Volvo Scraps Production Plans In An Effort To Dodge Tariffs

Back in the summer, Volvo opened its first plant in South Carolina where it would be producing the all-new S60 sedan. The original plan was to export half of the S60s built to other markets. But the current trade dispute between the U.S. and China has caused Volvo to change their plans.

Anders Gustafsson, president of Volvo Cars USA said at a meeting of the Automotive Press Association in Detroit that the automaker is changing the focus of the South Carolina factory to build S60s for the U.S. market. A small number of S60s will still be exported to Europe.

“We’ll go at this change not with a smile, but we know what we need to do. We have a global manufacturing structure that helps us maneuver in these tough waters,” said Gustafsson.

Back in July, Volvo announced that it would be sourcing XC60s destined for the U.S. from Europe. Previously, XC60s heading to the U.S. were coming from China. The move is expected to take place in January. Right now, Volvo is absorbing the 27.5 percent tariff on Chinese auto imports on the XC60. But Gustafsson said that is taking a big toll on their profits.

“We are absorbing the tariffs, and that really is what you saw in our financial results. But we can, under no circumstances, absorb tariffs in the long run. It’s huge,” he said.

The tariffs could also affect future plans for the South Carolina plant. Volvo is planning to have production of the next-generation XC90 take place in the U.S. beginning in 2022. This would increase the number of workers from 1,200 to 3,900. Volvo will export some XC90s to Europe, but also considering exporting some China at a loss.

"We might need to make the XC90 in another country too, if tariffs keep up," said Gustafsson.

Source: Bloomberg (Subscription Required), Motor Trend