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Faced with surprise losses, Volvo cuts consultants’ fees

Volvo will temporarily reduce the amount it pays some consultants for their services. The move is part of the automaker’s effort to lower costs as its unit sales slide and its losses grow.

Volvo, a division of Ford Motor, told 60 suppliers of engineering and other consultancy services on May 13 that they would be paid 10 percent less than originally agreed on existing contracts in May, June and July.

In its letter to the suppliers, Volvo cites the weak U.S. market as a key reason for declining sales. But “unexpectedly and contrary to our planning, we have also seen a drop in our European markets, especially in the later part of the first quarter.”

For that reason, the letter continues, Volvo has decided to implement “many savings and other measures to adjust our cost level.”

Consultancy fees make up a sizeable part of the company’s costs, the company said.

Tough times
To cut costs, Volvo will:
-- Pay consultants 10% less
-- End the third shift at its Torslanda plant near Gothenburg.
-- Reduce Torslanda production to 44 cars an hour from 51

Supplier boss upset

Svenake Berglie, the head of the Scandinavian Automotive Suppliers Association, said Volvo’s decision to temporarily cut some consultants’ fees goes against the spirit of the contracts that have been signed.

“This is not the right way to do things,” Berglie said. “There hasn’t been any dialogue. They could get much more than 10 percent if they listen to their suppliers.”

Company spokeswoman Maria Bohlin said. “We’re looking into how we can turn the business around.”

Bohlin said consultants will be asked to agree to the measure. But one supplier executive who had received the letter said his company will not agree until it has met with Volvo to discuss the matter.

Volvo swung to a pretax loss of $151 million (about €92.2 million) in the first quarter from a year-earlier profit of $94 million. In the first quarter of 2008, its global sales dropped 7.2 percent to 109,167 from 117,614.

Volvo’s weak performance has reignited speculation that Ford will decide to sell the brand.

Ford Motor CEO Alan Mulally said recently that the company would hold on to Volvo for the time being.

But The Wall Street Journal, citing people familiar with the strategy discussion, said Mulally has told top executives that he would look for a buyer at some point in the future.

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