September 5, 2012 / 10:55 AM / 7 years ago

UPDATE 1-Geely's Volvo makes net loss, says growth plan on track

STOCKHOLM, Sept 5 (Reuters) - Swedish carmaker Volvo, owned by Zhejiang Geely and China’s biggest overseas auto venture, made a first half net loss after sales suffered a downturn due to the euro zone crisis, but it said its growth plans would remain on track.

Volvo was bought by Geely from Ford Motor in 2010 for $1.8 billion. The company aims to increase sales by 2020 to 800,000 from just over 400,000, including rapid growth in China, where it also plans to build two factories.

Chief executive Stefan Jacoby, who switched to Volvo in August 2010 after spending most of his career at Volkswagen, said sales had been hit by weakness in the euro zone.

“The markets are not what we originally planned ... The southern European crisis is spreading to the north,” he told a news conference, adding the car market was the most unpredictable it had ever been.

Volvo sales for the first half of 2012 fell 4 percent to 221,309 cars year-on-year. Earnings before interest and tax slumped to 239 million crowns ($35.63 million) from 1.53 billion but at the net level the group made a loss of 254 million crowns after a profit of 1.21 billion in the first half of 2011.

The sales fall worsened for January to August to 5.2 percent, with south Europe and home market Sweden the worst hit.

Jacoby confirmed Volvo was to reduce production at its western Sweden plant to 50 cars an hour from 57 and that 285 temporary staff were not having contracts renewed, part of the flexibility the company had to reduce costs in the downturn.

The company said it had ploughed money into its programme of transformation, which includes the new factories in China, the launch of an all-new version of its V40 model and had been forced to sweeten car sales with incentives to customers, though not to the same extent as other manufacturers.

Jacoby said Volvo was suffering from the strength of the Swedish crown, which cuts revenues from foreign currency sales.

Despite the earnings loss, Jacoby said the company had a strong enough balance sheet, as well as financing commitments, to carry through the group’s plans through what it calls the transition years of 2012 and 2013, when it expects the first Volvo to roll out of a Chinese plant in Chengdu.

“Our investment plan is secured by financing,” he said.

It sees the culmination of its plans in 2015 when Chinese industrial plans will be operational. Its goal is eventually to sell 200,000 cars in China, a leap from the 47,000 in 2011.

Jacoby confirmed reports Volvo was exploring building a small car with another manufacturer and looking for options for a presence in the NAFTA bloc of trading nations, including cooperating with another manufacturer. But he said no decisions had been made yet.

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