Volvo Cars holds US-China tariff war responsible for its profit margins drop in 2018

According to a Reuters report, the profit margins of Volvo Cars dropped in 2018, as a result of pricing pressure in the China market due to costs hike led by prolonged trade war between Washington and Beijing.

The company CEO Hakan Samuelsson told Reuters that to indemnify the impact on margins which is expected to continue this year, Volvo has decided to increase production volumes and cut operational costs.

Samuelsson said, “We have a very, very strong product offering and a modest market share outside Sweden, so we are expecting and planning for further growth.”

“I would say we enter now into a phase where we have to focus more on the cost side as well - not with any special packages, but with normal work to improve our cost consciousness and cost control.”

The Chinese premium car sales segment, on the other hand, however, held up better last year compared to the broader market which contracted amid fallout from the trade war.

Under Geely’s aegis, Volvo has come under the category of premium cars where it competes against Daimler’s Mercedes-Benz and BMW. This helps the company hit its fifth straight year of record sales in 2018.

The company’s 2018 operating profit increased by 0.9 per cent to 14.2 billion Swedish crowns (£1.16 billion), but margin fell to 5.6 per cent from 6.7 per cent in a year ago, reported Reuters.

The trade war caused Volvo to postpone plans for a listing last year and generated additional costs to retool its factories to limit the tariff impact.

Samuelsson said had the United States follow through on its threat to slap tariffs on European cars, The European auto companies including Volvo would face a more severe impact.

Auto tariffs were threatened by the US President Donald Trump, but European Commission President Jean-Claude Juncker negotiated a “ceasefire agreement” in July 2018.