- Sales down by 23%
- Low capacity utilization – under absorption of costs of SEK 1.5 billion
- Strong order intake
- Comprehensive product renewal under way
Sharply lower sales volumes and low capacity utilization impact profitability
Low registrations in the beginning of the year, gradual improvement expected
In the first two months of 2013, registrations of heavy-duty trucks were down by 17% in Europe 28 (EU minus Bulgaria plus Norway and Switzerland) with significant differences between the countries still being apparent. This decline is explained by the low level of demand during the second half of 2012. The steady rise in the Group's orders over the past three months suggests that pre-buy purchases will bolster demand in 2013 despite the unfavorable economic climate. We maintain the outlook that the total market for heavy-duty trucks in Europe will reach a level of about 230,000 heavy-duty trucks (unchanged forecast).
In the first quarter of 2013, the total North American retail market for heavy-duty trucks decreased 14% to 50,286 vehicles, compared with 58,254 in the first quarter of 2012. Volvo Group market shares in North America came down in the beginning of the year, reflecting additional down weeks that were implemented in production. The construction segment is showing signs of recovery after years of weak performance, but the primary market driver continues to be replacement demand in the highway segment, which is tempered by lingering caution regarding the economy. In 2013, the total market for heavy-duty trucks in North America is expected to stay at a level of about 250,000 trucks (unchanged forecast).
In the first quarter of 2013, the Brazilian market for heavy-duty trucks decreased by 3%. The Brazilian market is expected to grow in 2013 driven by ongoing low financing rates, infrastructure investments and a strong crop season. The total Brazilian market for heavy-duty trucks is expected to increase and reach a level of about 105,000 trucks in 2013 (unchanged forecast).
In China, the total market for heavy-duty trucks is expected to reach a level of about 630,000 trucks in 2013 compared with 636,000 trucks in 2012. The total market for medium-duty trucks in China is expected to reach a level of about 305,000 trucks in 2013, compared with 290,000 trucks in 2012.
In India, the total market for heavy-duty trucks in the first three months of 2013 declined by 38% to 42,978 trucks (69,306). Demand is expected to pick up and the outlook for the total market for heavy-duty trucks in India is 195,000 trucks in 2013 compared with 185,000 trucks in 2012. The total Indian market for medium-duty trucks is expected to reach a level of about 95,000 trucks in 2013, compared with 94,000 trucks in 2012.
The Japanese heavy-duty truck market kept a good momentum in the first quarter and increased by 17% compared to the fourth quarter 2012. Economic measures by the new government have started in the beginning of the year and the significant ongoing investment in the public works project of more than 5 trillion yen is likely to stimulate Japanese GDP. For 2013, the total Japanese market for heavy-duty trucks is expected to increase to about 35,000 trucks (unchanged forecast).
Sharp decline in deliveries
In the first quarter of 2013, the Volvo Group delivered a total of 38,416 trucks, which was 23% less than in the first quarter of 2012.
Continued improvement in orders
The truck operation’s total net order intake continued to improve during the first three months. Orders were up by 11% in the first quarter compared with the year-earlier period, and compared with the fourth quarter 2012 orders improved by 30%.
In the first quarter of 2013 European orders reached 25,853 trucks, which was 10% higher than in the first quarter last year and 39% higher than in the fourth quarter of 2012. Orders for Volvo-branded trucks increased by 39% compared with the first quarter last year and by a full 59% compared with the fourth quarter last year. Despite the unfavorable economic climate, the increasing order intake over the past three months indicates that some customers are choosing to invest in new trucks ahead of the new emissions legislation Euro 6, which will be implemented on January 1, 2014. Compared with the first quarter of 2012 Renault Trucks’ order intake declined by 17% reflecting continued weak demand in Southern Europe as well as high order intake in the first quarter of 2012. However, compared with the fourth quarter of 2012 order intake increased by 16%.
In North America, order intake during the first quarter increased by 34% compared with the fourth quarter of 2012. Compared to the first quarter last year order intake was down by 2%.
In South America, orders continued to improve, partly due to favorable financing rates and improved economic outlook in Brazil. Order intake in the first quarter increased by 61% compared with the same quarter last year and by 21% compared with the fourth quarter 2012.
Compared with the first quarter of 2012, orders in Asia and to Other markets increased by 4% and 9% respectively.
Operating margin of 0.3% due to sharply lower volumes, low capacity utilization and costs related to product renewal
During the first quarter of 2013, the truck operation’s net sales amounted to SEK 37,031 M, which was 23% lower than in the first quarter of 2012. Adjusted for changes in exchange rates net sales declined by 17%. Lower sales were experienced in all regions except in South America.
The truck operations posted an operating income of SEK 101 M in the first quarter of 2013 compared with an operating income of SEK 3,677 M in the first quarter of 2012. The operating margin was 0.3%, compared with 7.7% in the year-earlier period. The lower operating income is a result of sharply lower sales as well as under absorption of costs in the range of SEK 1.5 billion due to low capacity utilization in the industrial system as a consequence of production rates being cut in a more rapid pace than the cost levels could be reduced. In the first quarter of 2012 under absorption of costs amounted to SEK 200 M.
The significantly lower profitability was also due to the high investment pace in research and development for the upcoming comprehensive product renewal and related launch costs in the sales, production and aftermarket support organizations. In all, these investments will increase competitiveness and improve industrial efficiency. Among the projects are the new Volvo FH series, the new Volvo FM series and the new Volvo FMX truck, a new Renault Trucks range, a new Value Truck range, a new medium-duty engine range and legislation-driven research and development for Euro 6.
Compared with the first quarter of 2012, operating income was negatively impacted by changes in currency exchange rates in an amount of SEK 326 M.