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Volvo, Valeo post losses; industry data bleak

Swedish truck maker Volvo and French car parts maker Valeo posted first-quarter losses, as European industry data underlined the scale of the crisis engulfing the sector.

Volvo posted a larger-than-expected operating loss of 4.53 billion Swedish crowns ($549.1 million) for the period, also cutting its market outlook, while France's Valeo pledged to step up cost-cutting after a Q1 operating loss of €66 million ($86.93 million).

“We knew that (Volvo's) figures would be bad. The question was only if they would be really, really bad, and they were,” Cheuvreux analyst Patrick Sjoblom said.

“The financial services business is also heading downhill faster than I had expected,” Sjoblom added.

“Obviously those are levels of loss that are not sustainable. We cannot stay there,” said Chief Executive Leif Johansson, referring to the operating loss. “We have in the quarter had to make, and will continue to make, dramatic reductions in production capacity.”

The challenge facing Volvo - the world's second largest truck maker - was underlined by industry data showing that new commercial vehicle sales in Europe plunged 32.9% in March and 35.6% in the first quarter as a whole.

In a major setback after years of robust sales, the global financial crisis and ensuing collapse in demand for heavy-duty trucks has left Volvo and its peers in the European truck industry struggling to slash capacity and costs.

The doldrums encountered by the heavy-duty truck makers are only a shade less severe than those experienced by the auto industry, where the likes of Chrysler and General Motors are struggling to survive.

Volvo, which manufactures heavy-duty trucks under the Renault, Mack, Nissan Diesel and Eicher brands, as well as its own name, said order bookings in the quarter slumped 65% in the quarter, with a drop of 71% in its key European market alone.

Volvo said it expected European heavy-duty truck demand to be slashed by at least half this year, having previously forecast a 30%-40% decline.

Meanwhile in France, first-quarter losses and a bolstered cost-reduction plan at Valeo underlined the severe problems the slump in demand for cars is causing suppliers.

Valeo first-quarter sales fell 33.4% to €1.624 billion, but the group's new CEO Jacques Aschenbroich said he expected the second quarter to perform in line with the month of March, when scrapping incentives - cash bonuses paid to drivers who trade in old models for new - introduced by several governments had some early positive effects on car sales.

In the UK, March car production fell 51.3% year-on-year, the Society of Motor Manufacturers and Traders said on Friday.

The UK on Tuesday announced plans to boost the flagging car industry with a scrapping incentive scheme while on Friday Chancellor Angela Merkel said there would be no extension to Germany's car-scrapping scheme.

Friday's figures show that urgent action is needed to kick-start demand, and the scheme is “an important first step,” SMMT Chief Executive Paul Everitt said.

European sector consolidation remained in focus, with an Opel board member saying Magna International would be welcome as an investor in the German unit of GM, which is being spun off with the UK's Vauxhall Motors, and seeking outside investors.

Armin Schild, a senior labor leader and Opel supervisory board member speaking on German television poured scorn on the idea of a Fiat bid for Opel.

“We have had experience of working with Fiat - this experience has been extraordinarily bad,” he said referring to the acrimonious end of an alliance between Fiat and General Motors in 2005.

A spokesman for Germany's economy ministry said on Friday that the government had been holding talks with investors interested in Opel for some time. (Reuters)