Volvo chief predicts sagging truck market

ALLENTOWN, PA. (June 27, 2000) – – Volvo AB chief executive Leif Johansson said on June 20 that the North American heavy truck market continued to deteriorate in the second quarter, eroding the chance of a turnaround by the end of the year.

Faced with market overproduction, Sweden-based Volvo, the world’s fourth-largest truck manufacturer, has cut North American production twice this year in a bid to reduce inventories while struggling to maintain a premium pricing strategy in an increasingly price-competitive market.

“We are clearly seeing a lower market than what we expected only a couple of months ago, and with the information I have today, I don’t really see a quick turnaround in the second half,” Johansson told reporters. “Right now I think we have a very good market share of incoming orders,” he said, estimating Volvo’s North American market share at 11 to 12%. “So from that point of view that strategy is working. But it is hurting. It was hurting the first quarter, and it will hurt the second quarter.”

Johansson was speaking at the headquarters of Mack Trucks Inc., the U.S. truck maker that Volvo has agreed to acquire from French automaker Renault SA. Volvo, which would become the world’s No. 2 truck manufacturer after DaimlerChrysler upon completion of the Renault deal, had expected the sagging North American truck market to recover in the second quarter.

North America accounts for about 46% of the company’s total revenues, but truck delivery figures released a week ago showed Volvo’s heavy truck volumes in North America were off 20% for the first five months of the year. To compensate for the slowdown, Johansson said Volvo reduced production line rates for North America in January and then again in the second quarter, hoping to keep inventories under control. The company has stopped producing older model construction trucks for North America in order to make way for a new line of vehicles due to come on stream in the third and fourth quarters.

“The fact that many in the industry have overproduced quite a lot will mean that, from a production point of view, we can’t expect the second half to come up any better,” Johansson said. “We will have to eat out the inventory that was overproduced in the second half of 1999 and the early half of 2000.”

Despite intensifying price pressures wrought by the softening market, Johansson said Volvo continues to view its North American trucks, especially the VN-model, as premium products. But the company has not been able to ignore cut-throat pricing altogether. “There are deals made, I think, in the North American market that sometimes we have to match,” Johansson said. “It’s clear that this type of environment, with lots of product standing out in the yards of the dealers, is not a favourable price (platform) for a manufacturer,” he said. “We continue to have a premium pricing strategy. The question is how much premium compared to where the rest of the market is.”