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EDITORIAL  FULL ARTICLE 
Volvo Cars - Good cards but poor game
Peter Schmidt | Editor

Published: Thu, 20th August 2015 13:34:11 GMT
 

Volvo XC90 Paris Motorshow 2014

Open quote signMaking next to no progress on the profitability and global sales side, and essentially still a laggard. This is the harsh verdict on Volvo Car’s first half performance.

Way back in early 1999 when Volvo chose to find a new home for its passenger car division, Volvo’s CEO then Leif Johansson, said the car division was sold to Ford because Volvo Cars simply lacked the size and financial muscle to remain competitive in the long-term. 

One reason then cited for the decision to part company was that in 1998 the car operation posted a lowish operating margin of just 3.7 per cent compared with the higher 5.1 per cent from the Swedish company’s commercial vehicle part of the business. 

Likewise, with 400,000 cars built in 1998, Volvo cars was deemed to lack the desired economy of scale needed for long-term survival. 

Fast forward to the present day, following just over a decade under Ford ownership, precious little has changed.

Yesterday, Volvo Cars published its first half financial figures. 

On the plus side, first half operating profits rose by an outwardly impressive 71.5 per cent to SKr1.66bn (€174.9m) from SKr968m during the same period last year, following a modest 12.3 per cent rise in sales revenue to SKr75.2bn. 

So, all well and good then? 

Not quite. 

A further glance at yesterday’s Volvo car figures reveals that the company’s global half year sales remained largely unchanged at just 232,000 units. 

That keeps the carmaker on track for just over 450,000 sales this year. 

Digesting yesterday’s numbers also reveals a paltry first half operating margin of 2.2 per cent. 

Sounds familiar? 

All in all, and some 17 years further down the road and the company has made next to no progress, thereby justifying Johansson’s decision to offload Volvo’s then underperforming car business. 

There is one disappointment that stands out more than most. Slipping under the wings of China’s Geely back in 2010, raised great expectations. 

That’s chiefly because other Western carmakers such as Audi, BMW and Mercedes, not least Jaguar Land Rover (JLR) - its former brother in arms under Ford ownership – made truckloads of money in China’s long-flourishing prestige car market. 

Some local knowledge goes a long way. Not it seems with Volvo. 

Tata owned JLR - with last year’s 463,000 sales roughly the same size as Volvo Cars - was swept along by the torrent of China’s prestige car sales tide. The impact? 

Last year, at the peak of China’s car sales boom, every fourth car sold by JLR that year was sold in China. 

But that’s where the similarities end. 

JLR’s pre-tax margin for this year’s April to June, despite plummeting sales in China, still stood at 12.8 per cent. 

That’s almost six-times higher than Volvo Cars’ 2.2 per cent half year margin.

The main driver of JLR’s volume and profit growth in recent years, or for that matter Porsche’s still ballooning sales in China? 

SUV-Crossovers. 

Now then, on the plus side, these vehicles accounted for 43 per cent of Volvo’s global half year sales. 

As illustrated by Porsche, which is less than half its size, its Crossovers have virtually sold themselves. 

However, all is not lost. 

Replacing its predecessor after a 13-year model life, Volvo’s all-new XC-90 SUV-Crossover went on sale earlier this year. 

Problem is however, that menacing dark clouds have been spotted over its potentially biggest market. 

That’s China’s premium sector market. 

And the toxic effects already made their mark on latest Audi, BMW and JLR sales figures in China, thus ending several years of fat Chinese margins.

True to the wisdom of selling shovels in a gold rush for a princely sum, as all too tellingly illustrated in China until recently by the meteoric sales of Audi, BMW, Mercedes, Porsche and JLR, it is also true that no such luck awaits those late to the party. 

What’s more, holding good cards is one thing, how well you play them is really what counts. 

And that it seems, isn’t exactly Volvo’s strength
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