Volvo Construction Equipment’s Announces Results and Market Challenges

Volvo means “I roll” in Latin. Since 1927, when the company started off as a spin-off car manufacturer from the roller ball bearing maker SKF, Volvo has continued to roll into new markets, producing trucks, buses, drive systems, aerospace components and construction equipment worldwide.

Today Volvo Construction is a staple in the machine-making industry, and Volvo machines will continue to roll even in this economic downturn. According to the company, a 39 percent drop in the world market for construction equipment during the fourth quarter of 2008 saw sales in the period down 29 percent, weighing heavily on its full year results.

Publishing its fourth quarter and full year results, Volvo Construction Equipment (Volvo CE) has announced that it delivered 64,000 units in 2008, a similar figure to 2007 but resulting in an increase in net sales of 5 percent. These full year figures came in the face of a negative fourth quarter, which saw global financial uncertainty push Volvo CE sales down 29 percent in the period and the total world market down by 39 percent.

Volvo CE was affected by the severe downturn in the global market for construction equipment in the fourth quarter, reporting a loss during the period. Sharply declining sales, production cutbacks and higher raw material costs all contributed to the loss. Responding to the difficult trading conditions, Volvo CE has implemented a comprehensive plan to improve efficiency. In order to reduce inventory levels the company has cut production output in all its factories. These efforts to decrease the number of new products in inventories have been successful, with a 19 percent reduction since October and a further 20 percent reduction expected in the first quarter of 2009. The slowdown in production capacity has also unfortunately led to the company issuing notices of termination to 3,400 employees.

The North American market was down 34 percent in the fourth quarter of 2008, while Europe fell 49 percent, Asia reduced by 38 percent and other international markets fell by 28 percent. For the full year 2008, the total world market for construction equipment declined by 11 percent. Volvo said the outlook for 2009 is uncertain, but is expected to remain weak. The European market is set to decline in the range of 30 to 40 percent. North America is forecast to decline between 10 to 20 percent while the rest of the world is likely to be down 30 percent.

But Volvo CE’s focus in 2009 will be the same — to roll on. The company will downturn management, lowering its cost level and balancing production capacity to suit market conditions. Other activities to improve the profit level include gaining synergies from acquired companies, cost reductions, increased platform commonality, better coordination between factories and active price management. Through these measures, Volvo CE hopes to create the conditions to continue its positive performance of recent years and roll large for decades to come.