Volvo May Face Uphill Battle

08/22/96

Reuters has reported that the near-term futures for Swedish carmaker Volvo are gloomy, as the group is struggling against falling market share and higher costs. Volvo was due to make its half-year report on Wednesday.

Analysts polled by Reuters forecast a fall in Volvo's pre-tax earnings to 3.37 billion crowns for the first half of 1996. That figure is down over .40 billion crowns from where it was last year for the same period (3.80 billion crowns).

Volvo's first quarter report said new car and truck launches, as well as continued investment in product and market development, would take their toll on operating income. Analysts, however, rejected the idea that Volvo's falling profits are mainly due to a generation shift in the car and truck operations, indicating that the company was also losing market share. Additionally, Volvo's forecast that its European car sales would rise in the second half of 1996 was questioned due to a 20 percent slump in European new car registrations.

Volvo's U.S. Truck division has suffered most: Volvo sales dropped 31 percent in the first half of 1996, from 13,500 a year ago to 9,300 trucks this year. Some analysts saw Volvo's move to replace Volvo Trucks' top U.S. management just a week before the half-year report was issued as a sign of panic.

The company's South American Sales have also fared poorly, dropping 50 percent to 2,350 trucks. That decline focused on the Brazilian market, which accounts for 70 percent of South American sales.

BZW analyst Philip Ayton said the market would be watching the company's trucks division when Volvo presents its half-year report.

"North America has been flat for cars, terrible for trucks and there's been a change of management. I don't know if that's an indication of something a lot worse in the way of earnings but clearly the American truck business is in loss and has probably worsened,'' Ayton said.

Paul Dever -- The Auto Channel