Volvo, citing U.S.-China trade dispute, shuffles production plans

November 8, 2018 20:35 CET
UPDATED: 11/8/2018 5:52 pm ET – adds detailsGustafsson: “We’ll go at this change not with a smile, but we know what we need to do.”

Photo credit: TOM WOROBEC

DETROIT — Volvo Cars continues to shake up production plans for much of its lineup in an effort to dodge tariffs the U.S. and China have slapped on auto imports.

The Swedish automaker owned by China’s Zhejiang Geely Holding Group Co. has canceled plans to export S60 sedans from its first U.S. plant to China, just months after starting output. Volvo also will stop importing XC60 SUVs and dramatically reduce shipments of S90 sedans from China to the U.S.

Volvo will pivot to mostly exporting S60s from its factory near Charleston, S.C., to focus mostly on supplying the American market, according to Anders Gustafsson, the president of the carmaker’s U.S. unit.

“We’ll go at this change not with a smile, but we know what we need to do,” Gustafsson said Thursday during an appearance at the Automotive Press Association in Detroit. “We have a global manufacturing structure that helps us maneuver in these tough waters.”

President Donald Trump imposed tariffs of 27.5 percent on Chinese auto imports in July. China’s Xi Jinping returned fire by lifting levies on American autos to 40 percent.

The dispute has dragged on profits of Volvo peers including BMW AG, which said this week that higher duties were partially to blame for its underwhelming earnings.

Volvo hasn’t passed along the cost of the tariffs to customers of the XC60s it imports from China and that is taking a big toll on the carmaker’s profits, Gustafsson said.

“We are absorbing the tariffs, and that really is what you saw in our financial results,” he said in an interview before the speech. “But we can, under no circumstances, absorb tariffs in the long run. It’s huge.”

Among the Volvo vehicles that could potentially get caught up in the trade war is the automaker’s top-selling XC90 SUV, which Gustafsson called a “profit machine.” Starting in 2022, the company will produce the model in Charleston and export it to Europe and possibly China, potentially at a loss, he said.

It’s a painful series of adjustments for the carmaker, which just opened the new $1.1 billion plant about 40 miles (64 kilometers) northwest of Charleston in June. At the time, Volvo said it anticipated employing 3,900 people within five years, once it adds XC90 production.

Tearing up production plans to avoid tariffs has consumed the attention of Volvo management, Gustafsson said.

“This is not easy, it’s a big, big, big thing,” he said in the interview. “It’s extremely painful. I don’t want to sit here and smile and say everything is great. Absolutely not. But that’s life.”

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