Global Insight Perspective | |
Significance | Volvo said yesterday that drastic downturn in the global car industry is forcing it to slash another 4,000 jobs, on top of the 2,000 job losses it announced earlier on in the year. |
Implications | With 6,000 jobs to disappear from its global workforce, Volvo will have reduced its global headcount by almost one-quarter in the space of a few months, highlighting the extent of the crisis being felt in the global automotive industry right now. |
Outlook | With market dynamics changing for the worse on a daily basis, and the constant deterioration in the liquidity and credit outlook, it is impossible to predict right now where this crisis is going to end. For now, however, Global Insight believes that Western Europe light vehicle production could fall by around 5% in 2008 compared to 2007, as Volvo is far from alone in reducing its production levels in the region. |
Just When Volvo Thought it Couldn't Get Any Worse…
Volvo Cars, the struggling Swedish unit of Ford has announced that it will cut another 4,000 jobs. These are on top of the 2,000 it announced earlier on in the year (see Sweden: 26 June 2008: Volvo Cars Makes Largest Ever Job Cull Amid Rumours of Sale to China's SAIC). This action is being taken to meet the rapidly deteriorating market situation in the global car industry, and will result in further structural changes in all parts of the business, Volvo said in a statement.
In Volvo's home market of Sweden, 2,000 manufacturing employees and 700 white-collar workers will be affected by the new round of cuts. They include the loss of 2,230 jobs at Volvo Car Corporation in Gothenburg, 410 jobs at its body components factory in Olofström and 60 jobs at its engine plant in Skövde/Floby. Outside Sweden, an additional 600 workers will be made redundant and the contracts of around 700 external consultants terminated. This means that the total redundancy actions announced by Volvo so far this year will affect 6,000 employees globally, around 4,300 of whom are in Sweden and 1,200 of the total being consultants.
"These are difficult times for the car industry in general, including Volvo. These actions are necessary to create a new and sustainable Volvo Car Corporation—a company with more focused operations and structure," President and Chief Executive Officer of Volvo Car Corporation, Stephen Odell said in a statement. "The unstable economic environment has resulted in a very unpredictable situation, and the downturn in the global car industry is more drastic than expected."
The company said that although the process to negotiate a new organisation commenced in June this year, yesterday's announcement will delay these negotiations with the unions as it needs to be integrated with the previous plan. The new organisation is thus expected to be in place by the end of the year.
Outlook and Implications
Volvo's announcement in June that it would cut 8% of its 25-000 strong global workforce was considered serious business, but the fact that it has added to these losses by another 4,000 jobs, meaning that 24% of its global workforce will now be culled, takes its problem to another level.
There is no denying that sales-wise, Volvo has been among the worst-performing carmakers so far this year. For example in the first nine months of 2008 its sales in the all-important United States fell by more than one-quarter compared to the previous year, to 50,000 units in a market that shrank by half that amount—12.8%—in that time. September figures are not yet ready for Europe, but in the first eight months of the year, Volvo's European sales dropped by 11.7% to just short of 154,000 units in a market that fell by a far lesser 3.9%.
Major profitability issues are exacerbating the situation. Although soaring raw material and energy costs have hurt the bottom line of practically all automotive manufacturing companies so far this year, Volvo is again suffering more than many of its rivals. Volvo has no manufacturing facility in its largest market, the United States, at a time when exchange rate movements have turned exporting cars trans-Atlantic from Sweden into a deeply unprofitable business. The company's financial losses are thus racking up; in 2007, the brand lost US$164 million. By the end of the first half of 2008, its six-month loss stood at US$271 million, compared with a profit of US$3 million in the first half of 2007. Its second-half 2008 results are expected to be considerably worse given the sales crisis that is currently occurring in the two key markets of Western Europe and the United States.
Although of little consolation to Volvo and its 6,000 workers who will soon find themselves without a job, the layoffs are a latest in a string of cuts that are being felt in every corner of the industry. Earlier this week, Detroit giant General Motors (GM) announced that it will shut down every single one of its European carmaking factories with the exception of one later on in October in order to align production levels with collapsing sales (see Europe: 8 October 2008: GM Slashes European Production, Global Insight to Lower Forecast Again). Other production cuts have affected carmakers from Bentley to Skoda, Toyota to Fiat and from BMW and Mercedes-Benz to PSA and Renault. Commercial vehicle manufacturers and component suppliers are also making cuts.
Yesterday, we admitted that with market dynamics deteriorating on a daily basis, no-one can be sure how far down this dire situation is headed, and where the bottom of the cycle lies. For now, however, Global Insight has already taken 300,000 units out of its latest Western European light vehicle production forecast for the full-year 2008, which was published around two weeks ago. In the short space of time since that forecast was published, the rapidly and seriously declining liquidity and credit outlook has caused us to take another 200,000 units out of the 2008 forecast and we warn that we may have to take another 200,000 units out by the end of the year. In that scenario, our Western European light vehicle production forecast for 2008 would stand at around 15.37 million units, down by almost 5% on 2007. The only positive piece of information that can be taken away from this situation is that the sharp deterioration in the Western European market prospects for the rest of the year are at least still being insulated to a certain extent by growth in Central and Eastern Europe. Without the positive effect of those markets, it is clear that a production decline far in excess of 5% would be the case.