Volvo Mulls ‘Cautious’ Restart of Operations as Slump in Truck Deliveries Hurts Sales, Operating Income in First Quarter

By Felicia Etlin Last updated May 1, 2020 32 0

Sweden’s auto giant Volvo (VOLV-A.ST, VLVLY) said early on Thursday it was looking at a “cautious restart” of manufacturing operations as a slump in truck deliveries amid the COVID-19 pandemic hit sales and earnings in the first quarter.

Net sales plunged by 15% to 91.40 billion Swedish kroner ($9.06 billion) during the three months that ended March 31, as truck deliveries dived by almost a fourth, the Gothenburg-based firm said in a statement. Adjusted operating income dropped to 7.1 billion kroner from 12.7 billion kroner a year earlier.

The company, which has already implemented measures such as salary reductions and temporary lay-offs to help contain the spread of the coronavirus, said the lockdown began affecting operations in China in February. It said social distancing had a severe impact by mid-March when its global supply chain was disrupted and production halted in most parts of the business.

Importantly, net order intake for trucks, which accounted for more than half of the company’s revenue and proforma operating income in the quarter just ended, has been negative since the end of March as “increasingly cautious” customers and dealers have been canceling orders.

Amid the low visibility and market turbulence, the company said any forecasts for the total market demand for 2020 won’t be “meaningful.”

Furthermore, Volvo said it was “critical” to lower structural costs as demand will likely be hit in the short and medium-term because customers will probably reduce capacity and postpone new vehicle purchases to adapt to a parallel shift downward in the overall business activity amid the global health crisis.

“In the coming quarters, it will be challenging to reduce costs with the same speed and magnitude as revenue is decreasing,” the company warned.

In light of this backdrop, the company plans to cautiously restart manufacturing operations in Europe, North America, and Brazil “on low levels” at the end of April and beginning of May. “We will then gradually increase output to a new, lower level of demand.”