels.
The company said production overcapacity was also putting
pressure on prices of new vehicles in North America but struck a
positive note on Brazil, where it said it was seeing signs of
Volvo has forecast a 2012 European market of about 230,000
heavy trucks, a decline of about 5 percent, while it has banked
on robust shipments during the first half of the year yielding a
market of 250,000 trucks in North America, implying growth of
about 16 percent.
It did not comment on the forecasts on Tuesday, saying its
policy was to update these forecasts only in connection with