Volvo to Slash $700 Million in Costs; Ford Denies Brand for Sale

Amid reports Ford Motor Co. is actively shopping its Volvo Cars division, the Swedish auto maker says it will lay off 1,200 workers in its home country after posting a $151 million first-quarter loss due to declining U.S. sales.

The layoffs are part of a new program to cut some $700 million in costs, including plans to cancel contracts with about 500 consultants and slash 300 jobs in its overseas workforce.

“This is an unfortunate but necessary action if we are to achieve a better financial position,” Volvo President and CEO Fredrik Arp says in a statement.

“We must tackle the difficult market conditions, most of all in the U.S. market. The market contribution to cover Volvo Cars’ costs is very small.”

Volvo doesn’t reveal specific details of the job reductions but does say the 600 workers who make up the third shift at its Torslanda, Sweden, plant will be cut.

Negotiations with Swedish unions to work out details of the layoffs are ongoing, the auto maker says, adding a “number of activities will be carried out with various business partners to assist employees in finding alternative employment.”

The announcement of the layoffs begins an internal review of Volvo’s organizational structure that will continue through the fall and be in place by year’s end, spokeswoman Maria Bohlin says.

Volvo CEO Fredrik Arp says auto maker faces difficult market conditions.

“What’s happening now is we need to save more money than we did before, and one part of that is to reduce staff,” she tells Ward’s. “First we gave notice to Swedish authorities, and then we’re going to redo the organization to see how to operate with less people.

“The process won’t be done until late autumn, and then we’ll know exactly how many people will need to leave the company,” she adds, noting buyout packages will not be offered to departing workers. “This will be what we call involuntary redundancies.”

Bohlin says Volvo’s North American sales have been a drain on the company, having declined roughly 10% each year for the last three years. Other factors include the weak dollar, increases in raw-materials prices and a falling European market, she says. “So our situation is tough at the moment.”

The auto maker intends to focus on larger-platform cars that deliver larger profit margins, rather than less-profitable small cars. “We cannot sell cars that we lose money on, so we’re focusing on higher-margin cars,” Bohlin says.

Through May, Volvo’s North American sales were down 22.0% to 8,277 units, Ward’s data shows.

Volvo’s news follows European media reports that Ford is shopping the Swedish brand to raise cash to aid in its North American turnaround initiative.

The online edition of the Swedish newspaper Dagens Industri says Ford has contacted an unnamed Chinese company to gauge its interest in Volvo. A Russian investor also is believed to be interested in acquiring the auto maker, the report says.

Although rumors that Volvo is in play have circulated since Ford announced last year it was selling its Jaguar Cars and Land Rover divisions, the U.S. auto maker repeatedly has denied it intends to sell the brand. Ford officials have maintained the plan is to position the marque as a major player in the global luxury arena.

In an interview with Ward’s last month, Ford President and CEO Alan Mulally said the “main strategy on Volvo is to improve and fix the business.”

However, much has changed in recent weeks, including the emergence of billionaire Kirk Kerkorian as a major investor in Ford.

Kerkorian, who holds a 6.49% stake in the auto maker, has said he may offer business suggestions from time to time. His top lieutenant Jerry York has publicly stated Ford should divest itself of its Volvo subsidiary.

Volvo’s first-quarter red ink is not something Ford can endure; making it more likely that it would shop the brand. However, in doing so, it would lose access to the auto maker’s safety technology, which is becoming increasingly important to consumers.

“Ford has had some good scores as it relates to safety, and a lot of that is (because) they’re using Volvo platforms,” Erich Merkle, a vice president at IRN Inc., says. “Volvo has been a pioneer and leader in safety technology, and that’s the one thing that may make them different than Jaguar and Land Rover.”

Ford spokesman John Gardiner denies the Swedish auto maker is on the block.

“As we said earlier this year, Volvo is not for sale,” he says. “We are focused on improving Volvo’s business results.”

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