Volvo Aims to Boost Operating Margin With Truck-Unit Overhaul

Volvo AB (VOLVB), the world’s second-largest maker of commercial vehicles, said a reorganization of its truck business should eventually boost the company’s operating margin by 3 percentage points.

“I will not give a deadline when we’re done with it, but it will be over time,” Chief Executive Officer Olof Persson said at a capital market presentation in Stockholm today. “Simplification, simplification, simplification: that is the name of the game.”

Persson, who became CEO Sept. 1, wants the Gothenburg, Sweden-based manufacturer to be at the top of the heavy- equipment industry in terms of operating margins, shifting the company’s focus to profitability from sales growth. Volvo, the maker of Mack trucks in North America and Renault trucks in Europe, announced a reorganization of the heavy-duty vehicle business on Oct. 4 along geographic regions rather than brands.

Volvo had an operating margin last year of 6.9 percent of sales, compared with 19 percent for Swedish rival Scania AB (SCVB), the truckmaker with the industry’s highest profitability, Bloomberg data shows.

The reorganization, which includes measures such as simplifying purchasing and reducing internal invoicing, is “on track” to be completed Jan. 1, 2012, Persson said.

North America Forecast

Volvo predicted on Oct. 25 that industrywide heavy-truck sales in North America will rise 20 percent next year, while lowering the 2011 forecast for the region to 210,000 vehicles from an earlier prediction of as many as 240,000.

The company won’t extend temporary contracts in 2012 for 400 to 450 workers at its Swedish truck operations, in response to an expected European slowdown, Persson said in an interview Oct. 25. Volvo predicted at the time that the region’s heavy- truck market may contract by 10 percent in 2012.

Volvo has yet to see any change in demand in the fourth quarter compared with the third, Persson said in an interview today.

The Swedish company ranks second to Daimler AG (DAI), the maker of Mercedes-Benz, Freightliner and Fuso trucks, in global heavy- vehicle sales. Stuttgart, Germany-based Daimler said Oct. 27 that it was adjusting production after orders for trucks in Europe slowed in previous weeks.

To contact the reporter on this story: Ola Kinnander in Stockholm at okinnander@bloomberg.net

To contact the editor responsible for this story: Chad Thomas at cthomas16@bloomberg.net

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