Swedish truck makers hit as Europe slams on brakes

Sweden's two top-flight truck makers Volvo and Scania posted lower-than-expected third-quarter pretax earnings on Friday and painted a bleak picture of truck markets hit by the global financial crisis.

Order intake at the two rivals gave evidence of the sharp decline in demand in Europe, their main market, Scania's falling 69 percent from a year ago. Volvo found itself faced with nearly as many cancellations as new bookings in the quarter.

The news sent truck stocks sharply lower, with Volvo tumbling 20 percent. Scania lost 11 percent while Germany's MAN, due to release results next week, fell 9 percent. Shares in the world's biggest truck firm by unit sales, Daimler AG, dropped 11 percent.

"More than anything, Europe has slammed on the brakes, while the U.S. looks stable at a low level, which is easier to plan for production-wise," Danske analyst Carl Holmquist said.

"It feels like a bubble has burst in Europe."

World number two truck maker Volvo said pretax earnings fell to 2.90 billion Swedish crowns ($372 million) from 4.57 billion a year earlier, well short of the mean forecast of 4.64 billion seen in a Reuters poll of analysts. The lowest estimate was for 3.70 billion.

Scania, Europe's fifth-largest manufacturer of heavy duty trucks, missed earnings expectations by less that its peer. It reported pretax profit of 2.51 billion Swedish crowns versus a year-ago 2.38 billion and a mean forecast of 2.86 billion seen by analysts.

The news added to the gloom pervading the motor industry where PSA Peugeot Citroenon Friday lowered its outlook and said it planned "massive" production cuts.

Volvo's order bookings of its trucks fell 55 percent in the quarter from a year ago as it cleaned its books in Europe of canceled orders. This meant that in total, the net order intake in Europe amounted to only 115 trucks compared with 41,970 in the same quarter of 2007.

"We clearly see a real and sharp downturn, frankly the sharpest downturn we have ever seen," Volvo Chief Executive Leif Johansson told a news conference.

Scania, majority-controlled by Germany's Volkswagen after a $4 billion deal earlier this year, said order bookings of its trucks fell 41 percent year-on-year in the quarter and were down 69 percent in Western Europe alone.

DOWNTURN

ACEA statistics released on Friday showed Europe's heavy-duty truck market fell 4.8 percent in September, despite two extra working days and both Volvo and Scania provided grim testimony of how the financial crisis was affecting their main markets.
"The downturn in the economy has been significantly exacerbated by the global financial crisis," Volvo said.

"The important European market has declined significantly, while North America and Japan continue to show weak demand.

"Because the deceleration has been so rapid, we haven't been able to reduce our costs at the same pace," it added.

Volvo, which makes heavy trucks under brand names such as Renault and Mack, as well as its own name, slashed its forecast of truck markets this year, saying it now expected the European market to grow between 0-5 percent while the North American market contracted around 10 percent from already low levels.

It had previously seen the European truck market expanding about 10 percent this year and a flat North American market.

Volvo last month announced it was scaling back production and would cut about 1,400 jobs in its truck operations. It has also unveiled job cuts in its construction equipment unit.

The company said it was difficult to forecast market demand in the European truck market next year, but said it was preparing its operations to meet "a significant decline." It added that a recovery in the North American market from current low levels was difficult to predict.

Scania was similarly cautious.

"To make any forecast today is very difficult. We are so dependent in this business operation of a well functioning system," Scania CEO Leif Ostling told a news conference.

"And the banking system is not functioning so well today and there is a liquidity squeeze in very many markets that is affecting our customers."

Scania would revise its production rate to reflect the lower order bookings and higher inventories, Ostling said, mainly by adjusting the number of temporary employees at the group.

"It means there will be no forced redundancies as we see it today," Ostling said. "We don't know whether we will need to change that decision in two to three months."

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