Volvo Changing Production Plans Due to U.S.-China Tariff War

0 0 Friday, November 9, 2018 Edit this post

From Motor Trend

Just as production of the Volvo S60 sedan is launching at the $1.1 billion plantVolvo has built in Ridgeville, S.C., near Charleston, the Swedish automaker is making changes to what is built where because of the U.S. trade war with China.

Fewer, if any, S60 midsize sedans will be exported from South Carolina to China where they would be slapped with a 40-percent tariff. The S60 will still be exported to Europe and other markets.

The Swedish automaker—ironically owned by China's Geely Group—will look at whether it should change plans to make the U.S. the sole global source of the car. Volvo could continue to make the sedan in China where it makes a long-wheelbase version of the car for that market. And the automaker could add production of even more vehicles in China, rather than export them at a loss because of high levies in the wake of the trade war with the U.S.

Additionally, early next year Volvo will stop importing the new XC60 from China. The popular crossover for the U.S. market will come from Sweden, instead, said Anders Gustafsson, president and CEO of Volvo Car USA and senior vice president of Volvo Americas. He visited Detroit to speak to the Automotive Press Association.

And Volvo will import fewer S90 large sedans from China, reducing volume from about 10,000 a year for American consumers to 2,500-3,000, depending on demand, Gustafsson said.

In 2014 when Volvo decided to build its first U.S. plant in South Carolina, there was no whiff of an escalating tariff war. The business model was to build a plant capable of making at least two different models. Half the output would be for the domestic market and the other half would be for export around the world.

Gustafsson travelled to Charleston last week to see the first production S60 models come off the line, headed for dealerships. Capacity will slowly ramp up to about 50,000 S60s in the first year.

In 2022, Charleson will add production of the next-generation XC90 and employment will grow to 3,900 from 1,200.

The trade war could impact that as well.

"We might need to make the XC90 in another country too, if tariffs keep up," Gustafsson said. Volvo will export the XC90 from the U.S. to Europe and might decide to export some to China at a loss, or it might decide to build a plant in China.

Another trade issue to heed is the impact of the USMCA agreement that replaces NAFTA and calls for more locally sourced components. Gustafsson hinted that engine and/or battery production in North America might become necessary in the future to support and justify the big investment already made in the Charleston vehicle assembly plant

Uncertainty is difficult but Volvo has the structure and wherewithal to handle the changes it must make because of tariff and trade issues, Gustafsson said. "We'll go at this change not with a smile, but we know what we have to do."