Volvo's brand spanking new plant outside Charleston, South Carolina isn't even running at full steam yet, but already, the automaker is shuffling its production plans in response to rising tensions in global trade.
Volvo has cancelled plans to ship its US-built S60 sedan to China, Bloomberg reports, citing a press conference in Detroit with Anders Gustafsson, head of Volvo's US operations. Roughly half of the Charleston facility's S60 output was designated for China, but now the automaker will focus on producing S60s for the US and Europe.
"We have a global manufacturing structure that helps us maneuver in these tough waters," Bloomberg quotes Gustafsson as saying.
That's not the only shuffle taking place in Volvo's supply chain. According to Bloomberg, Volvo will also stop importing the XC60 SUV to the US from China, instead relying on European imports. At the same time, Volvo will "dramatically reduce" S90 sedan shipments from China, too.
Currently, there is a 27.5-percent tariff applied to vehicles coming from China to the US. In retaliation for that tariff, which President Trump has levied to bring China to the negotiating table for more favorable trade deals, China applied a 40-percent tariff to vehicles imported from the US. The tariffs could well disappear if China and the US forge a new trade deal, but Volvo's decision to shift its manufacturing efforts signals little faith that the two countries will forge a new trade deal any time soon.
The tariffs have hit Volvo pretty hard. As Bloomberg notes, Volvo isn't using the tariffs as an excuse to hike prices for customers in the US, China and elsewhere. Rather, the automaker has absorbed those extra costs, giving its bottom line the ol' what-for. "We can, under no circumstances, absorb tariffs in the long run," Gustafsson told Bloomberg in an interview ahead of the press conference. "It's huge."
And it's only going to get worse. While Volvo's new Charleston plant only builds the S60 for now, it will build the next-generation XC90 SUV early in the next decade. If the automaker doesn't change its plans, it could be selling one of its biggest cash cows at a loss in a very large market. Hopefully this fledgling trade war will disappear well before then, but if it doesn't, Volvo will need to think long and hard about what gets built where.
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