Volvo to Suspend Truck Production in Russia on Economic Slowdown

Jun 18, 2014 6:31 am ET

June 18 (Bloomberg) -- Volvo AB, the world’s second-largest truckmaker, is cutting back production in Russia as the country’s disputes with Ukraine weigh on economic prospects.

Volvo will halt manufacturing at its truck plant in Kaluga for “a number” of weeks in coming months, the Gothenburg, Sweden-based company said in a statement today.

The Volvo brand’s May deliveries in eastern Europe plunged 22 percent from a year earlier to 896 trucks, mainly due to lower demand in Russia. That held back global growth to 4 percent, including the Volvo and Renault nameplates in Europe, Mack models in North America and UD Trucks in Asia.

The production cutback is another sign of how a dispute sparked by Russia’s annexation of Ukraine’s Crimea region has affected the wider economy. Gross domestic product will expand about 0.4 percent this year, according to Russia’s central bank chairman, the slowest expansion since a recession in 2009.

Sales of new cars and light commercial vehicles in Russia dropped 12 percent in May, according to industry figures released on June 9, steeper than the 5 percent median decline of eight analyst estimates compiled by Bloomberg. Ford Motor Co. is cutting about 950 jobs at two factories in the country that the U.S. carmaker operates in a joint venture with OAO Sollers.

Volvo fell as much as 0.6 percent to 92.5 kronor and was trading down 0.5 percent at 12:28 p.m. in Stockholm. That pared the stock’s gain this year to 9.6 percent, valuing the truckmaker at 197.5 billion kronor ($29.8 billion).

First-quarter operating profit surged almost fivefold, beating estimates, as the manufacturer scaled back production in Europe to reach a cost-savings target for 2015. The truckmaker is also eliminating administrative jobs to reduce annual costs by 4 billion kronor.

The company sold about 17,400 vehicles worldwide last month. Five-month deliveries jumped 14 percent to 81,600 trucks.