Volvo aims to lift its bus unit earnings

PUBLISHED : Tuesday, 04 September, 2012, 12:00am
UPDATED : Tuesday, 04 September, 2012, 2:34am


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Volvo's bus unit will improve its production system to boost profitability, which has lagged behind the company's truck and construction equipment divisions for years, according to the head of the business.

"We have work ahead of us to strengthen our profitability," Per Carlson, 51, said. "It's our conviction and our ambition that the bus operations will be as profitable as the other divisions."

Olof Persson, who became Volvo's chief executive a year ago, wants the Gothenburg, Sweden-based manufacturer to be at the top of the heavy-equipment industry in terms of operating margins, shifting focus away from sales growth.

The bus unit's operating income was 4.6 per cent of sales last year, compared with 9.1 per cent for trucks, construction equipment's 10.2 per cent and boat engine maker Penta's 8.8 per cent.

The bus unit continued to trail the other divisions in the quarter to June, when it posted a 3.4 per cent operating margin.

Profitability has suffered from lower volumes than trucks, and because most communities buying commuter buses wanted local versions, making standardised production tougher, Carlson, who became head of the unit on January 1, said.

He now wants to make production more efficient, including using fewer types of components across various models.

He also has trimmed staffing numbers to match weakening demand. This year, the unit has cut 450 temporary workers, mostly in Europe.

"It feels like we now have a balance between demand and production," he said.

"But the market situation is still very uncertain, and we have our ear close to the ground to see if further adjustments are necessary."

Swedish peer Scania, which does not divulge bus division profitability, said in June that it would cut 142 jobs at its plant in Poland, due to weak demand.

The economic slowdown would make a turn-around more difficult, Morten Imsgard, an analyst at Sydbank, said.

"In this macroeconomic environment there aren't many municipalities that want to invest in renewing their bus fleet," Imsgard said.

"That's one of the reasons they are stuck in the late cyclical wave of the financial crisis."

Demand remained about the same as the second quarter, Carlson said. "We see continued strong demand in China, while the European and North American bus markets remain weak."