Volvo cuts costs and strives to improve demand in China

Acquired by Chinese firm Geely from Ford in 2010, Volvo Car Corporation announced on Friday it would cut up to 400 temporary consultant positions and has reportedly issued an ultimatum to its Swedish suppliers to reduce prices by 20 percent before 2015. The company aims to quadruple sales in China and has a plan to purchase more from Chinese suppliers.

Volvo said the phasing out of technical consultant positions was due to the completion of work on updating its car models.

“By using highly skilled technical consultants in our engineering operations we have the flexibility to tailor the workforce to short-term needs in our car projects,” said Peter Mertens, Senior Vice President, Research and Development at Volvo.

Meanwhile, according to Swedish economic newspaper Dagens Industri, the car maker is leaning on suppliers to reduce costs.

The newspaper said that Axel Maschka, the purchasing director for the firm, “told about 400 representatives of sub-contractors active in Sweden that lowering prices by 20 percent is the condition for them to participate in the expansion launched by Volvo to manufacture 800,000 vehicles in 2020.”

Volvo sold 449,000 vehicles in 2011, half of which were sold in Europe.  The company aims to quadruple sales in China to 200,000 vehicles a year from 47,000 sold in 2011.
Volvo has been struggling to improve demand, and announced in early September that it lost 254 million kronor ($38.5 million) in the first half.

Maschka did not confirm his ultimatum to Dagens Industri but said he hoped to increase the company’s supply from China in order to meet the 2020 sales target.

“We are planning to buy about 25 percent from Chinese suppliers. We will reinforce our cooperation with Geely over our purchases in China,” he said.

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