GOTHENBURG, Sweden - Volvo Car Corp.'s profits fell 64 percent, to about $500 million, last year, but the company is fighting back by cutting costs.
Last year, Volvo reduced unit costs on the S70/V70 by 6,500 kronor ($850). Volvo Car President Tuve Johannesson expects to cut another $654 in 1997.
Volvo also is carrying out a detailed cost review of the S40/V40 platform. Volvo and Mitsubishi will cut the work force at the NedCar plant in the Netherlands where the cars are built.
Earnings have improved for five straight quarters. Volvo Car went from a loss of $25 million in the first quarter of 1996 to a profit of $139 million in the same period this year.
One reason is that the S40/V40 introduced last year is more profitable to build than the 400 series it replaced. Another is lower costs on the 850, which was renamed S70/V70 when the car received a facelift late last year.
'The savings have been ongoing,' Johannesson said. 'We are capable of taking out another ($654) this year. At the same time, we have upgraded the car. If we can keep doing this, it means a lot to our profitability.'
Volvo is working with suppliers to cut costs part by part.
'There have been very few changes of suppliers,' he said, 'but there is more cooperation, more streamlining and redesigning where we can save money together.'
MANY SMALL SAVINGS
Johannesson said suppliers are not complaining.
'Relations haven't deteriorated,' he said. 'On the contrary, we think they have appreciated. The profitability of our subcontractors has not fallen because of this.'
He said the savings have come from 'many small items.'
Volvo also seeks ways to save money on the relatively new S40/V40 platform and is trying to raise efficiency at NedCar.
'At Nedcar, it is not only focused on subcontractors, it is an internal focus,' he said. 'We have too many employees, and the number is being reduced now.'
The plant in Born, Netherlands, employs 4,270 regular workers and several hundred temporary workers. The temporary workers are most vulnerable.
'The transition from the production methods on the 400 series has been a complex changeover,' Johannesson said.
NedCar, a joint venture with Mitsubishi Motors, operates on three shifts. Volvo this year will get 110,000 vehicles. The target is 140,000 for each partner. Johannesson expects to reach that level in two or three years.
Volvo's worldwide sales will total nearly 400,000 vehicles this year, up from 368,000 in 1996. Johannesson said Volvo aims to sell 500,000 cars worldwide by 2001 through geographic and product expansion.
LOOKING TO ASIA
'We are investing and will continue to invest within the (Association of Southeast Asian Nations) countries,' he said. 'We think we are capable of achieving 50,000 in the Far East, including Australia and New Zealand, and another 50,000 in Japan.'
The increase, which is expected during the next four or five years, would roughly double current sales in the region.
Volvo operates small production facilities in Thailand and Malaysia and complete-knockdown plants in Indonesia and the Philippines.
'We have talked about expanding our existing plants in Thailand and Malaysia,' said Johannesson. Eventually, Volvo wants to produce locally most of the cars it sells in Southeast Asia.
In Europe, Volvo is concentrating on Germany and France. Sales in Germany last year were 31,000 units, up 50 percent since 1993. The goal is 50,000. In France, sales of 8,200 last year were down a third from 1992.
'In North America, with the addition of the C70 coupe and the cabriolet and the all-wheel-drive S70, we think we can move up to 150,000 cars,' he said.
Last year, sales in the United States and Canada totaled 95,000.
Worldwide sales of 500,000 is Volvo's goal, but not its profitability threshold, said Johannesson. He added, 'Our break-even level is much lower.'