There is no doubt 2020 will be a tough year for truck maker, the Volvo Group, but according to a new report, careful management could see the Swedish company through the crisis in a healthy state.
The combined impact of COVID-19 and a long-anticipated cyclical downturn in the truck industry have been a major setback for Volvo Trucks globally in 2020, and that is true for all truck makers, but for Volvo, this will mean a reduction in consolidated sales in 2020 of almost 90,000 units compared to 2019.
It was clear in late 2019 that Volvo was preparing for a downturn, but also to ensure it had the resources to develop new power trains and systems in preparation for a zero-emission future. This saw the company reducing sales inventories, reducing staff levels and consolidating operations, which clearly led to the sale in late 2019 of the UD trucks subsidiary to Isuzu.
The recent announcement that Volvo was joining Daimler in a joint venture to develop hydrogen fuel cell drive trains demonstrated the group’s intent to prepare for the future.
The European truck industry had long expected 2020 to be a bad year, for the sector, but its fate now lies firmly in the hands of the coronavirus, and May truck registration data published by the European Automobile Manufacturers Association (ACEA) makes for difficult reading.
Commercial vehicle registrations across the European Union (EU) decreased by 44.4 per cent in May, with the sharpest declines in Spain, down 59 per cent year-on-year and Germany down 47.9 per cent. The impact of the pandemic is all too plain to see: a ‘routine’ cyclical downturn would have produced far less dramatic numbers.
However, May registrations in Europe saw a slight improvement over the previous April as markets began relaxing lockdown restrictions.
New heavy truck registrations over 16 tonnes across the EU fell by 59.7 per cent, down to 11,783 units in May, and by 41.1 per cent year on year to 76,232 in the first five months of the year.
May also saw EU demand for new medium and heavy between 3.5 tonne and 16 tonne trucks shrink by 56.9 per cent, the 11th consecutive month of decline.
However according to a new forecast by industry publication Automotive World, even after five years of recovery—a period which will include Volvo’s sale of UD trucks—the Group’s sales in 2024 will only be back to levels last seen in 2017, and well out of reach of the 2019 peak of 221,600 units.
The GFC in 2008 was the last time the truck industry suffered a major drop in sales volumes, but in March this year, Volvo saw a 75 per cent decline in net order intake compared to February.
Subsequently this turned negative as cancellations exceeded orders for new trucks in the wake of lockdowns in most major truck markets.
Volvo has been here before; in the third quarter of 2008, the truck maker’s European orders fell 99.7 per cent year-on-year, sliding into negative territory in Q4 of that year.
All Volvo Group truck brands, including Volvo, Renault and Mack suffered declining orders, but it was the speed of order cancellations for the Volvo truck brand that stood out, especially after its experience in 2008.
The report by Automotive World, reviews all of Volvo’s operations, from its joint venture with Daimler on hydrogen fuel cell technology to the sale of its Japanese subsidiary, UD Trucks, along with the recent announcement that it would cut 4,100 white collar job ]in response to coronavirus-related falling demand.
One of Volvo Group’s key themes prior to COVID 19, was building resilience and at the time it was anticipating cyclical downturns in 2020 across most of its major truck and bus markets, with South America being the one exception.
That resilience, including record net cash in the industrial division at the end of 2019, is what is standing the company in good stead as the impact of coronavirus has markedly steepened the downturns in all its markets, taking demand well below the levels which the company had anticipated.
The report analyses the company’s position, and how these actions will shape its production outlook over the next five years.
“Market conditions are currently tough for all automakers and truck manufacturers, but the report retains some optimism for Volvo.
“While 2020 is not going to be anything but a bad year for Volvo,” the report concludes, “the company has put itself in good shape to weather the storm.”