Hardly having opened a factory in the USA, Volvo can freeze it or refuse to recruit!June 21, 2018
On the sidelines of a solemn event to open a Volvo plant in South Carolina, Volvo President Håkan Samuelson said that if Europe and China lift import duties, Volvo car exports from the United States would become impossible. Taking into account other factors, this means that the functioning of the newly opened plant will lose all meaning.
It is obvious that the plant in the US, the recently opened Volvo, needs not so much a Swedish company as the mother Zhejiang Geely Holding. Judge for yourself, from January to May 2018 Volvo, although it grew in the US market by a weighty 40.9%, but sold only 37,754 cars, which is less than 15% of the world’s sales of the brand.
Now the company in South Carolina is developing the production of the Volvo S60 sedan, which in the previous generation was in poor demand. Since the autumn, the conveyor will start operating at full capacity while the makeready is in progress. Meanwhile, the most popular models for Americans are Volvo XC90 and Volvo XC60, which this year account for more than 63% of sales in the structure of the brand. These cars are imported to the US together with the Volvo S90 (8.5%), which for all markets are produced only in China.
It is interesting that the segment of cars in the USA has been falling steadily for many years and this year is not an exception. So, the demand for mid-sized sedans, to which the Volvo S60 belongs, in the first quarter of 2018 decreased by 14.5%. Why did they launch the S60 at the plant, and say, not the XC40, which belongs to the compact SUV – the most growing segment in the US (+ 27.9% in the first quarter of 2018) and which, incidentally, took a great start in America? It’s very simple: on the compact CMA platform, which is the basis of the XC40, it is planned to produce only three models of Volvo, while on the platform SPA – at least six. However, not all of these models in the SPA go well in the US. For example, the V90 and V90 Cross Country have very limited, or even marginal, demand, which is not surprising: E-class universals have long left America … As for the XC90, it can be launched in South Carolina only in 2021 with the release of the third generation model.
In short, it’s obvious that $ 1.1 billion spent on the American company Volvo looks like an investment, to put it mildly, incomprehensible. Especially if you remember that Daimler’s investments in the Russian plant, where the Germans will produce four models, will amount to just over $ 300 million.
In general, it is obvious that in addition to Volvo on the conveyor in Charleston will likely stand the cars of another brand, say, Lynk & Co – the premium brand Geely. However, in order to reach the level of break-even volumes, the plant must export. With this aim, a large staff of employees was laid: 1,500 of the planned four thousand should be recruited before the end of this year, while at the time of the opening several hundred people are already registered at the plant. However, these plans may be in jeopardy. It was in this vein that President of Volvo Hakan Samuelson expressed his opinion at the opening of the plant – his words lead Automotive News.
The reason for the curtailment of activity may become customs duties, which the US president intends to introduce into imported cars. Recall that now duty on an imported car in the US is only 2.5%, while that the European Union takes 10%, and China – 25%. Trump considers this situation unfair. Moreover, since 1994, due to the formation of the NAFTA (North American Free Trade Association), assembly plants began to be shut down in the United States – the concerns began to be massively transferred to Mexico, where the workers’ wages are several times lower. At the same time, thanks to the NAFTA, which includes the US, Mexico and Canada, Mexican cars imported into the US are not taxed! As a result, over the past 20 years, the share of imported vehicles in the United States has increased from 32 to 48%. It would be even higher if the pickup trucks, which make up the heavy segment of the US market, would not be taxed at 25%. That’s 25% of Trump wants to impose on all other cars, and the tax on Mexican and did threaten to bring up to 35%.
So, the external tax that the Trump administration can impose will not only endanger part of the American business of Volvo, built on imported cars, of which the overwhelming majority in the brand’s sales structure, but also the existence of the plant. The fact is that in response to Trump’s actions, the EU and China’s duties can be inflated. In this case, the existence of an enterprise in South Carolina will become meaningless, since it will not be able to work for export. This explains the words of President Volvo Hokan Samuelson: “We want to export cars assembled in our plant in the US, but if Europe and China erect high customs barriers, it will be impossible. It will be cheaper for us to make cars there. Alas, this contradicts the whole logic of the modern economy, which assumes a high commodity turnover between countries. ”
Interestingly, even the weakening of customs duties in China, which top officials say, is unlikely to lead to a refusal to raise rates in the US: while China is ready to reduce the tax on imported cars from 25 to 15%, which is still significantly larger than American 2.5%.
Hence the question: did Geely decide to invest in the American business of Volvo? ..