Volvo Links Lower Profit Margins to Customer Loyalty

Volvo says it doesn’t mind accepting lower profit margins to maintain customer loyalty in a difficult economic climate.

During the Volvo Group’s Stockholm press conference on its Q4 financial results for 2022, President and CEO Martin Lundstedt cites inflationary pressures and ongoing supply-chain logistics constraints among the leading headwinds for fulfilling customer orders. While these have affected most areas, it is particularly acute for its Mack trucking brand in the U.S. whose figures have remained flat.

Lundstedt (pictured, below left) says: “In North America we saw sales for Volvo growing slightly, but Mack dropped a little bit on the back of supply-chain constraints. These appeared to be more problematic for Mack than Volvo during the course of the year.

Martin Lundstedt - Volvo Group

That said, overall the group saw net sales increase for the full year by more than SEK 100 billion ($9.2 billion) to SEK 473 billion ($46.3 billion) and adjusted operating income rise to SEK 50.5 billion ($4.94 billion).

The adjusted operating margin amounted to 10.7%. There was a strong operating cash flow of SEK 35.3 billion ($3.45 billion) and the year ended with a net cash position of SEK 73.9 billion ($7.22 billion) in Industrial Operations, pension and lease liabilities excluded. The Board of Directors now proposes an ordinary dividend of SEK 7.00 ($0.68) per share and an extra dividend of SEK 7.00 per share.

When financial journalists pointed to the Group’s comparatively modest profit margins, Lundstedt defended the position on the grounds of providing customer satisfaction in trying economic and logistical times.

“From a customer satisfaction and customer loyalty for a large fleet and service business, it is crucial,” he says. “We are not playing games with our customers, we are B2B. We are standing behind them and we are frustrated every day that we couldn’t deliver the last five or 10 (vehicles).”

Q4 also was a very good quarter for deliveries, especially all-electric trucks, which Volvo expects to continue – if at a little slower pace – going forward.